The danger of believing “this time it’s different” in investing is a warning that is only true some of the time. Instead, Herbert Stein’s advice that “if something can’t go on forever, it will stop” is more useful. The current economic landscape faces the transformative power of generative AI, which will significantly impact the white-collar labor force. ChatGPT’s latest professional version costs just $20 a month, much less than most low-cost workers in call centers, and its basic service app is free. The impact of AI deflation will be significant, and we must prepare for it.
Investors have been warned time and time again about the dangers of believing that “this time it’s different” (TTID) in investing. This warning, famously issued by the late Sir John Templeton, is often heard during bubbles, such as in the late 1990s and again from 2015 to 2020 when software stocks were valued at ten to 20 times revenue. However, this warning is only true some of the time and is 100 percent true only in retrospect. On the other hand, Herbert Stein’s advice that “if something can’t go on forever, it will stop” is more useful than Templeton’s warning. Stein’s advice makes us ask when will a trend stop, why will it stop, and what are the signs this trend is about to hit a ceiling and crash.
This advice is particularly relevant when we consider the current economic landscape and the rest of this decade. Trends that seem unstoppable today will eventually stop. Take, for example, the trend of inflation and interest rates. Conventional wisdom, which ignored inflation for too long, is now concerned about nothing but inflation. It says that the world is facing a period of higher interest rates that will persist for as long as the low-interest rate period of 2009 to 2021. It’s common to hear of 5% central bank rates as a “return to normal.” However, this new normal is presented as a good thing, a return to sensible capitalism, moderation, and common sense, where all excess leverage is purged.
But this comforting idea is not the future we face. We are in the midst of a technological revolution that is set to transform every industry and profession: generative AI. Only five months ago, most of us, even those who follow technology closely, had never heard of OpenAI, a private research organization founded by Elon Musk and others to make AI easier to use. Then on Nov. 30, OpenAI released its AI app called ChatGPT to the public. Within one week, a million people had signed up, and the AI era had suddenly shifted to warp speed.
ChatGPT’s version four took an American law school admissions test in March and scored in the top 10% of test takers, versus the bottom 10% scored by an earlier version. Among the believers in AI’s transformative power is Microsoft CEO Satya Nadella, who says AI is the new platform for the world’s enterprise software.
However, the impact of AI will be felt most significantly in the white-collar labor force. ChatGPT-like technology (and similar AI apps from Google, Amazon, and others) will be the great deflation bomb hitting professional services. The work of 20 corporate communications professionals, paralegals, or mid-level programmers will now take only three or four people assisted by ChatGPT versions 5, 6, 20, 50, and so on. AI will transform all white-collar jobs, including the jobs that have been outsourced to countries like India and the Philippines. These countries have built large industries around offering low-cost outsourced white-collar jobs, such as software coding. However, ChatGPT’s latest professional version costs just $20 a month, much less than most low-cost workers in call centers or other offshore centers, and its basic service app is free.
