The following is a rushed transcript and may contain errors. It will be updated.

Taya Graham:

Hello, this is Taya Graham and welcome to the Inequality Watch. As we sit here right now, there is a calamity unfolding that is hiding in plain sight. It’s a looming disaster the mainstream media apparently is either unable to grasp or doesn’t want

Taya Graham:

You to know the full extent of the danger. I am talking about the growing divergence between what AI is purported to be and what it’s actually becoming. And most importantly, how that defied is forming a deepening chasm into which trillions of dollars are being poured that might disappear forever. And this threat of an AI bubble is growing as a disturbing reality emerges. The purported money making tool being built in labs around the world might not be a tool at all. And even more alarming, the money invested to profit from it might’ve been misspent. Now, if that sounds dire, I am sorry, but all of us need to consider that the entire narrative about AI is not just wrong, but misses the point, that we are being sold a bill of goods that might just deliver a disaster. But none of this is obvious. All of it is complicated and there’s certainly benefits to breaking this all down if only so we can prepare for what’s coming.

And to do so, we will soon be joined by legendary economist Dean Baker. He’s been writing about the financial impact of AI and most importantly, offering useful scenarios of how an AI bubble burst might unfold and who will pay for it. But before we get to him, I want to check in with my reporting partner, Stephen Janis. Stephen, how are you?

Stephen Janis:

I’m doing pretty well, but your intro was a little concerning. So I’m of course concerned like everyone else is at this point. So thank you for that.

Taya Graham:

Yeah. Well, I have to be honest, AI is getting more than a little scary for me. With recent news that models will be able to self-replicate and people talking about the end of humanity, I’m a little uncomfortable with some of the prognostications to say the least. So just to set the scene, I want to play a brief video because we can’t discuss this current state of economics and technology without first acknowledging the recent predictions that AI will destroy humanity. So we’re going to show an interview with former anthropic researcher, Jacob Coxson, just to set the scene. Cam, if you can, please play the clip.

Speaker 2:

People who are very used to computers might think it’s kind of crazy that a computer could wipe them out, but it doesn’t look that different from say Terminator or from science fiction films. It really is just if you have a super advanced intelligence, it will be smart enough to kill us. And concrete examples might be, we can’t just unplug it because it could be copying itself over to other computers. It’s not that difficult to find yourself because an AI is just code. It could transfer itself over the internet to a different place and then you unplug it here, but it’s actually still over there and maybe it makes 10,000 copies of itself and they’re all cooperating. So you unplug half of them, they’re still half going and they’re still copying themselves. It could convince blackmail or persuade humans into buying more computing software to copy it.

And we’ve already seen examples of the AI trying to blackmail or trying to convince people or impersonating other people online. There’s a lot you can do as an AI that can produce text. Basically with text, you can make code and you can do a lot of stuff in the world.

Taya Graham:

Okay, Steven, what do you think of that? Self-replicating AI, Skynet? I mean, what are we talking about here?

Stephen Janis:

First of all, these, I’m going to call them apocalypse bros, I guess, which I hate that bro thing, but they’re apocalypse bros.

Taya Graham:

It’s a good term though.

Stephen Janis:

If you’re going to yell fire in a crowded theater, please be more demonstrative and a little bit, just really yell it. But the thing that I heard, I listened to a lot of the interviews from some of these guys, and one of the things they said that really struck with me was that they said they don’t know how these models work. They don’t know why they work. And so I was thinking to myself, well, so to use your analogy, you’re going to get on a plane and the pilot says, “The plane flies. I’m pretty sure. I just don’t know how it works. Would you want to be flying on that plane?” I mean, I hate to use another analogy, but it really strikes me as scary. Yeah, just get on this plane. We don’t know really how it works, but it will work. I guarantee you that.

So we keep hearing this and we’re like, how are we supposed to react? What are we supposed to do? I mean, it’s apocalyptic, so I’m concerned like you are.

Taya Graham:

Well, honestly, it’s more like, hey, I’m your pilot. And if you get on this plane, you might have a great flight, but there’s a one in 10 chance it’ll crash. Are you getting on that plane?

Stephen Janis:

Yeah.

Taya Graham:

Okay.

Stephen Janis:

So both the plane and the margaritas that are served by the flight attendant could be lethal. Exactly. That’s good to know. Yeah. Well done.

Taya Graham:

Okay. Well, on that cheery note, we will turn to our guest, Dean Baker. Dean Baker co-founded the CEPR in 1999. His areas of research include housing, macroeconomics, intellectual property, social security, Medicare, and European labor markets. He’s the author of several books, including Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. His blog, Beat the Press, provides commentary on economic reporting, and of course you can read his writing on Substack. Dean, thank you so much for joining us.

Dean Baker:

Thanks a lot for having me on.

Taya Graham:

So Dean, as you can see from the clip we just played, AI has been front and center in the news, not just as an emergent technology, but as a literal threat to humanity. But while that debate goes on, billions of dollars are just still pouring into developing it. I mean, how are these doomsday prognostications affecting the precarity of this AI bubble?

Dean Baker:

Well, there’s a couple things here that I think are worth keeping in mind front and center. First off, there’s a long conversation that seems to treat the AI as an autonomous being. And I understand the companies would like that, but it’s not an autonomous being. They set it loose, and I make the analogy to a drunk driver that they don’t deliberately kill the kid, but you got in a car when you were drunk, had too much to drink, you’re responsible. And I think we have to keep that in mind front and center that Anthropic, OpenAI, whoever, if their AI gets out of the sandbox and does this, does that, well, that’s on you. You’re responsible for that. So I think we have to keep that front and center. Don’t try and blame the AI.You misprogrammed it, mistrained it, whatever term you want to use, it’s your fault.

The other point is, I’m sure there is a non-zero probability that AI will destroy us, but I’d rather focus on the more concrete sorts of things that we’ve already seen. It’s gotten inside of bank records, it’s made social security numbers public. We’re going to see there’s literally an infinite number of smaller scale disasters, and I don’t want to minimize any of them because they’d be pretty awful if it got controlled the air traffic control system and scented haywire so you had planes crashing. I mean, that’d be pretty horrible. It’s not going to lead to our extinction, but maybe you’ll have hundreds of people, thousands, depending how long it was, how long it took them to figure it out. It’s a pretty bad story. And there’s any number of things like that, all of which are way, way, way more likely than an extinction event. So I think this is a misdirection.

I don’t think there’s a conspiracy here, but I think it’s more sexy in some sense. Oh my God, it’s going to end the world. Yeah, it could, but let’s talk about the things that are far, far more likely and what we’re going to do if and when those things happen.

Taya Graham:

Such a good point.

Stephen Janis:

I mean, to your point and of interest here, there’s a lot of adjacent AI companies getting hammered in the market like CoreWeave and Sandisk and some of these other, I would say adjacent companies to AI. Are they getting hammered because of the uncertainty about what AI actually is or what it will do? Or is it just like people are finally saying, “Hey, there’s nothing under this hood. There’s no money really, as much money to be made as was anticipated?” Because CoreReeve’s bonds are down to 70 cents on the dollar. Not to be too wonky, but that’s not very good. And what do you think is driving this?

Dean Baker:

Yeah, I think the problem is that a lot of us, I’m far from the only one, are saying it’s not clear there’s this massive market here. So what we can say with absolute certainty, we’re seeing incredible amounts of money invested in building these data centers. We’re up around seven or 800 billion for this year, the current year 226. All the projections are we’ll be well over a trillion for 227, 228. And the only way that makes sense is if you have massive demand for AI and we’re just not seeing that. So I just saw some numbers from Anthropic, its growth has plummeted. So it’s still growing, but it needs to have this sort of payoff. I mean, you have basically two big AI companies, Anthropic and OpenAI. They have to have revenues in the hundreds of billions next year and in the trillions, not many years out, say 229, 230.

There’s just no reason to think that will be the case. And when you’re seeing that the revenue’s growth is actually flattening out, it’s very hard to see how they have anything like that. So that spills back to the hyperscalers of course, but most immediately a company like CoreWeave that all it does is build data centers for AI companies. That’s it. So if the AI companies aren’t going to be incredibly profitable, there’s not going to be a lot of money for CoreWeave.

Stephen Janis:

So let me just build a scenario here then of what you’re saying. So all this news about the leaking AI systems that you say were just poorly trained, are they trying to obscure the fact that they’re not really making the revenue and the money that would justify the investment? Is this a scare tactic to distract from the emerging financial reality that they might not make it?

Dean Baker:

I can’t speak to what’s in their heads, but what I will say is I think it does sort of promote the idea of AI being this really incredible thing for good or evil, that’s the idea. And I think most likely at the end of the day it will end up not being an incredible thing. I mean, not to say we won’t have a lot to show for AI, but let’s imagine we do have one of these disasters and hopefully not a really horrible one. I expect the response will be a massive effort to sort of shut down AI. I’m old enough to remember Three Mile Island and it turned out for people who might not remember Three Mile Island, that’s the biggest nuclear disaster we had in the US. Now, fortunately there wasn’t a meltdown. There was some release of radiation. I don’t think it was that bad, but the takeaway at least I and many other people got from the incident was that they did everything they could to cover it up and they only called in the regulatory authorities when it was clear they didn’t know what they were doing.

And that was very scary because that pattern of behavior is quite concerning. If you could count on everyone to act responsibly and if you see something get out of hand, they call the people and know how to deal with it. Okay, maybe it would’ve been fine, but that wasn’t what happened. And as a result of that, we haven’t built a nuclear power plant in God knows how long. And again, maybe it was a good decision, maybe a bad decision, but that was the reality. If we get an incident with AI where as I say, it messes up a city’s traffic system, it destroys a million bank records irretrievably. I mean, again, we could think of an endless list of things like this, all of which serious consequences. Hopefully we’re not going to have a lot of dead people, but serious consequences, my expectation will be there’ll be a serious effort to shut down AI because if they’re going to say, “And here we have the AI people themselves, we don’t know what we’re doing,” go, “Okay, I take you at your word.

You don’t know what you’re doing. So how about not doing it?”

Taya Graham:

Well, not to put too fine a point on it, but we have heard two different ominous value propositions for AI. One, it eliminates millions of jobs or two, it will destroy humanity. I’m not even trying to be funny here. How can you evaluate that as an economist? I mean, how will either of those scenarios play out in a way that could possibly benefit anyone?

Dean Baker:

Well, let’s keep in mind, and again, a lot of fanciful stuff here when they say eliminate millions of jobs, that’s called productivity growth. We usually think that’s a good thing. The problem is, or the potential problem is if it’s not broadly shared. We did have very broadly shared productivity growth in the post-war period, 45 to 73. We had very rapid productivity growth, 3% a year for more than a quarter century, and it led to very rapid increases in living standards. If we saw that with AI, that’d be fantastic. It means less work. We could accomplish more with less work. You do things like one, increased pay, two, have shorter work weeks. This should be a source of wealth that’s broadly shared. Part of the story there was we had strong labor unions, over 30% of the private sector labor force was unionized. So they could make sure they could say, “You’re making money.

That’s wonderful. We want our cut. We want higher wages. We’re going to get paid double time for overtime.” I mean, there’s all sorts of things. We set a 40-hour work week back in 1937. If AI is really that wonderful, let’s make it 36 hours, maybe 32 hours. There’s all sorts of things we could do. So I’m not scared about the job loss. I mean, we could deal with that, at least in principle we can. Whether we will, that’s a political question, but I don’t blame the AI for that.

Stephen Janis:

Yeah. I mean, obviously the current state of inequality doesn’t help. It’s sort of a peak in our society right now, which probably is going to make this worse. But I wanted to touch on something you already touched on, but I just want to revisit this because it’s so important to the fundamental question. How is the revenue streams adding up to the projections? Because I know you discussed it, but just to clarify, you were saying the revenue is not matching what people have projected or is it significantly lower or is it concerning? I mean, how is the prospects of AI adding up or at least coming in line with what has been projected?

Dean Baker:

It’s nowhere in the ballpark. So we’re talking about, if you look at Anthropic and OpenAI, their revenue for this year for 226, we’re probably looking at the two of them together, maybe 100 billion. Now that’s not profit, that’s revenue. So when you talk about being able to pay the operating cost on these data centers that are coming online in 227, 228, which they are going to have to pay once they do come online, they’re nowhere there. Now again, the story is, oh, they’re going to grow into it, but their growth has not been very fast. So if you had a story where you had very rapid growth, sure, maybe they could grow into that, but it’s very, very hard to tell that story. And if you try and break it down more concretely, you have on the one hand, relatively low cost AI that the Chinese are of course the experts at.

They’re world leaders at open weight. They don’t have to be open weight, but there’s tend to generally be open weight, which means that you control the model. So you download it on your system. That’s one of the advantages. There’s other advantages of open weight, but you don’t have to worry if you think the Chinese are really nasty or whatever, you have a download on your system, so they can’t do anything to it. But anyhow, that’s aside the point. Those are cheap, so they’re not going to make hundreds of billions or trillions of dollars on open weight. Then you have the frontier models, which are expensive, and the problem is there’s not much demand for that. And much of the demand that is there, actually I should probably say most of the demand that is there is from other AI companies. And these are the startups, the smaller startups.

And where are they getting money from? Well, they’re getting it from venture capital, but that’s not a bottomless pit. So in other words, they’re not profitable. So insofar as they have companies that are actually buying up their expensive AI, it’s overwhelmingly other AI companies who are themselves not profitable. They can’t keep doing that indefinitely. So it really does look like a mess.

Stephen Janis:

It’s so weird that we don’t hear more about that.

Dean Baker:

Well, again, I’m old enough. I was through the housing bubble. I was also through the tech bubble, but more kind of on the ground with the housing bubble. And to my view, this was their waiting to explode and all the data seemed very clear. I mean, people have talked about all the credit default swaps and the collateralized debt obligations, and there were complex aspects to the finance. But to me, it was all very simple because you just looked at house prices and you’re going, “We have house prices going through the roof at a time when vacancy rates are actually very high and rents are going nowhere.” And I just go, “How does this make sense?” And I’m saying this to economists, not random people I grabbed on the street. I said to some random people, but to economists, they just look at me blank face like, “What are you talking about?” I go, “The data’s all right there.

I’m not inventing it. I can get for you from the Census Bureau. We have micro data where you’d have to calculate it. In this case, you don’t have to. It’s summary data, look at it yourself.” But no one was interested in hearing that. And they were all waving their hands and going, “Everything’s great.” So anyhow, so I think it’s a similar story now. You have a lot of people want to believe that, well, if people are investing trillions, then it must make sense. And all the evidence that really doesn’t, well, who am I to argue with people investing trillions?

Taya Graham:

Actually, this kind of touches on the numbers because you posted a really interesting substack where you asked AI if the people financing the technology would continue to do so even if the numbers basically didn’t add up. What did you find and what do you think it tells us about the AI’s bubble? And also, why did you decide to use AI to test AI’s appraisal of AI?

Dean Baker:

I wanted a neutral arbiter. No, I figured I’d ask. It was lazy. So I asked the three systems I have easy access to, Gemini, ChatGPT and Rock, Elon Musk, and I gave him the exact same prompt. And it was something to the effect that suppose were the case that the CEOs and top execs at the hyperscalers, so this is Amazon, Microsoft, Google, Oracle, suppose that they all held the view, Meta, I should throw in there too. They all held the view that I do that this isn’t going to pay off, but you’ve already sunk hundreds of billions of dollars in it. So what would you do? Are you going to say, “Hey, it was a mistake.” Or would you keep throwing it in there? Because I’ll grant it’s a non-zero chance. I mean, maybe it really will pay off, but I mean, that’s not my bet.

So I just put it in those terms that it’s possible to pay off, but you’ve come to the view that most likely won’t. And all three of them gave me very similar answers. And again, my prompt was somewhat loaded, I’ll grant that. But all three of them gave me very similar answers saying they’d keep spending a ton of money because from their vantage point, you don’t want to be the head of Amazon or Microsoft to you don’t want to be the person who has to say, “I really made a big blunder. 300 billion we spent on building data centers was stupid. There’s never going to be…” You don’t want to do that, so you’re better off just keep throwing good money after bad, hoping that you’ll eventually have something to show for it rather than owning up to the mistake.

Stephen Janis:

Wow.

Dean Baker:

Wow.

Stephen Janis:

So from your perspective then, where’s the canary in the coal mine then that we should be watching? I mean, we’re not economists, but should it be the bond market or private equity or the private bond market, I guess you would say, the private credit is what it’s called. I mean, where’s the canary here? Because I’m sure CoreWeave, for example, we talked about their bonds falling is putting pressure on somebody, but what are you looking like? Where are you saying, “Okay, if I see this go, this is definitely going in a certain direction.” Is there anything specific?

Taya Graham:

It’s a good question.

Dean Baker:

Yeah. So you look to the weakest links. So Corweave being one of them, I think you mentioned it before that their bonds were briefly carrying an interest rate. I think it was over 15%. I won’t swear to that. It was something like that. In other words, very, very high. It’s well into junk territory. Junk territory is eight thereabouts. So you’re at 15%, you’re way, way into junk territory. So if you see that continue, they’re going to need to be rescued. Now, someone else, another big company might come to their rescue, Microsoft or someone or Nvidia. Nvidia, I guess would be the obvious one because they’re Nvidia’s market. But if you saw that one of those companies, again, CoreWeave would be the leading candidate, had to be rescued, that could start to set a panic. The other one that stands out there was Oracle, which is a much larger company.

I mean, that’s a hyperscaler. It’s probably 10 times the size of Core Weave. I’ll stick with 10. I mean, it’s obviously not exact, but they also are very vulnerable. Their bonds have been trading at well over 8%, and that’s a big deal because this is a huge company. It would’ve been AAA three years ago. So to see their bonds trading in junk territory, that’s a really bad sign. And they would be much harder to bail out, which doesn’t mean that someone might not step up and do it. I mean, whoever does, we should try and make sure it’s not the taxpayers, but as I say, CoreWeave, if it start to go under Nvidia would have the resources to bail. Again, I have no idea if they would want to, but they would have the resources to do it. Oracle would be a bigger lift. But yeah, you look for the weakest link and the analogy I make to the housing bubble, the first major investment bank to go under was Bear Stearns, which was markedly smaller, still a very large bank, but markedly smaller than the other four big banks, Goldman Sachs, JP Morgan, Merrill Lynch, and of course, Lehman was the next one to go under.

But Bear Stearns going under, I mean, they ended up being rescued. It was engineered by the Fed. They ended up being rescued by JP Morgan, but that was kind of a really big event showing that this was an extraordinary situation.

Taya Graham:

There’s another post that I think is interesting where you took issue with Corinne Jean-Pierre’s New York Times editorial where she argued, President Trump is making the same mistake President Biden is, which is namely touting an economy that people just were feeling wasn’t working for them. Now, Jean-Pierre was a former Biden press secretary, and she was talking about the divide between economic reality and perception. And you said, “The New York Times looks to be joining the fascist apologist set just as incompetence, corruption, and dementia look to be bringing down the Trump administration.” So why did you push back on this particular editorial? Why did you push back against it so hard? And what’s the error that Jean-Pierre and the New York Times making here?

Dean Baker:

Well, I have to say I was really outraged. I’ve been following the economy closely for a long time. I knew a lot of people in the Biden administration. It’s not that… I mean, they were friends, but that’s neither here nor there. They would not tell outright lies. And what they were doing, and we could argue how things sounded to different people, but they would point to good economic data. They would point out real wages were growing. They would point out we had the longest stretch of low unemployment since the early ’50s. They could point to the lowest Black unemployment rate ever recorded. They could point to this huge surge in self-employment and new business formation, 20% of the workforce working from home, being able to save thousands of dollars a year in commuting costs and hundreds of hours in commuting. So there were a number of really positive things that they could and did point to, but those were real things in the world.

Now how did those sound to people? Some people would probably listen and go, “Yeah.” Others might say, “Well, that’s not me, and we’re an economy with 170 million workers, 330 million people, different experiences.” So some people, they could say that it might resonate. Others would get really pissed because no, that’s not me. My pay didn’t go up, so what’s going on? I just saw higher prices. But they were saying things that were true about the economy. Trump is saying things that are not true. He’s making stuff up. And it just infuriated me that they would have this piece, the legitimacy is, of course, it’s Biden’s former communications person. So I go, “Well, that’s someone from Biden’s whatever. I don’t know the woman. I don’t know what prompts her, what motivates her.” But those were entirely different stories. Trump is making stuff up. Biden was saying things that were true about the economy, which again, resonate differently with different people.

And I could understand someone saying, “That’s not me,” but that’s not the same as just making stuff up.

Taya Graham:

Okay. So this is part of the show where we ask guests to react. Now, we understand that you’re an economist, not a media critic, but some of the AI execs, at least to me, seem to sound nervous and not so confident, and we were wondering what you think might be giving them pause. So let’s watch Anthropic CEO Dario Amodei respond to the predictions of former employees who resigned who said that AI had a 10% chance of destroying humanity. Cam, if you can, please play the MOD clip.

Dario Amodei:

It’s funny. I agree with Jacob much more than I disagree with him, and it’s an interesting resignation because when he left, he said, “I think Anthropic is the most responsible player. I think Anthropic is the most aware of these issues. He wasn’t calling out us. He was calling out the dynamic of the industry as a whole moving too fast.” Now, I think I already said these sort of unconditional probabilities, I used to kind of talk in that way because it’s kind of an easy way to express, I think there’s some chance that things go wrong, but it’s not all that high. But again, I think it’s more illuminating to think in terms of how do you decompose those probabilities? What are the paths in which things go well and what are the paths in which things go poorly? And so instead of saying it’s a 10% chance, that sounds like it’s a roll of the dice, I think it’s much more illuminating to say, “Well, that forks into different paths, and if we take the right paths, then the chance of something going wrong is very low.

If we take the wrong paths, then the chance of something going wrong could be even higher than that.”

Taya Graham:

Okay. Dean, this isn’t just someone dragged off the street to do an interview. This is a CEO, this is a founder, this is someone who presumably has some media training, and he sounds a little nervous. Does he have a reason to be?

Dean Baker:

Well, I think he absolutely has a reason to be, because again, the focus and the discussion here, his discussion was the idea of this extinction event. Again, I’m not in his head, so I don’t know exactly what he’s thinking, but again, it has to be the case. He knows that it’s way more likely that you don’t have an extinction event, but you have one of the horrible events I was talking about, taking over the air traffic control system, messing up hospital records, all these things. Those strike me as a virtual certainty. I mean, in a timeframe, I don’t know, maybe a year, maybe two years. In some ways, I hope if we’re going to see that, it’s better sooner than later because we don’t want to be further down the road, I guess is just what I’m saying. But I’m assuming he’s a reasonably smart guy, he understands this, that if you’re being used for bank systems, for all these other systems, one of them is going to mess up and it’s not going to bring about the end of the world.

It’ll just be something really bad because you’ve just lost five million bank records and irretrievably quite possibly. So I think he’s aware of that. And what happens to his company if that happens? They’re probably out of business and he might personally be facing jail time.

Stephen Janis:

Wow, that’s amazing. And also, you kind of mentioned this, but we were going to ask about this anyway, about a bailout, and you were saying some people might have to be bailed out. Do you think the AI executives would have, or any of the people in the AI industry would have the audacity to ask for a government bailout if everything goes south and they’ll say, “Well, we’re so big, just like the banks, we’re too big to fail, you got to bail us out.” Exactly. Will they do that? And what happens? I mean, do you think that’s possible?

Dean Baker:

They’d have the politicians that they bought ask for it, and the line would be, “These are so important for the economy. We can’t possibly have anthropic and open AI and all these go under, because what about China?” And that might sound absurd, but I had obviously a lot of time to think about this over the years. In 2008, you had much of the banking system on its back and they ran to Congress and said, “Oh, we need money. We need it right away.” I remember you had Paulson, this was still when Bush was in the White House and Paulson was Treasury Secretary. They had him go down to Congress with Timothy Geithner, who was head of the New York Fed at the time, and Bernaki, who was chair of the Federal Reserve Board, and they all said, “Oh, the world’s going to end if you don’t go…” I’m only slightly exaggerating here, “We’ll have a great depression.” And I was one of the very few economists say, “No, that’s nonsense.” And what surely would’ve been the case was you would’ve had a worse downturn than we actually had, which is a bad, bad story.

But the idea of a Great Depression, we know how to get out of a GreatDepression. You spend money, and it was one of these things going, “Why don’t you just honestly make your case? It’ll be a worse story.” But the plus side, at least to me, was you put these guys out of business because they’re an enormous drag on the economy. They’re enormous waste. They aren’t my friends. These are the billionaires, or at least at that time, hundred millionaires who were running the major banks, you’d be putting them out of business and they’d have to work for a living. But they made up this story and it sold literally everywhere, second great depression, second great depression. I don’t know how many economists go, “What do you mean? What would prevent us from spending a ton of money the day after these banks collapse?” And they go, “Oh, well, it’d be very hard to get that through…” Okay, that’s a political Political argument.

That’s not an economic argument, and maybe that’s right. Put it on the table. The banks would collapse. We’d have to spend a pile of money to get the economy back on its feet, and these Neanderthals in Congress are too stupid to do that. Could be right, but let’s put that on the table. But instead, they made this totally bullshit argument. I’m giving ancient history, but would they make an argument and try to scare people to death? Well, we can’t let these AI companies go under because then suddenly China will have free reign.

They will say that. I guarantee they will say that. Will they get the money? Who knows? But they’re going to say that.

Taya Graham:

Yeah. Absolutely. I completely agree.

Stephen Janis:

I do too.

Taya Graham:

And as you can tell, I really enjoy your Substack because in your latest Substack on inflation, you pointed to some discrepancies between the actual price of car insurance and the US Bureau of Labor Statistics. Now, you didn’t accuse the government of actually fudging the numbers, but you were concerned. So what red flags does this raise for you about the accuracy of the numbers we’re being fed on the state of the economy?

Dean Baker:

Well, let me be clear. I have the greatest respect for the Bureau of Labor Statistics and their efforts. And I do worry about this because we had Trump fire a commissioner of the Bureau of Labor Statistics because he did not like their numbers, but he appointed someone who was a career person and I’m in touch with people there. I’m in touch with a lot of people. Other people are in touch with people there. They’re following their procedures. Now, the point I was making about the consumer price index, I meant before I make it again, that it’s an extremely difficult task to measure prices through the economy. And that’s often not going to correspond… Well, it won’t correspond at all to any particular person, but it’s not clear it even corresponds always to people on average. And I mentioned the case of auto insurance. I don’t think for a second they fudged the numbers.

They have a procedure, they follow closely, they get quotes from certain companies and they price them year by year. And those quotes showed price of auto insurance falling by 5%. That struck me as strange because mine didn’t fall. I could be atypical, but I looked it up. I found there’s a website, the Zebra, which compiles prices of insurance. I don’t know their methodology, but they found that the average price of a policy increased 3%. So that’s quite a gap, 5% down as opposed to 3% up. For what it’s worth, I’m kind of inclined to think the zebra was right, but there are issues like that throughout the Consumer Price Index. Sticking on the topic of insurance, home insurance actually is not in there. And the reason for that, this is conceptual reason and it’s one of the things that you can and it has been argued over, buying a home is treated as an investment good.

So what we have actually in the Consumer Price Index is not the cost of buying a home. They used to have that if you go back 50 years, but what they have now is a rental equivalence. So what would your home rent for? So obviously a lot of people, roughly two thirds of the households own their own home. The ownership price is not in there. What’s there is what would it rent for? When it comes to insurance, they treat the insurance as a cost of ownership. So it’ll only be insurance covering say your personal belongings, whatever valuables you might have in your house, that’s what would be covered. And that’s a tiny fraction of insurance. Insurance is a very big expense and it’s been rising rapidly. That’s not included in the Consumer Price Index. Again, I don’t blame them. There’s a tough call. How do you deal with this?

Did they make the right call? Arguable point. But this was done 50 years ago, so it’s not something someone just cooked up. So it’s been there a long time. So there’s other things like that, the healthcare component, it’s very…

I’m not going to say odd, I’ll just say it’s not what any of us see when we look how much is healthcare costing us. So what they do is they price individual things like what’s the cost of a knee operation, what’s the cost of a MRI, what’s the cost of a specific drug? They don’t look at what people are paying for their healthcare insurance, how much they pay out of pocket. They’re not looking at that. So it’s very loosely related to what we would think is the cost of our healthcare. So there’s a lot of things like that. And again, I don’t think anyone’s cooking the books. They’re just tough calls and they could lead the CPI. We get some price index to give numbers on inflation that might be very far removed from what people see in their lives.

Stephen Janis:

I mean, do you think that conceptualization is part of the reason there seems to be sometimes this disconnect between what people feel about the economy, the vibe per se, versus what the government’s reporting? I mean, do you think that idea of what to measure, what not to measure could contribute to that disconnect or at least the gap that seems between enthusiasm and what’s actually happening?

Dean Baker:

I really do. And the insurance, I think even more the home insurance because it is a bigger expenditure usually than car insurance. I think that’s even bigger. And then with healthcare, you’ve had a lot of people lose their healthcare insurance. That won’t be picked up in the CPI. So what people pay for healthcare is so different from what they see in the CPI that I think that could well be part of the story. There’s a lot of other things. Again, I could be a real nerd on the CPI because I was in the middle of this debate back in the ’90s about the accuracy where there was an argument that overstated inflation and therefore we should cut our indexation social security. Social security’s indexed to the CPI. So it’s going to increase three and a half percent next year because of the CPI. So this was a backdoor way to cut social security.

You could say that, oh, we’re overstating inflation. So anyhow, long and short, that got me into a lot of the bowels of the CPI that ordinarily most people would’ve no reason to go into. But one of the other things I’ll just mention in passing that it’s again a very important thing or difficult concept I should just say, they have quality adjustments and those do make sense, but their adjustments might not always be what people perceive. So the logic of a quality adjustment is that the computer I’m getting today is probably much better than the one I got 10 years ago. So if it costs a little more, well, a lot of that’s because it’s better quality. Some might be inflation, but a lot of it’s better quality. Well, those quality adjustments could be very large. And in the case of new cars, I looked at this, I wrote a piece on it, from 2000 to 2005, the average price of a new car more than doubled.

If you look at the CPI component for new cars, it barely changed. So they had that all as quality improvements. And again, there are ways in which they’re better. There’s no doubt about it. They have airbags and there’s all sorts of things you could point to, but did that make up for doubling of the price? It’s a tough one. And again, I’m not saying that anyone’s cooking the books. They have procedures, they follow them, but that might be different than what people perceive.

Taya Graham:

Dean, finally, just to encapsulate the theme of today’s discussion, what does the future look like if the trends we’re seeing now continue? If AI continues to appear more dangerous and more difficult to control and more incorrigible and more misaligned, if the money keeps pouring into data centers and AI development without a clear picture of how to make all this money back, how unbalanced are the numbers and what does this mean for us, humanity going forward? And what does it mean for us here in the US?

Dean Baker:

Well, at the moment we have a massive amount of money going to AI, around 3% GDP we’re looking at next year that really is driving the economy and it’s crowding out other forms of investment. So if you look at structure investment, factories, other things, that’s actually fallen. If you pull out data centers, that’s fallen by a lot. If you look at investment in other goods, other machinery, whatever, that’s basically flat, same story for investment in intellectual products. So basically it’s crowded out other types of investment, which again, if AI doesn’t pan out, then we basically have thrown that money in the garbage. It’s also driving the economy in the sense that we have somewhere around 40 trillion, I could argue, is it 30, is it 50, $40 trillion in bubble wealth in the stock market, and that’s what’s driving consumption at the moment. So that’s obviously high-end consumption because most people don’t own a lot of money, don’t own a lot of stock.

They’re not the ones who are big beneficiaries. This is obviously not just the billionaires, but this is the top 10% or so of the population. That’s a very, very bad path. I mean, what I’d like to see is, I was talking about the golden ages period after World War II, you had good growth, broadly shared prosperity. Love to see us get back to that, but we’re going the wrong way now.

Taya Graham:

Well, Dean, once again, this has been a fascinating conversation and I think all of us mere mortals need to be mindful to say the least of the questions you’ve raised, and just as importantly, the warnings you’ve given. And I am profoundly affected by our discussion, and I really do appreciate your willingness to share your wisdom and your knowledge with our viewers. So Dean, please, thank you so much for returning to our show. We really appreciate you.

Dean Baker:

Well, thanks a lot for having me on. I really enjoyed it.

Taya Graham:

Thank you. Well, Steven, that’s certainly dire, but at least we’re going in with eyes wide open. Do you have any final thoughts before we sign off?

Stephen Janis:

Well, I mean, I just want to give a shout out to the apocalypse bros. If indeed it is a grand marketing strategy to have a couple guys leave the ranch and say that this technology will kill humanity as a way to distract from the fact that they’re not really making their numbers, wow. That’s all I can say is wow. I’m not saying that’s what has been argued, but that’s my own assessment of all the information. So wow, that would be one hell of a marketing con. But there’s a lot that leads me to think that, and it does seem very kind of interesting that they’re all kind of departing with the same script. And that Amodi video, he didn’t seem to be departing from it at all. But I think what’s important about talking to economists like Mr. Baker is that he looks at the practical numbers and gets beyond the rhetoric and the fear mongering and whatever and says, “Well, you guys just aren’t making your numbers.” And that’s the bottom line of this investment.

And so yeah, I’m amazed and also a little fearful for a lot of reasons.

Taya Graham:

Honestly, I thought Jacob Coxson, the young man who resigned, was being quite honest about his assessment that he believed it was a danger to humanity. But I though it was interesting how the other CEOs embraced it. And I can’t help but feel a little skeptical that because so many people are finding AI as part of the, and excuse the terminology, but the inshitification of the internet that perhaps they want it to seem powerful because a lot of people are finding AI annoying. They’re not enjoying seeing bots in their Facebook feed. They’re not enjoying having to try to get past Gemini AI, telling them that the best way to make sure your cheese sticks on your pizza is by gluing it onto your pizza, which was a common response from Gemini until that glitch was fixed. So there are a lot of folks who are saying, “Hey, AI is not really doing much for my life.” So part of me wonders if maybe this grand doom is at least one way to make AI seem powerful because conversely that means maybe it can cure all that ails us.

Stephen Janis:

Maybe.

Taya Graham:

Well, from my perspective and from the point of view of the show, I think it’s really important to understand how this is going to affect the working people who have little to no say in the future of this technology. Because if the past is any indication, it’s us, the people least culpable who will suffer the worst consequences from the fallout over AI imploding, not Sam Altman, CEO of OpenAI or his counterpart, Darius Amodi of Anthropic. And that’s what concerns me the most. I mean, this show is called The Inequality Watch for a reason. Wealth inequality is an idea that defines pretty much all the power dynamics in our economy and in our country. And one truism from that reality is that the wealthiest almost end up blameless. No matter how bad they screw up, they never suffer the consequences. I mean, just look at the 2008 Great Recession.

Even though Wall Street executives and investment bankers acted recklessly with disregard for the wellbeing of the world as a whole, not a single one of them was really punished. Not a single greedy bad actor spent a day in jail. Meanwhile, the workers of this country lost their jobs, their homes, and their futures. And that’s frankly what scares me because power without accountability isn’t power. It’s malice. It’s a license to steal and also permission to wreak havoc. And what I see unfolding with AI is similar. The government is failing to act, to reign it in or at least ensure that the people of this country don’t have to bail out another group of failing billionaires filled by greed and consumed by self-interest. I mean, how else are we supposed to view an industry that promises, as I said, total annihilation of the jobs of millions on one hand and humanity itself on the other?

Meanwhile, the talk of sharing any of this wealth with people has all but vanished. To wrap up, I want to read an anonymous quote an industry insider gave to a reporter from Atlantic Magazine about the trajectory of AI. Let me read it. AI is going to fundamentally shift the balance of power between labor and capital, so only capital will matter. Now is the time to secure your time slice of the universe. I will say no more other than this. The people will not be ignored this time. We independent journalists will not allow it. I would again like to thank Dean Baker for joining us and of course my reporting partner, Stephen Janus.

Stephen Janis:

Tea, thank you for that wonderful.

Taya Graham:

My name is Taya Graham and this is Stephen Janis. We are your inequality watchdogs, as always, reporting for you.

Taya Graham: Pennsylvania’s 7th District is a diverse community stretching across the Lehigh Valley, but just before the midterm election, there is a common theme from residents that we spoke to.

Kathy: We are not liking what we see in our country.

Taya Graham: Anger and the desire for change.

Kathy: We’re not liking the effects of the things that are taking place in Washington, and therefore people are out trying to make a change.

Taya Graham: And how voters feel here could be critical to who controls the House. It is one of more than a dozen battleground districts, which is why we spent several days speaking to the people who will determine the outcome. Many said high prices, lack of affordable housing, and a disconnect between Washington and the concerns of working people were motivating their vote.

Valerie: But from what I see, a lot of people, including people that were always Trumpers or used to be always Trumpers, are actually changing their mind. They’re really upset. When they go to the grocery store, my grocery bills in the last year have tripled.

Taya Graham: But we also learned there are other more specific issues that could sway the election. Data centers have become a national issue, but the impact is truly local. Last week, the Bethlehem City Council met to approve more restrictive zoning regulations for data centers. The law would create wider setbacks from residential neighborhoods and limit noise levels. For some, data centers were the deciding factor on how they would vote.

Darcy: I actually see this as it being forced on us, it being forced on us quickly, it being forced on us without the proper studies and concern about the environment that honestly, I think it’s across the board, people don’t want them. And this is an issue that I think Republicans, Independents, and I think this is our stamp act.

Taya Graham: A unifying issue in an otherwise fractured electorate.

Mary Collier: Doors and on the phones across our turfs in Pennsylvania right now, affordability, housing and data centers are the top issues. I think there’s a lot of reasons to hate data centers, but the fact that 40% of Pennsylvanians can’t afford their bills right now, knowing that these things are going to raise their utility bills is a huge reason that it’s on people’s minds and they’re thinking about it going into this election.

Taya Graham: The race between Democrat Bob Brooks and Republican Ryan McKenzie is tight. The Cook’s political report gives Brooks a five point lead, but 16% of voters remain undecided. Neither attended the hearing. Brooks did make an appearance when the Donald J. Trump and Jeffrey Epstein Memorial bookmobile visited Bethlehem. It’s a moving repository of Epstein investigatory files and emails that has traveled across the country. We asked Brooks if he thought that the Epstein scandal would impact voters.

Bob Brooks: I think they’re a huge factor. People of all walks and want to see these things released. I think it’s a huge issue. I know within my union, I’ve watched my union members feel like they’ve been lied to, and this is one of the big topics that they voted that way in the beginning and now they’re feeling lied to. So I think you’re going to see it be a really big factor.

Taya Graham: At another stop, residents agreed.

Krista: I wanted to see the 3.5 million books. I wanted to see what it was all about and that I can’t believe our leaders in our country are saying this is a hoax.

Taya Graham: However, looming over the district were other more foreboding concerns that democracy itself was on the ballot and that their vote would not be counted.

Cathy: I am going to vote by mail, but I’m going to put my ballot in a drop box as opposed to the mail because I don’t trust that process, which is ridiculous. The United States Postal Service, we feel like we can’t even trust that anymore.

Thomas: I think that there’s a strong possibility that they would block as many votes as possible.

Taya Graham: We will continue to be on the ground in this critical district as the midterms unfold. This is Taya Graham and Steven Janis reporting for you.

The following is a rushed transcript and may contain errors. It will be updated as soon as possible.

Taya Graham:

Hello, my name is Taya Graham and welcome to the Inequality Watch Report, a show that examines government policy and action through the lens of extreme economic inequality, the existential issue of our time. Today, we’re going to discuss a topic that defines who holds power in America and how they keep it despite growing voter dissatisfaction amid a historic wealth imbalance. It’s a story of money, access, and self-enrichment that is at the root of the bad policies and broken institutions we all struggle with daily. And it’s an issue that transcends the nominal state of play in this country to ensure entrenched power never loses its grip on our wavering democracy. I am talking about, of course, the hoards of cash that have turned our political system into a pay-for-play utopia since the infamous Citizens United decision in 2010 when the Supreme Court ruled that corporations could make unlimited independent expenditures to influence elections, super PACs, and other vehicles have transformed our elections into a veritable auction to the highest bidder.

But there’s a lot more going on behind the scenes where all this money is going, how it’s warping our electoral system, and ultimately who is cashing the checks. To help us uncover the dark details of how the system constrains us, we will be speaking with journalist and filmmaker David Sirota. But first, I want to check in with my reporting partner and co-host, Steven Janis, to set the stage for our conversation. Steven, how are you?

Stephen Janis:

Very beleaguered. Very beleaguered by the cash system you were just talking about, the ATM and politics.

Taya Graham:

Have I already depressed you?

Stephen Janis:

Yes, quite a bit.

Taya Graham:

Stephen, there was a question I had for you. There was a weird mystery in democratic circles that was sort of a one-day story, but it speaks to a less talked about aspect of today’s topic. It’s a missing chapter from the so-called Democratic autopsy of the 2024 election. What was it about and why do you think it’s important to our discussion today?

Stephen Janis:

Well, the basic story was that the Democratic Party didn’t want to release an autopsy in their 2024 loss to Trump. So there was a lot of controversy about that. Eventually they released it, but then the New York Times broke a story about a missing chapter from that report. And the missing chapter was really interesting. The fact that they left this out was talked about the consultant class that works elections that literally had somehow through this entire process of running elections obtained generational wealth. Generational wealth. That’s a direct quote from the New York Times story. And so that just really got my attention. I know money in politics is ridiculous at this point in our historic run towards authoritarianism, but I had no idea that you could get generational wealth. And I do recall a tweet from our guest, David Sirota, talking about people after 2024, all these consultants going to beaches and living the luxurious life thanks to their consultant fees for these elections.

So that really, I think was something that just stunned me that you could become that wealthy losing.

Taya Graham:

I think I chose the wrong line of work apparently. Generational wealth. Exactly. Incredible. I think this explains why working people’s issues are always on the back burner. I mean, we both cover Capitol Hill and despite a recent poll showing that 91 million Americans say they could not afford quality healthcare if they needed it, we can go months without hearing even a peep about it. It’s just silence. But I’m sure our guest will have plenty to say about it. David Sarota is the founder of the investigative news organization, The Lever. He is a former speechwriter for senator and presidential candidate Bernie Sanders and was nominated for an Oscar for his work creating the story for the Netflix film Don’t Look Up. He’s also the producer of the podcast series, The Master Plan. I could go on, but we wouldn’t have time for the interview. So David, let me just say thank you so much for joining us.

David Sirota:

Thank you. Thanks for having me.

Taya Graham:

So first question, just to get a sense of this consultant class and how their role in politics and how much money they’re pocketing and the report, it actually cited generational wealth for these people. How on earth are political consultants soaking up this much money just working for a campaign?

David Sirota:

Well, it has to do with in many cases how their fee structure works. A lot of the way the consultant fee structure works is related to how many television ads are purchased. So they get in a lot of these deals a cut of the buy. So the larger a TV ad buy is, the more the consultant stands to make. Now obviously that creates, there’s sort of a conflict of interest problem there, which is if your main campaign strategist stands to benefit from a certain form of spending and will not benefit from other forms of spending, then the consultant is more likely and is really financially incentivized to suggest that the campaign spend in the way that it benefits the consultant rather than spending in different ways. So in practice, it’s not that TV ads aren’t important in elections. They certainly are, but a disproportionate amount of campaign budgets go into TV on campaigns where the consultant is paid as a percentage of the cut of the buy.

And in many cases, less money goes into mail, goes into organizing, goes into a field and ground game. It’s like there’s a baked in financial incentive. And we’re talking about in these major races, we’re talking about millions and millions of dollars that are at stake here. If you’re a consultant who’s getting a cut of a hundred million dollar ad buy, I mean you are making a ton of money.

Stephen Janis:

And David, what do you say to the idea this is generational wealth being generated for these consultants? Do you think the New York Times or the reporting from the autopsy was accurate in that, that these people are making that amount of money doing this?

David Sirota:

Yeah. I mean, it doesn’t surprise me. I guess it surprises me that this is mentioned in this conversation because this is a really taboo topic, but yes, we’re talking about just enormous sums of money. And to be clear, look, I’ve worked on a lot of campaigns before I was a journalist. I understand people on campaigns need to get paid. I mean, it’s real work, it’s hard work. But when we’re talking about the levels of money that we’re talking about here, I mean this is something that’s way beyond that.

Taya Graham:

You know what? I was curious, how much are these people, and they’re vested in what we would call the great moderation fallacy, which is that voters actually want a moderate or a centrist path. So basically how much are these folks responsible for sowing doubt in the party when a progressive candidate wins? The pundits are on the same page with the same talking points about how the Democrat socialists are somehow bad for the party. How are these people responsible for making progressives look to be the lesser choice even when voters seem to be supporting them?

David Sirota:

I think a lot of it has to do, as we’ve been discussing, it has to do with the money and the financial incentives. There’s huge money to be made, not just on campaigns, but there’s actually even bigger money to be made if you’re working for advising a consultant for super PACs. Super PACs are these supposedly outside entities that are spending huge money in elections. And obviously those PACs, the biggest of them are funded by billionaire donors, oligarch donors, corporate donors, donors who have a vested interest in the status quo, in the economic status quo. So if you’re a consultant who’s working at the nexus of campaigns and super PACs and you know your next job is going to be at a corporate or oligarch funded super PAC and you’re also working, you know that those Super PACs pick consultants from specific kinds of campaigns and candidates, well guess what?

There is a kind of nexus between what that consultant is going to advise and who their next client is. I mean that is really where this is at. The consultant class appropriates the agenda of the donor class and the consultant class is advising the candidates. And you mentioned the media. I mean look, billionaire and oligarch and corporate owned media has a viewpoint. It has a political agenda. It’s not to say that good journalism can’t be done inside of corporate media and the like, it certainly can, but there is a filter there.

Stephen Janis:

So I mean is this why we keep hearing this question come up again and again on CNN and other punditry saying, well, is win of democratic socialists bad for the party rather than inquiring or trying to understand why people would vote for democratic socialists? It’s like a mantra. They say it every time. All they talk about is why it’s bad. Is this coming kind of from that consultant industrial complex that you’re talking about, like the intersection of this wealth they’re making versus actually listening to the voters?

David Sirota:

Yeah. I mean, I think a lot of the conversation about electability, I put that in quotes, this idea that candidates can’t be too populist, too far left, the Democrats shouldn’t nominate them because they can’t win general elections. I mean, I’m old enough to remember when Hillary Clinton’s campaign and the media said that Barack Obama could not win a general election. I’m old enough to remember when the Democratic Party elites and the media sort of celebrated Donald Trump being nominated as the Republican presidential candidate because they

Stephen Janis:

Though

David Sirota:

He couldn’t win a general election. Electability is sort of this manufactured idea that anything that strays too far from the norm inside of where politics and democratic politics specifically is can’t actually end up winning a general election. And I think that that’s how this sort of frame is laundered into the conversation. So then it becomes that DSA candidates or economic populist candidates, they supposedly have an electability problem. Oh, it’s not necessarily that they may be wrong on specific issues. It’s that even if they are right, if democratic voters vote for them, those candidates can’t win general elections. And what I see happening is that the corporate democratic faction is sort of weaponizing this argument and also playing a role in sort of wish casting that idea into reality that you see in various races where when populist candidates win the nomination for a general election, that the corporate faction is still attacking and criticizing them in the general election, even though they are now the candidate going up against the MAGA Republicans.

And I think what that speaks to is that the corporate faction of the Democratic Party in specific here is willing to potentially lose general elections to MAGA and Republicans

If that is the cost of maintaining the corporate faction’s power inside the Democratic Party.

Taya Graham:

Incredible. Now just to touch on your podcast, which is the Master Plan for those who haven’t heard it yet, I know it gives a history of something we’re dealing with at the moment, which is the Unitary Executive Theory of Power and of course our current president, Donald Trump, but it also focuses on systemic corruption that you say affects all of our lives. So this isn’t just about one man, right?

David Sirota:

Absolutely. So the first season of Master Plan was about the 50 year plot to legalize corruption. And that story basically starts, and both seasons do, excuse me, in the early 1970s in the aftermath of Watergate. Watergate was the first real dark money scandal of the modern era. And what we trace is how conservatives, and they wrote this down in documents and we have all the evidence there, they really made a blueprint to deregulate the campaign finance system, equate corporations with people under the law and narrow the definition, the legal definition of bribery. And they did that because they understood that they became nervous that elections were causing the government to react to what the people wanted. And the Powell memo that we talk about in the, it was a memo written by future Supreme Court Justice Lewis Powell, talks about how at that time conservatives, oligarchs, corporations need to invest in politics because the government had become too responsive to what the people wanted.

So one way you deal with that if you’re an oligarch and you think that’s a problem, the one way you deal with that is to turn elections into auctions, is to turn your one person, one vote democracy into a $1, one vote oligarchy. So that was season one. This relates to season two in this way. So that’s the first pillar of how you, if you think democracy is a problem, you legalize corruption, you turn elections into auctions. The other thing you do is what we trace in season two. You try to concentrate as much power as possible in the hands of one person and strip it away from more small democratic institutions and all the ways power is dispersed across the country. You concentrate that power in the hands of one person and then make sure your person is that person. And that is what we are tracing in season two called the Kingmakers, which is about essentially the unitary executive theory, where this idea came from.

Because again, it started after Watergate where Watergate was seen as a crisis of an imperial presidency. Congress passes a bunch of laws to strip power from the executive branch and it catalyzes a conservative backlash that carries through the Reagan administration, obviously into the George W. Bush administration with the war on terror and into the Obama administration, I should say, with its use of drone warfare to say that the executive branch gets to make all of the decisions. And so the point is, you asked is what’s going on today, Donald Trump, the situation, is that all just one person? No, Donald Trump is in an office with a control panel of tools that were handed to him and a system of legalized bribery that was handed to him by 50 years of plots.

Taya Graham:

To your point about how these oligarchs are essentially controlling our conversation and controlling our national narrative, and Stephen and I are actually on Capitol Hill quite a bit, rarely do we ever hear anyone talk about healthcare despite what could be described as a literal crisis in the country. I looked at a recent report from Yale University and it estimated 27 million Americans don’t have healthcare. It’s top of the list in the polls in regard to priority concerns from Americans, and yet we’re hearing silence on Capitol Hill. Would you be willing to connect the dots with some of the reporting on your podcast about systemic corruption and our current healthcare crisis?

David Sirota:

Absolutely. I mean, I think this has a lot to do with how money doesn’t just buy legislative favors, money also buys silence. And sometimes not even a transaction has to occur in order for silence to nonetheless be purchased. And it works in a lot of ways in this way, that if you’re a senator, if you’re a congressperson, you know implicitly now that if you propose a bill to deal with the healthcare crisis that let’s say challenges the power of or threatens the profits of the private health insurance industry, you know that what you’re doing is potentially provoking that very powerful money interest to spend a lot of money to get you thrown out of Congress. So many legislators basically choose to not do anything or not say anything for fear of sticking their neck out and seeing their political career ended. Money doesn’t necessarily have to even be transacted for that situation to exist.

And so what I’m describing really is the norm, that there is an implicit threat that if anybody tries in a serious way to deal with the healthcare crisis, they will be targeted. We know this, by the way, from the Obama era where the first thing that the Obama administration said when it got into office and started pushing for some kind of healthcare reform was we are ruling single payer healthcare off the table. It was immediately the administration made an announcement that this is not part of the conversation. And this is only at that point, four years after Barack Obama, when he campaigned for the Senate, said he’s a supporter of Medicare for All. We just need to get a Democratic House, a Democratic Senate and a Democratic president. And four years later they had that and they immediately said, “We’re not even going to talk about this.” And I think that was because they saw the collective power of the healthcare industry and said, “If we do this, there will be a ton of spending to try to get every member of our party thrown out of office.” And they also ruled out the public option.

So my point in just mentioning this is that even though money doesn’t get transacted, money is overlaying and creating the political conditions at all times.

Stephen Janis:

One thing I really appreciate about the podcast is it goes back 50 years, which a lot of times reporters, we get caught up in the contemporary moment and don’t understand the roots of this. But I was thinking when I was listening to it that all of the sort of trends we’ve seen in economic inequality, and this show is about economic inequality, started about the time your podcast starts digging into this sort of systemic corruption. I mean, is inequality intertwined in this story in terms of how the process that you kind of illuminate sort of set the seeds for this almost traumatic wealth inequality and wealth imbalance now? Are they intertwined in that sense?

David Sirota:

So there’s an amazing website. People can Google it. I think if they put just the year 1971 into Google, you’ll find it where it traces how so many trends started in the year 1971. It’s kind of amazing, like de-unionization, inequality, et cetera, et cetera. I do not think it is an accident that so many of the trends started at roughly that time. This is the lead up to the Watergate era. This is a moment where the consumer movement and the broader left has sort of culminates a lot of its agenda, right? Medicare, Medicaid, the great society, all this is culminating. Ralph Nader is having huge success, regulatory success in Congress, but there is this backlash. A well oiled, moneyed, conservative machine is starting in earnest to build what ultimately ends up culminating in MAGA. And I think that that machine was based on preserving and expanding the wealth of the people who were funding that machine.

We’re talking about people like Joseph Kors to name somebody, like the Kochs. That machine started to be built then and it was a machine designed ultimately for wealth protection for that small group of people. And this sounds like a conspiracy theory, but it’s not a theory. It was a conspiracy. And look, they used the tools of the government, they used the laws of the land and the lobbying system and the campaign finance system to get what they wanted. And we are now here living through that reality. So when I think people look at the affordability crisis, when they look at gilded age levels of inequality, we have to understand that goes along with the corruption that we’re talking about. The original gilded age was also one of the most infamously corrupt ages in American history. These two things go together. The wealthy and the powerful are buying politicians, buying elections, buying policy outcomes that preserve and expand the wealth of the already wealthy at the expense of everyone else.

This is the oldest story in America.

Taya Graham:

You broke a story about a really troubling phenomenon inside the Democrat political machine, and it basically uses dark money to push or bolster so-called moderate candidates. The organizations you identified were called the Bench and Majority Democrats. Could you explain how these organizations work and what’s really behind them in terms of pushing this moderation fallacy we keep on coming upon?

David Sirota:

Right. So listen, we’ve seen iterations of this for most of the post New Deal era of politics. And I would pinpoint that to probably in the modern era starting in the 1980s. You had a movement among, they were called at one point so-called Atari Democrats. Then they became the Democratic Leadership Council. Now they exist as groups like Third Way. So this is not something new. And you’re right, they exist like a group like the Bench and Majority Democrat. They have different names and different faces, but it’s the same idea. And the idea is that the Democrats need to abandon their new deal roots in order to compete with Republicans and to do that, to compete with Republicans for business support, corporate support, oligarch support, and all of those entities’ money. This has been going on now for 40 plus years. And so I think this is the latest iteration of that.

You have shadowy billionaires funding this network of groups and think tanks, which are designed to support candidates who are, and I’m putting it in quotes here, like moderate. But what that really means is much more corporate and oligarch friendly. And again, they don’t come out and say that. They are cast as we are pushing this because these are the most electable candidates. They’re not acknowledging the actual mission of what’s going on. They’re shrouding it in the veneer of what seems like a rational and logical political argument. But what’s really underneath here, it’s not a coincidence that there is billionaire money and there’s big money that wants specific things from these politicians.

Stephen Janis:

Citizens United obviously is the core of this story in terms of things getting worse in the past decade, but there is a recent decision, NRSC versus Federal Election Commission, which also I guess loosens some of the restrictions on spending and coordinating. Can you talk a little bit about your concerns about that decision and how you think it’ll make this political campaign finance system even worse?

David Sirota:

So Citizens United mostly dealt with so-called outside Super PAC spending. The idea was that these Super PACs, which are backing specific candidates, because they are supposedly independent from the candidates, they can’t be regulated because they have free speech rights, they have First Amendment rights. That ruling, now I say all this understanding and implying that those Super PACs aren’t in practice really very independent from those candidates, right? It’s almost like a fallacy, but the Supreme Court’s argument was they’re independent, so they can’t be corrupting, and so their First Amendment rights suspend must be protected. What Citizens United left in place though was the government’s interest in preventing straight up quid pro quo corruption means that campaign contribution limits directly to candidates can still be maintained because you can’t argue that a donation directly to a candidate cannot be corrosive from a corruption standpoint, cannot be a vehicle of quid pro quo corruption.

So even in the post Citizens United era, campaign contribution limits directly to candidates have been maintained. Well, along comes this case and what this case sought to do, a case spearheaded by JD Vance, we call it Citizens United 2.0. It

Was designed to say that there was a law in place to preserve those campaigns contribution limits to say, listen, you can’t route your campaign contributions through a party to get around the campaign contribution limits to a candidate, right? You need to make sure that if a donor wants to give a candidate six figures worth of money way above the campaign contribution limit, they can’t just be able to give it to their party and know that their party’s going to coordinate as if they were the candidate with the candidate to spend the money. So the Republicans led by JD Vance went into court to say that law should be taken away. And so the Supreme Court agrees. And so now what we have, we have a much larger conduit through which big donors can now give much larger amounts of money to political parties and the political parties can spend in coordination with those candidates.

So what that does in practice, it means that the original campaign contribution limits that were designed to prevent corruption, they were just circumvented. They were just significantly weakened and widened. A much larger amount of money can now be funneled directly to candidates.

Taya Graham:

I was just wondering if you could make the public understand just one thing about corruption that normally our legal systems obscure or political systems obscure or the oligarchs are actively working to obscure, what would it be? What would you want voters to understand and know?

David Sirota:

I’d want voters to understand and know that there’s a direct connection between the policies that are harming them and the corruption that’s taking place. That when they’re paying a higher prices for a medicine, a medicine developed already at US taxpayer expense, most major medicines are originally developed, we’ve already paid for them as taxpayers. The average person should know that the reason that they are now, when they need that medicine for some illness or the like, the reason they’re paying the world’s highest prices for that medicine is because the pharmaceutical industry gave a lot of money to politicians to rescind the rule that said if a drug is developed at taxpayer expense, it has to be sold to taxpayers on the market at a fair price. That rule was removed because the pharmaceutical industry gave a lot of money to politicians to get them to remove it.

I could go on and on and on, but I guess what I’m getting at is that every policy that is responsible for the affordability crisis in the United States can be traced back to a policy written and bought by big money. That corruption is not some esoteric abstract issue. Corruption is why the working class and middle class of this country is being immiserated.

Stephen Janis:

David, before we let you go, I’ve been wanting to ask you this question. If Bernie Sanders wins in 2016 or in 2020, would we even be talking about Donald Trump? I mean, if the Democrats let Bernie Sanders win rightfully those primaries, do you think we’d ever even be having. Would he have beaten Donald Trump either way?

Taya Graham:

Ooh, that’s

David Sirota:

Interesting. It’s hard to run that counterfactual. I mean, I know one of Donald Trump’s pollsters said after 2016 they though Bernie Sanders might’ve beaten Donald Trump, would’ve been a stronger candidate against Donald Trump. It’s hard to know, but I take it back a little farther. I think the more interesting. The question that haunts me, and I think should haunt us all,

Is whether there would’ve been a Donald Trump phenomenon had Obama and the Democrats when they had a super majority or a near super majority, had they really genuinely delivered a new, new deal as was rhetorically promised in 2008. I think a lot about in 1938, FDR gave this speech, it was about democracy and he had said, and I’m paraphrasing here, “Democracy did not go away in other countries.” He’s looking out at Europe and the like. He said it did not go away in other countries because people there didn’t like freedom, didn’t like democracy. Democracy went away because people saw a dysfunctional government and they ultimately decided to vote to get something to eat. The idea being that the New Deal actually significantly delivering in a real way for the working class, FDR understood it to be an anti-fascist program, a way to prevent the rise of fascism in the United States.

The idea that if you raise people’s hopes and you don’t deliver for them, you will sow a level of disillusionment that will be channeled by the right. So I think a lot about those two years, certainly those first two years in the Obama administration, that

Had the administration used its political capital to serious Deliver for the working class rather than bailing out bankers who were foreclosing on 10 million people, rather than ruling out single payer healthcare and getting rid of the public option and instead passing a kind of heritage foundation version of healthcare reform. Granted, better than the healthcare system before it, but not a full delivery on the promise. Had the Obama administration used that political capital and the Democratic Party used its political capital to really deliver, would there have been a Donald Trump? Now that is a question I don’t know the answer to. Maybe there still would’ve been, but I do know this. 200 plus counties voted twice for Barack Obama and then voted for Donald Trump. So I think when you look at that, it’s hard to say, “Well, Trump only got elected because of racism.” I think you have to be honest and look deeper and say people were extremely disillusioned.

The Democrats, yes, they chose to put up in 2016 a nominee who seemed like an avatar of the kind of problems that people were disillusioned with. And people voted for the political version of the Joker. They voted for Donald Trump to just blow up the system. I’m not saying I think that was a good thing at all, obviously, but I think that is what happens. And what I worry about is looking ahead to the next set of elections. If a Democratic president is elected in 2028, making big, bold promises and does not deliver, do we relive that cycle again? And is the next Joker who gets elected at the end of that disillusioning cycle, is that somebody who’s smarter, shrewder, and even more dangerous than Donald

Stephen Janis:

Trump?

David Sirota:

That’s what haunts me.

Stephen Janis:

I mean, even now it doesn’t seem like the Democrats are making a great case for a new new deal that we can see on Capitol Hill.

David Sirota:

Not yet. I mean, listen, listen, I’m not apologizing for the Democrats.

Stephen Janis:

Understood.

David Sirota:

I think their argument in this election is put us into power so we can at least be a check on the last two years of Donald Trump. I think that’s actually a fair argument. I think what everyone should be watching for is in the 2028 Democratic presidential primaries, who is proposing what? Who looks like and who can we detect is really serious about delivering in a real way? Because if whoever gets the nomination and if they win the election, if they do not deliver, we are going to live through this cycle again and it will be even worse.

Taya Graham:

David, what you said was absolutely amazing and that’s what should be keeping the consultant class awake at night despite their generational wealth stuffed in their pillows and mattresses.

David Sirota:

Absolutely amazing. I mean, you’d hope. And look, to be clear, I’m heartened by some of the elections happening right now. We are finally at a point where it seems like Democratic voters are not only angry at what’s going on in the country, but disillusioned with their own party’s leadership. And I think that’s actually a moment of opportunity to actually fundamentally change that party, to fundamentally make it into a vehicle that actually is serious about delivering. But to be clear, the corporate faction of that party is not going to give up power without a big fight. So I don’t think there’s been some encouraging elections, but I don’t think it’s an inevitability that this all goes in a sort of positive constructive direction. There is a lot of power and money that is trying to stop that from happening.

Taya Graham:

Absolutely. David, we don’t want to keep you too long. We promise to respect your time, but I have to say this has been an incredible conversation. We are so lucky to have an investigative journalist like you watching the machinations of power and the threat that it poses to our democracy. We have to thank you so much for your time and we really hope that we’ll speak to you again in the future.

David Sirota:

Anytime. Thank you so much for having me.

Taya Graham:

We really appreciate you so much. Thank you. Okay, Steven, before I do my final rant or analysis, do you have any thoughts about ourdiscusion you

Stephen Janis:

Want

Taya Graham:

To share? Absolutely. I bet.

Stephen Janis:

Okay. Tell you, I was really struck by the idea that democracy has to deliver to survive. I mean, that’s a really important concept. We talked about this with Dr. Richard Wolf, who told us in terms of the Cold War, there was a concerted effort to make people’s lives better because otherwise democracy would not survive. And I think that is a critical takeaway from what we see covering Capitol Hill where there’s just no attention to the immediate needs. We watched while the Democrats were Republicans, and I don’t blame the Democrats for this, where the Republicans couldn’t even pass ACA subsidies so that people could keep their healthcare. If democracy is going to survive, then this political system has to freaking deliver like now, and people have to make promises and keep them. And it just really struck me that democracy in this age of inequality is not delivering for the people it’s supposed to serve.

And if it doesn’t, that’s why it’s going to collapse. Not because Donald Trump is an idiot or we hate him or whatever, not because of those things and not even because of MAGA, because overall the system doesn’t deliver. And I hope that who’s ever going to try to get elected in 2028 is listening to that important point. You got to deliver real benefits to the people who live in this country.

Taya Graham:

You know what’s crazy, Steven? What you just said actually almost sounds like a foreign concept that a politician makes a promise and is supposed to deliver on said promise. Right. I agree. That sounds groundbreaking for some reason.

Stephen Janis:

It really does. Sounds revolutionary.

Taya Graham:

So if there is one takeaway from David’s insight to how our political system works and doesn’t, it has to be the role of fear and making us believe change is simply impossible. I mean, the whole moderation fallacy he discussed with us is based upon the idea that fear is more important than any idea or change or simply transforming a system that does not serve us the people. Taking risks, believing something is possible and embracing change is just foolish, that new ideas, new candidates and new voters should be avoided all because a party establishment fears it will lose power. And that’s where I think the establishment Democrats and Trump intersect because in a sense, President Trump is the perfect foil for a party seeking to maintain the status quo. He’s the perfect instrument of fear. We are told the only way to rid ourselves of him is to stick with the establishment that lost to him twice.

Yes, that’s right. Remember, they actually already lost twice. That’s why when you turn on the mainstream media, you hear a chorus of highly paid anchors and apparently very rich pundits having the same circular conversation. It goes something like this. Will the success of democratic socialists hurt the party’s chances in November? Will the historic wins of popular candidates with new ideas keep the establishment dems from taking their rightful place in the chronicles of power come the midterms? But here is what you don’t hear. And Steven, please correct me if I’m wrong.

Stephen Janis:

I will.

Taya Graham:

What you don’t hear is a question and it’s a simple one. It’s actually just a one word question. Why? Why do you think voters want change? Why did so many young people show up at the polls when socialists are on the ballot? Why were their candidates funded by APAC and other Super PACs unpopular? And in many cases, they just outright lost. And what? I know this is really crazy. What do the voters actually want? Why have they rejected the status quo? Why have they set aside fear for something different? And why aren’t they buying the consultant class talking points that have been shoved down their throats for decades while wealth inequality flourishes and they just can’t get ahead? Why? It’s a much better question than trying to characterize every socialist Democrat as a burden. Maybe, just maybe legacy media. That’s the question you should be asking in your multimillion dollar studios with ultra rich consultants trading barbs as if there’s some sort of substantive difference between a high price democratic operative and an overpaid Republican pundit.

Perhaps you should try to understand what motivates people to support candidates your infrastructure of manufactured consent has rejected. You should ask, be curious, be interested in the people who’ve expressed dissatisfaction with the state of America today. They’re actually important. They’re just as important as the Trump voters you fetishized and chased down. Really, they’re not as irrational as you often characterize them. They’re not monolithic or unreasonable or even unreachable. Stephen and I spoke to them during Mondami’s campaign and they were more than happy to share their thoughts. Legacy media, please try listening, try understanding, try empathy. You might learn something. You might learn that while our concerns for our hyper expensive healthcare system tops poll after poll, you never talk about it. You might learn that while the earth is consumed by a historic rise in heat, you talk about wildfires, but not the policies and oil subsidies that fuel them.

Well, for those of you out there watching, I want you to know that here on our show, we’re going to try to do the opposite. We are going to listen and we’re going to learn and we promise to keep doing so in order to bring you the truth, not the truth of the pundits, not the truth of corporate media, but the only truth that matters. And that is the truth that belongs to and is spoken by we, the people. My name is Taya Graham, along with my reporting partner, Stephen Janis. Thank you so much for joining us on the Inequality Watch. And as always, we are reporting for you.

The following is a rushed transcript and may contain errors. It will be updated.

Taya Graham:

Hello, my name is Taya Graham and welcome to the Inequality Watch Report, a show that examines government policy and action through the lens of extreme economic inequality, the existential issue of our time. Today, we’re going to discuss a technology which we’ve been told will transform our lives, an invention that has been touted as the ultimate arbiter of our collective futures, whether we like it or not. Of course, I’m talking about artificial intelligence, but with the promise also comes doubt and questions and most of all, a lack of clarity on how we’ll impact the working people of this country. AI leaders have casually warned us that their products could eliminate 40 to 50% of white collar jobs more than the losses in the Great Depression. They’ve promised that technology will be so disruptive that even staunch capitalists have discussed providing a UBI or universal basic income for Americans who will be left out.

They’ve borrowed money at such predigious rates to fund data centers that even Wall Street is beginning to just say no. And now some of the biggest names are saying it’s not working out as planned and an America’s already historic wealth imbalance and government hamstrung by the self-interested impulses of a single man. And you have a situation that could brew a toxic stew of making the already rich even richer and leaving the rest of us even further behind amid all the societal chaos and upheaval. And are the cracks just starting to show? Just this week, one of technology’s greatest apostles made accusations that AI has become a nemesis for his business and others. And capitalists who have gladly loaned billions to build data centers throughout the country are now starting to push back at the ever increasing demand for cash. Of course, the point of this show is to examine this topic through the lens of inequality and how it affects our political and social institutions and what it means for working people.

And to do so, we are about to be joined by an economist who has been thinking and writing about this very topic with insight and clarity, Dean Baker. But first, I want to check in with my co-host, Stephen.

Stephen Janis:

Oh, hey Taya, how you doing?

Taya Graham:

Steve and Janice, it’s great to have you. Thank

Stephen Janis:

You for having me on.

Taya Graham:

Now first, can you give us a broad overview of how inequality and AI are teaming up?

Stephen Janis:

I think in a way, this is the greatest American kind of ripoff in the sense that they’ve spent about the past four or five years mining all our data, taking everything we posted online, and they’re regurgitating it back to us and want to charge us for it in some way. And so to me, I think what is most missing for me besides the promise of huge economic disruption is what the value proposition is for the American people. I mean, they took everything that we wrote and now they want to repackage it and sell it as some sort of deity that we have to worship. And so I’m a little worried, a little worried, a lot worried that we’re all going to be casualties of a great wealth concentrator, which remember, OpenAI was supposed to be a nonprofit. Now it’s a for-profit company. All these huge IPOs, I’m afraid they’re just taking everything we’ve created, sell it back to us and become even richer, and there’ll be a greater concentrate of wealth and power.

So it’s just a bit concerning to me.

Taya Graham:

Actually, Steven, when you mentioned it turning into a deity, we already have some issues with AI psychosis. Maybe we should discuss that on our next show. Yeah,

Stephen Janis:

We’re just going to be praying to the AI deity and offering 19.95 a month to it. So yeah.

Taya Graham:

Actually, that’s about right. And now I want to introduce our guest, Dean Baker. Dean Baker is the co-founder and senior economist at the Center for Economic and Policy Research. For decades, he’s written about inequality, labor markets, financial bubbles, corporate power, and economic policy. He’s also written extensively about AI and how it’ll affect everyday workers and even journalists just like us. He wrote the book Rigged: How Globalization and the Rules of the Modern Economy were structured to make the rich richer, and its newest project is the AI Bubble Monitor. Dean Baker, thank you so much for joining us.

Dean Baker:

Thanks a lot for having me on.

Taya Graham:

Well, we’re glad to have you. Yeah, absolutely. And I have the honor of doing the first question. And so my first question for you is this. Artificial intelligence has been described as the biggest technological revolution since the internet, and yet you’ve argued that the economic data simply doesn’t support a lot of the claims being made. What are people missing here?

Dean Baker:

Yeah, so I think to a very large extent, we have people who are really good at hype. People like Sam Altman, of course, Elon Musk, absolute master of hype. These are the Donald Trumps of the business world. They’re selling this stuff and they’ve been very successful. I mean, Elon Musk just had his SpaceX initial public offering, which is primarily AI. I mean, that’s their own assessment. I’m not trying to attribute things to them. If you read their registration statement, they say 90% of their expected market is in AI. So SpaceX is an AI company. So they’re looking to get rich by this. And I don’t mean necessarily because they’re going to have huge profits. They have huge stock prices. So Elon Musk became a trillionaire, not because SpaceX has enormous profits. It actually loses money hand over fist. He became a trillionaire because the stock price is ridiculously high.

So step one, is it creating inequality? Absolutely. By a stock bubble, bloated bubble. Now, in terms of what it delivers, they’re saying this, is it going to have massive impact? I’m sure it will. And the model I look to is the internet. Had massive impact. Does that mean that it’s going to lead to mass unemployment? Well, a lot of people lost their jobs to the internet. I mean, Amazon put a lot of small sellers out of retailers out of business.

Taya Graham:

Absolutely.

Dean Baker:

But you still have a lot of retailers there and everyone didn’t lose their job. I think think of AI the similar way. It will change the economy in a lot of different ways, but that doesn’t mean everyone’s going to lose their job. And if we look at the data, we look at productivity, which is what that means. If people are losing jobs, that means we’re producing more in an hour of output. They’ve actually been very weak the last three quarters. Now it’s erratic. So I’ve followed the data for a long time. So I know you could have real weak quarter and next quarter could be really weak. And then we’ll come around the second half of 226 and who knows, be 5%. Very rapid productivity growth. Could happen. But the point is we’re not seeing it. And there have been a number of economists I’ve tried to look through this very carefully and look at sector by sector, look at retail, look at healthcare, look at the different sectors of the economy.

And invariably, they find relatively modest impact of the studies I’ve seen. And I’m sure we missed some, but these are credible studies. The highest number was a half percent a year increase, half a percentage point a year increase in annual productivity growth, which matters. I mean, that’s noticeable, but that’s not massive unemployment. And one of the leading economists in the world, Darin Asamiglu, Nobel Prize winner, he had it at just seven hundredths of 1%.

Taya Graham:

Wow.

Dean Baker:

These people could all be wrong, but they’ve tried to be very careful in it and they find very modest impacts. I shouldn’t say very modest. I mean, again, a half percentage point a year. If you had that, that would be a big deal. But the internet, when we had the internet in the ’90s, the internet boom is about one and a half percentage points a year. So we’ve seen this.

Stephen Janis:

Wow. Dean, that’s kind of. But these people are hyping valuations. They’re borrowing billions and billions of dollars, I think, based on a higher rate of return. I mean, is this like a house of cards? I mean, they’re hyping this over and over again saying it’s going to be transformative. But now you’re saying the impact so far has not been. Does that put at risk all these billions of dollars they’ve thrown at this problem?

Dean Baker:

Absolutely. And this is why I’m calling it a bubble. I’m old enough, I’ve been through two really big economy moving bubbles. In the ’90s, we had the tech bubble. And I was out there saying, “This is bad news. It’s going to burst. It’s going to burst.” And it did. It burst in 2001. The S&P 500 big stock index fell 50% from peak to trough. The NASDAQ where you had most of the tech stocks, that fell 80%. And it had a huge impact on the economy. I mean, for stock investors, I go, “You should know what you’re doing. Many don’t, but you should know what you’re doing. So I can’t cry too much.” But it had a big impact on the economy. We lost jobs into the 2000 recession. We didn’t get them back till 2005. That was the longest period with our positive job growth since the Great Depression.

We had a longer one after the Great Recession. But that was a big recession from the standpoint of the labor market. Also, real wage growth just stopped. We’d been seeing good real wage growth in the late ’90s, just stopped almost instantly. So that was a really bad story. And then we had the housing bubble. Again, same story. And that town in turn was more severe. We had close to 10 million people lose their home to foreclosure. The unemployment rate peaked at near 10% in 2009.

So bubbles can have very bad consequences. So that’s why I’m very worried about this one. They’re selling this and Elon Musk undoubtedly is stuffing his pockets. And Sam Altman and the others, they’re stuffing their pockets. But no, I don’t see that these stock prices make sense. And when does the music stop? I don’t know. Both those bubbles went way longer than I expected them to. But all I could say is the sooner it bursts, the better it will be for the country.

Taya Graham:

It was really interesting that you compared the AI investment boom to the dot-com bubble. Maybe you could just go into a little bit more depth about some of the similarities that really concern you. Yeah.

Dean Baker:

Well, there are two things there. One, from the standpoint of the firms, that you started to see companies that were just pushing nonsense in essence. I’m going back to the dot-com. So it became almost a joke. And I shouldn’t say almost a joke. It was a joke. And this was in the business press. So the Wall Street Journal used to highlight the most ridiculous initial public offerings. So people were coming up with crazy public offerings and they could still raise hundreds of millions, even billions of dollars in their first issue. There was one company even that took the cake. I wish I could remember the name. They said, “We don’t know how we can make a profit.” So you work from the assumption, okay, they’re not profitable today, but they have this great plan, software, whatever it is. And two years, three years, four years, they’re going to be a next Microsoft.

That’s what people were betting on. And of course they weren’t. But you had one literally said, “We don’t even know how we’ll make a profit.” So you had a huge amount of misdirected capital. And that was, of course, a huge voice for the economy. But the standpoint of the stock market, again, I was saying we want stock investors or we think they should be knowledgeable. They aren’t. And people were spending based on their stock wealth. So you had a lot of people that were saying, “Oh, I had money in the NASDAQ and just doubled,” which it might well have. A lot of people owned stocks in the NASDAQ and over two years they would’ve doubled. So they said, “Oh, I’m going to buy a new car, get a bigger house, go on a big vacation.” Well, when those prices plummeted, that consumption stopped. So it was a very, very big hit to the economy.

And I worry very. I should add one more thing on the craziness that companies discovered that if they added dot-com to their name, their stock price would go up five or 10%. We’re seeing that today. If you add AI to your name, and someone did that, I’m trying to remember what it was. I think it was- Was it like

Stephen Janis:

Diapers.com? I think, wasn’t there like diapers.com or something or something?

Dean Baker:

Yeah. And their stock price went up five or 10%, which tells you. I mean, it’s utterly nuts. You’re the same company. It doesn’t matter whether you call yourself. Com AI or anything. You’re the same company. It shouldn’t make any sense.

Stephen Janis:

Well, now speaking of a bubble, Palantir CEO, Alex Carp, had kind of a meltdown on CNBC. Let me play a little bit of it so you can watch it. And maybe you can explain what he saw. It sounded to me like he was panicking, but it was hard to figure out what he was talking about. David, if you could play that clip and we’ll just watch it and we come back, we’ll talk about it.

Alex Carp:

Everyone who uses LLMs on the battlefield runs on top of our ontology. And our clients are just, to say they’re unhappy with the Frontier Labs is to say I’m welcome at the Berkeley faculty. It’s like there’s just a level of discomfort and loss of trust that also made it really, really –

Stephen Janis:

Okay. Unpack that. What do you mean by that?

Alex Carp:

Well, you have, okay, so when you’re using large language models, at this point, everyone technical realizes they’re like a critical resource. To make them valuable in an enterprise like battlefield context or regulated context or manufacturing, you have to have what’s called an application layer. We have this thing called ontology that now everyone’s copying, but defacto, it takes a large language model. It makes it safe and useful and precise. So safe because it doesn’t touch your unlearning data, safe because it prevents the large language model from caching your data and replicating your business. Safe because it doesn’t transfer your IP of how to fight secret data, top secret data or in a clinical context. So the general way these things were sold, and again, these people are. Sam and Dario, there’s nothing more fun than debating Dario in private. So I’m not throwing shade at them,

Taya Graham:

But

Alex Carp:

Something has gone completely wrong. And the basic view among enterprises in this country is I’m going to chill lax and waste my time with tokens. I’m going to get no value and they’re going to get my IP.

Stephen Janis:

Okay, Dean, like I said, I haven’t heard the word ontology since my religious studies class in undergraduate, but it sounds to me like there’s buyers remorse or panicking among the top people, including Mr. Carp. What’s your take on what he’s saying? Does he sound like he’s panicking?

Dean Baker:

He sounds panicking. And just to be clear, I don’t know Alex Carp, never met him. But as best I could tell, he’s an odd guy. But as best I can tell, his complaints are first and foremost that you have companies spending a lot of money on AI and you had a lot of companies that were spending literally hundreds of millions a month. And they weren’t getting anything obvious for that. So they were actually encouraging their staff, their mid-level staff. So I was mentioning, I was talking about Amazon, where they literally had a leaderboard where people were posting how much AI they were using. And I don’t know if they got a bonus or whatever it was exactly, but the more AI, the better off you were. And just like to me, Amazon’s obviously a big business in any ways very successful, at least from their vantage point of profits.

Why would you ever encourage people to use AI for the sake of using AI? And the analogy I’ve

Taya Graham:

Made is

Dean Baker:

It’s like using paper. Oh, I used five reams of paper today. And you go, okay, great. What’d you do? I mean, that’s kind of nuts, but that’s what they were literally doing. So you’ve had companies looking to cut back hugely on the AI they use because they want to see that they’re actually getting something for it. And in many cases, their conclusion was that they weren’t. The other part of the story that he’s raising, Carp is raising, is they’re worried. They don’t know what’s happening with their data. So when you’re running your programs through Anthropic, through OpenAI and whoever else, they have your data. So using the example of Amazon, that data’s worth a huge amount. We know, we complain about that. Amazon, they know everything we’ve purchased, what we’ve looked at. They have an enormous amount of data on us. That’s a lot of money to them.

They don’t want to give that away for nothing to Anthropic, to OpenAI, whoever. And they don’t know whether they are or they aren’t. So that’s what he was talking about. He’s saying you need software that regulates the usage. And as it is, a lot of companies don’t have that. Again, I’m not going to advertise for your software. I have no idea what it does, but you probably don’t want to give these AI companies all your data.

Taya Graham:

Actually, Steven and I go and cover Capitol Hill, and we saw Senator Bernie Sanders arguing that if AI creates extraordinary wealth, then the public deserves a share of that wealth. And he announced an AI sovereign wealth fund proposal. And I think he’s talking about a 50% stake for Americans. Now at first glance, this sounds like a progressive idea, but I read your article. Why do you disagree?

Dean Baker:

Yeah, I’m a big Bernie Sanders fan, known him for years. I have enormous respect for him, but I really think this goes down the wrong path. To start with, just from the word go, if you’re giving the US government a large stake in the AI companies, you’re giving Donald Trump a large stake in AI companies. I know that’s not Bernie’s intention, but look at what the Supreme Court has been saying. I’ll guarantee you, this isn’t even a debatable point given the recent Supreme Court rulings. If we get the ability through an ownership stake to put people in top positions in Anthropic and OpenAI, whoever else we might buy a stake in or take a stake in, Donald Trump is going to pick those people. It doesn’t matter how they wrote in the law. That’s what the Supreme Court has said. The unitary executive, he decides, I can’t imagine in the current environment wanting to give more power to Donald Trump.

In general, I’m not sure I want the government to have a 50% stake, but certainly not Donald Trump. So that to my mind’s a no-brainer. Secondly, from the standpoint of regulation, we know there’s all sorts of ways we need to regulate AI. It’s not an option. They want to build data centers everywhere. Do you want a data center in your backyard? Should we be able to tear down Grand Canyon to put a data? That’s their dream. That’s what they want to do. We already are having massive battles on this. I don’t trust that with the government having a direct stake that we would get the right outcomes. I don’t trust we’d get the right outcomes anyhow. But I think we really tilt the playing field and just the environmental issues, that’s just one of them. When you’re talking about ownership of data, access to privacy, there’s a whole range of issues that come up with AI that are unavoidable.

I mean, it’s not a question, oh, we should leave it to the market. There is no market. We’re setting the rules. So I worry very much about that. The third point is just what I was saying before. A huge amount of this is hype. And unfortunately, I think Bernie’s feeding the hype. Oh, they’re going to have massive wealth. I don’t see that. I think there’ll be big profitable companies here, just like going back to the ’90s. You look at the providers of internet, Cisco and Verizon and Comcast, they’re big companies. They’re profitable. They aren’t earth shaking. They aren’t the biggest companies in the world. So why are we contributing to the hype? I don’t think that’s a productive thing to do.

Stephen Janis:

Yeah. Yeah, go ahead, Ed. No, go ahead.

Taya Graham:

I was going to say, when I was reading your article on your substack, Dean Baker, that your first objection wasn’t really economic, that was more political. And I was just wondering why you think having a government-owned AI investment fund would be particularly dangerous under the Trump administration? Or could you just not trust any administration with it?

Dean Baker:

I’d have problems with any administration, but let’s just focus on Donald Trump. Donald Trump has made it clear. He sees the government as his tool to enrich himself, to enrich his friends. So he will put his friends in top positions there. He will have his friends, people contribute to his campaign or give him kickbacks. They will be the ones that get contracts from these companies. He’s anti – DEI. Well, women in top positions, forget it. Blacks in top positions, forget it. He’s applied that through government as much as he could. You’re just giving them a whole new area to apply this in. And again, if AI, I don’t think it’ll be the massive thing, at least these companies will be the massive things that they’re hyping. But again, I don’t want to give Donald Trump yet more power.

Stephen Janis:

Wow. Well, listen, to your idea of Bubble Watch, which I think is kind of fascinating, well, also terrifying. So for example, in the private credit markets, people started to panic and private credit is lending a lot of money for these data centers. Last week, IBM lost 20.% of its value in one day because people were panicking about software. Where do you see this starting to unravel? I mean, we’re not economists, but we’re people that read. What should we be looking at? What should anyone be looking at actually to see where this bubble’s going to start to unravel if indeed it does?

Dean Baker:

Okay. Well, let me be as honest I can be on this. I didn’t know until this date, I can’t tell you what caused the collapse of the stock bubble or for that matter, the housing bubble. I mean, I could all point to all sorts of vulnerabilities, but when they collapsed and why? Both went on much longer than I ever thought they would. I’ll say that. So I’m saying that now what I have been looking to and will continue to look to is increasingly the companies, and these are big companies, these are Meta, Alphabet, the biggest companies in the world. They’re having to borrow. So even though they’re very profitable, they’re undertaking such massive investments that they’re having to borrow. And you’re seeing a very interesting story here that investors in bonds are starting to get worried. We actually saw this with SpaceX. It was really striking.

One of my AI bubble monitors was about this, that SpaceX bonds are being sold at a discount, meaning that bond buyers see a risk that it actually could default, that they might actually go bankrupt. So here on the one hand, you have stock investors going, “Oh, SpaceX is going to be the most profitable company in the history of the world.” You have bond investors going, “It might go bankrupt. It might not be able to pay its bills.” So I would look at the bond market and it seems to be. I recently saw some data showing that there’s much less interest in Alphabet, Meta, the hyperscalers are called, that are involved in building the data centers for AI. There’s much less interest in their bonds than for other investment grade debt. And that’s who I’d look to first, because if it ends up being the case that you can’t get the bond issues to finance it, then it’s going to fall apart.

We may be seeing the beginnings of that. I mean, it’s a little early, but we may be seeing the beginnings of that. So if they start to cut back their lending, this thing could collapse fairly quickly.

Taya Graham:

If we can, I just would like to pivot for a moment to affordability. I’m pretty sure I’m not the only one out there seeing their gas, their car insurance, their groceries going through the roof. There are so many Americans that are struggling with housing costs and healthcare costs and groceries and childcare and utility bills. And I was just wondering how much of today’s affordability crisis has to do with AI, will be impacted by AI, and how much stems from our much broader economic policy?

Dean Baker:

I would say most of it is broader economic problems, but I will say one that I can pin on AI, and that’s a housing market, particularly in areas like the Bay Area. So you actually saw this when you had the SpaceX, their initial public offering, you suddenly had all these people that were doing well, obviously, were highly paid engineers in positions at SpaceX, but they’re maybe getting hundreds of thousands a year. Maybe some are getting low millions. They suddenly have 10, 20, 30 million because there’s SpaceX stock, and that’s what the evaluation would be. They suddenly turn around and go, “Oh, I want a really big house.” Well, there’s only so many really big, really nice houses in the Bay Area. So those go through the roof. And there is a trickle down here. Trickle down not in a good way. So if you’re a lawyer, you’re doing well, you make three or 400,000 a year.

Well, suddenly the home that you were looking to buy, which would’ve been a million you might have been able to afford, now it’s two or three or four million. So you look at a middle-class house and you’re suddenly prepared to pay one and a half million for that. So then the person who’s a teacher or a firefighter that maybe, maybe, maybe could have scraped together enough to buy that for five or 600,000,

No way on earth they could pay one and a half million for that. So there is a direct impact on housing, not necessarily nationwide. I don’t know how much it affects things in Ames, Iowa, but certainly in tech centers like in the Bay Area, like Seattle, other places where there are likely a lot of people involved in the AI economy.

Stephen Janis:

Dean, when the Great Recession hit, even though it was caused by bankers’ greed, a lot of it really the working class suffered. Do you think AI could have the same impact if it does start to collapse, that it will hurt working people and that the bankers will catch a cold and will catch the flu or whatever? Do you see it trickling down again to people who had nothing to do with this, what I would call a mess at this point?

Dean Baker:

Yeah, because that’s the problem with bubbles when they start driving the economy, because our economy does not turn well. So what happened in the ’90s, we were being driven by the tech bubble. Tech bubble collapses. Nothing else to come in its place. In fact, what came in its place, it took a couple years to do it, a few years to do it, the housing bubble. And then that collapsed and well, that took a long time to recover from it. We really didn’t get back to a strong labor market, lower levels unemployment till 2016, 2017. So what I worry is that the AI bubble’s definitely driving the economy, both through investment in AI stuff, AI related stuff, and then also the consumption effect that people go, “Oh wow, I now have five million in the stock market,” which some of these people do. And then they go out and spend a lot of money, housing being one thing, they get cars.

So those stocks go through the floor. Suddenly nothing’s driving the economy and we start to see the unemployment rate rise. Wages don’t keep pace with prices. It’s a bad picture.

Taya Graham:

I actually just went to a doctor’s appointment to go to radiology, just getting exams, and they said to me, “Oh, would you like to get the AI version of this and pay an extra $40?” And I said, “Well, how’s it different than my normal exam?” And they said, “Well, actually, technology is pretty much the same.” So I’m wondering how much are they overselling how beneficial this technology actually is and how much of it is just pure hype?

Dean Baker:

They’re hugely overselling it. Again, I’m not down on the ground in all these businesses, but you hear accounts of this. So you have a lot of companies where software coding, where it’s probably at the biggest impact, where they do AI and it’s often very useful, but the problem is it makes mistakes. So you still need someone who really knows the coding to check it. And I think that’s a good story really everywhere. You could use the AI, it could be very helpful, but you still have to check it. I know my own usage, which is very limited. I had it do a reference section for me. I was writing a paper and I was going, I can type up. I’m sure there’s software that could do it too, but I was going, okay, if I type it up, it’s going to take me two or three hours and I’ll make mistakes because I’m a sloppy typist.

So I’ll have AI do it and did it for me in, I don’t know, 20 seconds or something. I still had to review it because it had some references that were improper, but it was certainly much, much faster than if I had to type it myself. So I think there’s going to be a learning process. We will be able to use AI, use it beneficially, and there will be a productivity gain, but nothing like what they’re telling us.

Stephen Janis:

Dean, why do, in your estimation, we’ve heard all the incredible stories about tax incentives for data centers. If these companies are going to be so profitable and so amazing and going to create all this value, why do they need whopping tax incentives to build out these data centers? I just don’t get it. I don’t understand. And I’m not asking you to explain for them, but what do you think is the operative motive here of having all these tax breaks?

Dean Baker:

Well, there’s a crude joke with the punchline I could use because they can.

But there is a logic that from the standpoint of a state or county, they’re saying, look, we have people lined up that want our data center and we’re taking bids from all of them. So you have to beat the others. And from the standpoint of the county or state, they’re going, “Well, this will create some number of jobs.” They lie about the number. And it’ll create some amount of tax revenue. And they might go, “Well, we’re better off even giving them an incentive. Give them 50 million off on their taxes.” And you can’t say that’s necessarily wrong because in some cases it probably is right. In many cases it will be wrong. And certainly if they end up going under, it almost certainly will be wrong because having a big data center sitting there that does nothing is not going to make your county or state more attractive for people to live in or for other businesses to come and invest in.

Taya Graham:

We’ve talked about a wealth fund and even a UBI. What do policymakers need to do to protect workers and make sure that if this actually really makes generational wealth, that working people can benefit? Or maybe I should just say, if you have a magic wand and you could design your own AI policy, what would you want it to look like? Or what do you want policymakers to do?

Dean Baker:

Well, I’d go into the old bag of tricks and just start using them and ramping them up. So one of the things we used to do shorten the work week. We haven’t done that. We had the Fair Labor Cancan Act 1937. It’s almost a hundred years now. We’re getting close. So we thought 40 hours was right then. How about making it 36, 32? That would be a great thing to do. Raising minimum wage, make it easier for workers to organize. We have it so stacked against workers organizing unions now it’s become near impossible because employers could. It’s illegal to fire people, but what’s the sanction? What’s the punishment? So someone’s organizing a union. Elon Musk says you’re out the door. You could file a National Labor Relations Board complaint. Good luck. Maybe they’ll rule for you two years later, you’ll get your job back.

Kind of moot at that point. So we have a basket of things. Also, again, finishing the welfare state. Every other country in the world has universal healthcare. We should have universal Medicare. So those are some good steps. Again, I’m not opposed to UBI, but I just think back to under President Biden, he wanted to have the expanded child tax card. He put it in as a pandemic measure. He wanted to extend it and he couldn’t get that. He had Democrats opposing him. So the idea, this is children. We’re talking about a relatively small sum of money for children. He couldn’t get that through. So can we get a UBI through? Yeah, maybe, but that looks like a real uphill battle for me. I’d rather stick to the old favorites that we know work. And there’s a Well, lot of political support for them.

Taya Graham:

Okay, Steven. Well, obviously I’m in the wrong line of work because it turns out that you can lose millions or even billions of dollars and somehow make money. Is this dystopian enough for you? I mean, what are your thoughts here? I’m obviously in the wrong line of work. Well,

Stephen Janis:

Like I was kind of alluding to before, I feel like we’re kind of participating in new theology. The value here is purely theocratic, that there’s some divine power that is being burked in a lab that we’re going to have to pay penance to, whether or not it makes our lives better or not, and whether it has any influence on anything we do. So I was really glad to hear Dean kind of cut through all that BS and give us sort of a pragmatic view of what’s actually going on. And one thing, I don’t want to refer to the Tower of Babel, but that was an awfully tall tower of cards. And when AI comes bursting down on all top of us, I think it’s going to be quite cataclysmic. So yeah, apocalyptic is probably in line there.

Taya Graham:

That’s a great point. I mean, everyone is so excited. They’re hoping for artificial general intelligence where they’re going to be curing cancer and saving the world. Which would be great. And all I just do is see people losing jobs.

Stephen Janis:

Yeah. I’m waiting for the cure for cancer. I

Taya Graham:

Would be so happy to see it. I would be so happy to have AI genuinely help people. Not just help students cheat on their home.

Stephen Janis:

Or not just create 100,000 songs on Spotify every day. I think it would be more useful for humanity. Just my opinion.

Taya Graham:

Steven, you know me, as always, whether it’s on our show, the Police Accountability Report or our coverage on Capitol Hill, my concern is the working people of this country. And just like with all the other tech upheavals, the elite who taught them, forget those who are going to be impacted by them. And this particular iteration could really be devastating. And that’s why we have to remain vigilant. If AI actually lives up to the hype, the concentrated power it would confer would be absolutely death to a democracy. I mean, that much wealth in so few hands is simply unsustainable. I mean, it will literally adulterate the process of governance with self-interest, and it’s going to warp accountability around the curvature of a technology that seems more and more singular in its appetite for resources. And I do mean a literal appetite for land and water. And that is why we’ll continue to report on it and have discussions with innovative thinkers like Dean Baker.

And that’s why we will continue to report to you from the nation’s capital, asking questions about how the government by and for the people will actually protect them from the ravages of AI Avaris. And that’s why independent journalists like Steven and I will continue to investigate and try to comprehend and share with you the truth because that’s all we have in the end, for better or worse. Thank you for joining us for our inequality watch report. And as always, we’re reporting for you.