Regular readers will know that for a couple years I’ve been saying that Chinese open source AI would win the AI “war” because it’s cheaper and non proprietary (prices can’t just be raised suddenly, or capacities taken away.)
Over the last few months there’s been a lot of screams coming from regular AI users. OpenAI and Anthropic moved to token based billing, which is to say “you pay based on how much you use.” They still weren’t charging full rate, but they were charging a LOT more and users were not happy. One company spent 500 million by mistake: they forgot to put limits on how much their employees could spend.
Oops.
Nor are ordinary users exempt:
I Went From $3,000/Month on Claude to $5/Week on DeepSeek
And honestly? 80% of my work is identical.
For the past two months, I was burning $3-5K monthly on Claude Code. Every idea from design to development to testing – full end-to-end automation, even simulating users to test my products and provide feedback. Extremely token-intensive.
But Claude’s caching sucked, making it insanely expensive. Then I discovered DeepSeek V4.
The numbers: • Claude: $5 input, $25 output per million tokens •
DeepSeek: $0.28 input, <$1 output (with their current discount) • DeepSeek cached: $0.0002 – literally less than a penny The caching optimization is game-changing.
Once DeepSeek has seen content, it basically stops charging tokens. My result: $5/week vs $1,000/week for the same workload.
Driving the news: Microsoft says companies using Copilot Cowork will pay based on how much compute they use.
- The company tells Axios it is exploring a fine-tuned version of DeepSeek V4, or another open-source model, as a lower-cost alternative to the Anthropic and OpenAI models now powering Copilot Cowork.
- Microsoft says it expects to make a lower-cost model available in the coming weeks and will confirm its choice then.
Worse than this, there’s beginning to be serious pushback on whether AI is all that useful. Uber’s COO opened the door back in March:
In perhaps the most high-profile example of this growing concern yet, Uber COO Andrew Macdonald acknowledged during a recent podcast appearance that gains in productivity simply weren’t being reflected in the oodles of cash the company has been shelling out on AI.
“That link is not there yet, right?” he told Rapid Response host Bob Safian. “I think maybe implicitly there is more that is getting shipped, but it’s very hard to draw a line between one of those stats and, ‘Okay, now we’re actually producing 25 percent more useful consumer features.'”
“If you’re not actually able to draw a direct line to how much useful features and functionality you’re shipping to your users that trade becomes harder to justify because it’s not free,” he complained. “AI is not free.”
As far as I can tell there’s little evidence that US priced AI is more cost-effective than the employees who were laid off because it was so great. I rather suspect that in most cases, it’s less cost-effective.
But more importantly we have the “it’s better to be wrong with the crowd” effect moving against AI. In almost all positions, including executive ones, if you’re wrong in the same way that everyone else is wrong, it’s no big deal. If you’re wrong against the crowd (say not getting into AI when the rest of your industry is) and it turns out that AI is the next big thing, well, you’re fired.
So much of the AI mania was driven by this and a relentless hype cycle. Now that important people are beginning to push back on it, it’s no longer required to be all-in on AI. And that’s bad for Anthropic and Claude.
AI is not the next coming. It is not going to make it to general AI (not this generation of large language models anyway) and while it does have some utility the US frontier models cost far more to operate than any conceivable return most of their customers will receive. It isn’t the “get rid of three-quarters of your employees” super app corporate leaders were promised.
And to the extent it is useful, well Chinese open source models are more cost effective. As good? Generally no. But they keep catching up, and paying 70 to 97% less makes up for being somewhat behind.
So to the extent that AI is a real industry, odds are high China’s going to win the race. Since the models that will win will be built off open source models that’s not a crisis for anyone, it’s a good thing, far better than a proprietary future.
BUT it does mean that US AI expenditures are probably going to turn out to be the biggest misallocation of resources in centuries: bigger than the housing bubble and bigger than the dot-com bubble (which at least did have a world changing technology behind it.) Not quite the Dutch tulip bubble, but at least the Dutch got lots of pretty flowers of that, instead of massive ugly data centers.
Business is driven by stupid people engaged in group think, especially in the West, far more than most people will admit. Everything Silicon Valley does these days is someone trying to create a monopoly or oligopoly so they can be insanely profitable, while China actually competes on price, and that’s why China keeps eating the West’s lunch.
I’d cry, except that an open source AI world is a far better one than a proprietary one, and every tear some Silicon Valley tech bro cries over a lost opportunity to make a monopolistic buck an angel gets their wings.
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It seems that in the US, the more expensive and wasteful things are, the better to make the US nominal GDP look good.
Ridiculous token costs, tuition costs, insurance costs, medical costs, pharmaceutical costs, student loans, car loans, mortgages, rising rents, etc. all go toward boosting US nominal GDP.
The US is a house of cards.
If there weren’t this massively wasteful spending on AI, if there wasn’t the massively wasteful spending on wars to destroy massively expensive military equipment, if the US-Israeli war against Iran had not boosted the price of oil, if the Trump tariffs had not helped boost prices, would there be any US GDP growth? Or would the US actually be in recession (receding GDP)?
Paul Krugman sees Elon Musk as a human Ponzi scheme: “The immense human Ponzi scheme that is Elon Musk will eventually collapse.”
But isn’t Musk in many ways a microcosm or incarnation of the US? Isn’t the US a stack of Ponzi schemes? “The immense Ponzi scheme that is the US will eventually collapse.”
Philosophicus
Here’s the analogue:
Years ago, while working at Compaq and connecting Compaq to the early Internet, everything was *nix command line. No HTML. We had a guy that we would go to.
“Hey man, can you write a command that will go to these servers and retrieve these file directories and preferably distribute a message to these guys.”
Basically he’d sit there for a few minutes then turn around to his screen and type maybe 4 lines into his terminal app. And it worked. Highly paid.
Within 3 years HTML had completely replaced that task save a semicolon or two. For no cost.
That’s the sum total contribution that we can expect from AI. It’s not AI itself. Fortunately we had an IETF back then. Now we got …
spud
this is the inevitable collapse of bill clintons economy. not one of his disastrous policies have been over turned, and every administration after him, has either doubled down, or tried to make it work like bidens stupid chip act, or trumps clumsy attempt to bring back manufacturing, which drives innovation.
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Manufacturing drives innovation by implementing new ideas, technologies, and processes that enhance productivity and product quality, making it essential for companies to adapt and evolve in a competitive market. This sector not only contributes significantly to the economy but also fuels progress across various industries by supplying necessary tools and materials.
qmarkets.net flex.com
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FDR’s New Deal included a series of programs and projects that aimed to restore prosperity during the Great Depression, which fostered innovation in various sectors. These initiatives, such as the Tennessee Valley Authority and the Works Progress Administration, not only created jobs but also introduced new ideas and methods to improve infrastructure and social welfare.
Sky HISTORY TV Channel Wikipedia
Franklin D. Roosevelt’s New Deal was a series of programs and projects initiated during the Great Depression to restore economic prosperity. These initiatives not only aimed to provide immediate relief but also fostered innovation across various sectors.
Key Programs Driving Innovation
Major Initiatives
Program Name Purpose Impact on Innovation
Tennessee Valley Authority (TVA) Addressed flooding and improved electricity access Introduced modern infrastructure and energy solutions
Works Progress Administration (WPA) Created jobs through public works projects Encouraged artistic and cultural projects, enhancing community engagement
Civilian Conservation Corps (CCC) Provided jobs in conservation and environmental projects Promoted sustainable practices and environmental awareness
Social Security Act: Established a safety net for the elderly and unemployed, promoting social welfare innovations.
National Labor Relations Act: Strengthened labor rights, leading to more organized and innovative labor practices.
FDR’s New Deal not only aimed to alleviate the immediate effects of the Great Depression but also introduced innovative programs that transformed American infrastructure and social welfare. These initiatives laid the groundwork for future advancements in various sectors, demonstrating the lasting impact of the New Deal on American society.
Sky HISTORY TV Channel Wikipedia
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https://www.ceo-review.com/why-manufacturing-innovation-still-starts-on-the-factory-floor/
“The Factory Floor Isn’t Just for Production
Think about it. Who notices when a machine slows down? Who sees when a material doesn’t hold up? It’s not someone sitting in an office across the plant. It’s the people running those machines, moving parts, checking output, and adjusting as they go.
Over time, these observations turn into ideas. Someone finds a faster way to load materials. Another person tweaks a process to reduce scrap. One shift identifies a better way to store tools for quicker access.
These aren’t just small wins. When supported properly, these practical changes stack up to become powerful innovations.”
…
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During Bill Clinton’s presidency, the U.S. lost manufacturing jobs, particularly in his last three years in office, with the trade deficit soaring as a result of his policies. Critics argue that his administration’s focus on free trade and deregulation contributed to this decline.
cepr.net Wikipedia
Impact of Bill Clinton’s Policies on Manufacturing
Job Losses in Manufacturing
During Bill Clinton’s presidency, the U.S. experienced significant job losses in the manufacturing sector. This decline was particularly pronounced in the last three years of his administration. The following points summarize the situation:
Manufacturing Job Loss: The U.S. lost manufacturing jobs consistently during Clinton’s final years in office.
Trade Deficit Increase: The trade deficit grew sharply, rising from just over 1% of GDP in 1996 to over 4% by the end of 2000.
Several key policies and decisions during Clinton’s presidency contributed to the decline in manufacturing:
Free Trade Agreements: Clinton’s administration supported free trade agreements, including NAFTA, which critics argue led to job losses in manufacturing.
Deregulation: The focus on deregulation, particularly in financial markets, is seen as a factor that weakened the manufacturing sector.
High Dollar Policy: The administration’s high dollar policy, which aimed to maintain a strong U.S. dollar, made American exports more expensive and less competitive internationally.
The economic landscape during Clinton’s presidency was complex, with a mix of growth and challenges:
Aspect Description
Manufacturing Jobs Lost Significant losses, especially in later years
Trade Deficit Increased from 1% to over 4% of GDP
Key Policies Free trade agreements and deregulation
Clinton’s economic policies are often debated, with supporters highlighting overall economic growth while critics point to the adverse effects on manufacturing jobs.
cepr.net Wikipedia
Bill Clinton’s economic policies included the signing of the North American Free Trade Agreement (NAFTA), which aimed to reduce trade barriers and promote trade between the U.S., Canada, and Mexico. While this agreement was intended to boost economic growth, it also led to significant job losses in certain manufacturing sectors as companies moved production to countries with lower labor costs.
Wikipedia americanprogress.org
The trade deficit increased significantly during Bill Clinton’s presidency, rising from less than 1.0 percent of GDP when he took office to almost 4.0 percent by the time he left. This increase was largely attributed to Clinton’s high dollar policy and trade agreements like NAFTA.
cepr.net Dissent
Bill Clinton’s free trade policies, particularly through NAFTA, led to significant job displacement in U.S. manufacturing, with estimates suggesting that around 700,000 workers were affected. While trade expanded, the anticipated job growth and trade surplus did not materialize, resulting in a trade deficit with Mexico and criticism of the policies’ effectiveness.
Journalists Resource University of Pennsylvania
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after WWII when crank economists tried to saddle us again with free trade world wide, Truman out negotiated them, and repeatedly vetoed their attempt to gut our country for the rich, he got it watered down to a voluntary agreement.
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The General Agreement on Tariffs and Trade (GATT) was not a stand-alone agreement but part of a broader effort to promote trade liberalization, and while it aimed to reduce trade barriers, participation was voluntary for countries. However, it was designed to encourage countries to lower tariffs and engage in freer trade.
saylordotorg.github.io Wikipedia
The General Agreement on Tariffs and Trade (GATT) was established to promote trade liberalization among nations. It was not a stand-alone agreement but part of a broader initiative aimed at reducing trade barriers globally.
Voluntary Participation: Countries could choose whether to join and participate in GATT negotiations. This meant that engagement in the agreement was not mandatory.
Trade Liberalization Goals: GATT aimed to encourage countries to lower tariffs and engage in freer trade, but the extent of participation and commitment varied among nations.
Implications of GATT’s Structure
Non-Binding Commitments: The commitments made under GATT were based on mutual agreements rather than enforceable obligations. This allowed countries to maintain some control over their trade policies.
Focus on Tariff Reductions: While GATT sought to reduce trade barriers, it did not guarantee free trade in the absolute sense. Instead, it facilitated negotiations where countries could agree on specific tariff reductions.
In summary, GATT was designed to foster an environment for trade liberalization through voluntary participation, encouraging nations to lower tariffs while allowing them to retain control over their trade policies.
saylordotorg.github.io Wikipedia
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all bill clinton left us with is, paper manipulation, financial innovations like bitcoin, and bubbles being driven by hucksterism.
and its coming to a end.