Not sure how productivity and rent capture are connected here.

1) If a firm spends $99k on compute to replace a $100k engineer and produces 5x the output, how is that not a 5x increase in aggregate labor productivity?

2) In your aspirin example, why wouldn't a competitor with an identical 1¢ machine sell it for 50¢ or 10¢ to take 100% of your business? You are either making the assumption that 1 company is owning the market and no models are useable beyond that one, or that all of the models that are in the front of the market have a cartel and fix the price, which is not true either looking at API costs.

▲ fwlr 3 hours ago | parent | next [-]

  1) If a firm spends $99k on compute to replace a $100k engineer and produces 5x the output, how is that not a 5x increase in aggregate labor productivity?

The firm is spending $99k on tokens to replace $100k in labor. The token provider is spending $ x on compute to give $ p•x productivity output to the firm. The token provider can choose x at inference time and adjust p at training time, so they control p•x . They do have to make it greater than the firm’s current output so the firm will buy from them, but otherwise their profit incentive wants to make x as small as possible - if 110% of previous output suffices, it is strictly a loss to spend more to reach 500%.

(Also, pedantically, compute is not labor - if you 5x output and 0x labor, the labor productivity statistic becomes “what’s the ratio of 5/0 to 1/1?” ie undefined. But that’s not a very interesting point.)

Note closely the “middleman” vibe of this arrangement: the firm does not spend on compute to get output; the firm spends on tokens and then the token-provider spends on compute to get output, and then hands the output back to the firm. Rather than put in x and get back f(x), they put in x and get back e(f(g(x))), where e and g are the middleman’s extractive greed functions.

  2) …why wouldn’t a competitor with an identical 1¢ machine sell it for 50¢ or 10¢ to take 100% of your business?

If they were in the business of free market value creation, they probably would! I don’t know exactly how economists would describe it, but empirically, it seems the business of rent extraction has a different dynamic - one which can roughly be summarized as “competition shrinks the size of the pie, rather than growing it”, so all participants are mutually incentivized to treat competition as a cost to be avoided.

	▲	augment_me 3 hours ago \| parent \| next [-]
		Can you demonstrate your take on 2) happening in practice? - You have tokens priced differently as evident by for example pricing on for example OpenRouter. - You don't reach 100$ of Fable/Mythos output by running Deepseek for the same amount of money. How do free open source models fit in here? Do you have to run Nemotron for an infinite amount of steps to reach 1$ of Deepseek compute? If not, then the argument is not valid because the pie should be shrinking.
	▲	bagacrap 3 hours ago \| parent \| prev \| next [-]
		Collusion. A cartel. That is how they describe it. And it's ostensibly illegal. > Forms of Collusion Most criminal antitrust prosecutions involve price fixing, bid rigging, or 2 market division or allocation schemes.
	▲	syshyk an hour ago \| parent \| prev [-]
		This also ignores that 5x productivity doesn't often give you 5x profit, even if it gave you 1.1x profit that sounds great - until people start looking at profit vs productivity. ...we should be seeing prices of every day goods and services(mainly) come down. I'll hold onto my hat for now.

▲ frank_nitti 4 hours ago | parent | prev | next [-]

The incentives are there. I know reddit and HN it seems like lots of people are using models/harnesses from scrappy competitors, but IME at the enterprise level I’m in the extreme minority who is even aware of them. Virtually everybody uses Anthropic and OpenAI tools and models, with Copilot getting some scraps because of its forced inclusion in Microsoft/github ecosystem

There is no question about the benefit when things go right; a wary engineer responsibly guiding agents to build orders of magnitude more than was possible before, and always skeptical and critical of the vendor, knowing the vendors’ incentives.

But that’s not the majority, and the people approving absurd token spend are too far out of the weeds to see what’s happening - people burning 6 figures in tokens and still end up with broken systems that keep them over the weekend, but now they hardly understand what they’re troubleshooting (if at all).

This is a dream scenario for the fat-cat vendors, so there is incentive to have CC/Codex write more code, overly-complex designs. When users get upset, they jump to OpenAI to spite Anthropic, or vice versa, but always getting further locked in to the duopoly

	▲	augment_me 3 hours ago \| parent [-]
		I don't really see the bloated-code take here. With this reasoning, there should appear a non-bloated open-source tool that all knowledgeable, smart developers will migrate to in order to get things done faster, and the market will have to follow. Also waste and token spending could very well be a short-term thing. A lot of teams had crazy AWS bills in the mid-2010s on lambda functions and workflows, then it got cut down and optimized.

▲ nicce 4 hours ago | parent | prev | next [-]

> 1) If a firm spends $99k on compute to replace a $100k engineer and produces 5x the output, how is that not a 5x increase in aggregate labor productivity?

I think they are saying that with 99k pure compute you are able replace 100k engineer with equal output. Or that is the goal of the AI companies. It is worse for them if you get more productivity.

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geraneum an hour ago | parent | next [-]

It's so interesting that sometimes people throw these wild numbers around like 10x productivity, 100x greatness, etc. but when the rubber hits the road, we see so much ambiguity, unknowns and unrealistic assumptions.

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augment_me 3 hours ago | parent | prev [-]

But the AI companies have no access or knowledge of how much value you produce, they would have to calibrate against some average SWE salary and some average productivity which is task-dependent. There is no way for them to control this. Even if they did, they would lose out to other companies who do not do this and let you "keep" surplus value, it feels like this again assumes a no-competition market.

	▲	fwlr 28 minutes ago \| parent [-]
		I guess it just seems obvious to me that most of the major players want a no-competition market, and are working towards making that happen, and are having notable success with their efforts (the whole “pacing the frontier” was a remarkably public display of coordination between purported competitors, the government has already banned deepseek, etc).

▲ LPisGood 4 hours ago | parent | prev [-]

> If a firm spends $99k on compute to replace a $100k engineer and produces 5x the output, how is that not a 5x increase in aggregate labor productivity?

It sounds like they spent 99k to replace 5 100k engineers, which means they could charge 499k for it.

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augment_me 3 hours ago | parent [-]

This again assumes a total monopoly or a cartel which does not exist today

	▲	SpaceNoodled 3 hours ago \| parent [-]
		It's a duopoly and a cartel.