I have argued that AI can, and probably will, cause inflation, and it can, and probably will, cause unemployment,
It’s difficult to understand how AI can create inflation and it’s really, near impossible to grasp how it will create both inflation and unemployment. But, you know, Spudnomics, a rare and different beast.
That combination of high inflation and increasing unemployment is, however, something that is said to be impossible in orthodox economic models.
Quite. But apparently….
That threat from AI has to be dealt with by regulation. It can’t be dealt with by the standard techniques of inflation management that we’ve got now, because they won’t work because there are no relationships left which they are meant to manage
Oh, right, now that will make the economy more efficient then, right? A speshul price for electricity for what btw? Running a data centre? But cat pictures are not AI. But AI is done in the same data centres, no?
Instead, we have to challenge AI directly by charging it for the whole cost of its electricity.
Sigh.
That’s the key point now. AI cannot run the economy into the ground; it should instead be managed. The government needs to stay in charge.
That typical Spudcraftian Horror that something might happen without a tick on a clipboard.
The rest of it’s just a rehash – AI is the new excuse that is.
The Ijeet of Ely: I saw in a book recently that in 17th century Massachusetts the word “Quaker” was used to mean “fanatic”.
Quakers were/are fanatics – just pacifist, not violent, ones. where I live in the Chilterns was close to the origins of Quakers, Primitive Methodists etc and you can read the minutes of their early meetings. Anyone who stepped out of line was ‘shunned’, which could be a pretty violent thing if you lived in a small isolated village, none of whose inhabitants would deal with, or even speak to you.
We had a whole town shunned by “head office” because they were mostly shipmasters, and for the safety of their crew they carried firearms. Also, for being “too prosperous” – most of which was spent on paying their men very well. After a few too many sternly-worded notes, near all the entire Meeting decamped to the Methodists.
Oh look:
https://www.marketplace.org/story/2026/01/14/microsoft-pledges-to-pay-for-ai-data-center-electricity-use
Incredible ignorance on display again. We don’t need no fat controller.
Ah yes, the most trustworthy of promises, PR from a multi trillion dollar company. They never tell you a pack of lies to get what they want and then renege on it afterwards.
Good point, but why would electricity suppliers give their product away or sell it at an uneconomic rate? A datacentre needs huge amounts of juice and either someone has to supply it at an economic (to them) price, or it will have to generate its own – which isn’t a free option. I suppose that the datacentre might barter with the electricity supply company – “we’ll allow you x megaflops per week for free juice”, but it’s still not a cost-free exercise.
The point is (rather like the renewable energy scam) the datacentres are not paying the true price of the electric they are buying. The cost of the infrastructure investment that is required (new powerplants/cabling etc) is being spread over all the consumers in an area not just the datacentre itself. So Mrs Miggins is paying more for her electric because Microsoft’s energy demands have meant the power company had to build a new power plant and a big cable to the datacentre, the cost of which went on everyone’s bills not just Microsoft’s.
Its typical corporate welfare – spread the infrastructure costs over all the plebs, all the profits go to the corporation.
Not so, the data centres (there’s one going up near me) have to build and pay for the links to the nearest major substations (two independent links in practice). I imagine their contract with the supplier also covers the cost of any upgrade needed to the national grid.
It’s hard to say, since it depends on the tariff the regulator has approved, but typically large new customers have to pay for system upgrades. Regulators (and utility companies) are getting smarter about data centres, too – AEP (in Ohio) has a new specific tariff for data centres, and it transfers most of the tranmission cost to the data centre (energy is a separate market in Ohio – I don’t know how that is handled). The point is that suppliers are adapting to the new form of custumer.
In my working life I had quite a lot to do with the plating and anodising industries – all massive users of electricity. In every case, they had their own electricity substations, for which they had to bear the cost of construction and maintenance, plus any further extensions to their power supplies were also at their own expense. Additionally, the method used to ‘cost’ the electricity they used was all based upon peak consumption levels – even if said peak only lasted a few seconds in a charging period.
If datacentres are being treated in the same way, I reckon they’re not exactly being ‘subsidised’.
That’s not really my point though. If there are problems they can be solved by existing means and we don’t need the Sage of Ely.
What existing means are there if the electric co and the data centre co agree to stiff the rest of the consumer base for the infrastructure costs of the data centre’s electricity consumption? Indeed what means are there for us to stop the renewables co and electric grid co from stiffing the consumer over the cost of renewable energy? There’s only politics, because there is no free market in utilities, just the pretence of one.
Doesn’t seem likely to me.We did the numbers in an earlier thread and they don’t seem to match the scare stores.Mad Ed was there first anyway.
“It’s difficult to understand how AI can create inflation and it’s really, near impossible to grasp how it will create both inflation and unemployment. “
Its quite easy to see that AI could drive the cost of electricity upwards, as it uses stupendous amounts and supply is relatively fixed in the short to medium term, and that it could also drive the price of consumer electronics up, by hoovering up all the chips that they currently use (again the supply of these things is relatively fixed, chip fabs don’t just get built in short order) The latter of course is actually happening right now, so hardly needs any great economic insight, just to actually read about whats going on. Both of which would impact the consumer inflation rate. And of course higher electricity prices would feed into just about everything else as well.
As for job losses, we’re probably already seeing that as companies try to reduce costs by shedding labour and replacing it with AI instead. Whether this will work is open to question, but it looks like AI is going to affect employment regardless of whether it works.
Sometimes I think you allow your obsession with Spud to cloud your thinking, ie you don’t do any and just assume because he said something it can’t possibly be true. Which is true 99% of the time, but even a blind dog finds a truffle sometimes.
A rise in the price of electricity – or water – is a change in relative prices, it is not inflation. Inflation is a rise in the general level of prices.
Or, put another way, inflation is a devaluation of money. Its purchasing power reduces. Correct?
Yep, the description works either way.
“A rise in the price of electricity – or water – is a change in relative prices, it is not inflation.”
Tell that to the person whose utility bills have just gone up.
Yeah, but those bills have gone up because you’ve been outbid by a higher-value use for a scarce resource.
‘Course, if the UK electricity market wasn’t completely rigged and fucked, and without Nut Zero, a load more reliable generation would appear to satisfy the demand, much of it specifically for the data centres themselves, and your utility bills wouldn’t rise nearly so much, if they did at all.
“Yeah, but those bills have gone up because you’ve been outbid by a higher-value use for a scarce resource.”
Right. What is the best value of 1 KWh of energy? Powering a car or powering video conferencing? You can do a lot more meetings on Teams with the same energy as driving a BMW.
And I’ve said this before. AI is a big nothing in the grand scheme of things. People who can’t do basic math about the total percentage of energy or are just in a constant doom cycle about anything new. If AI demand actually meets the hype, people will put in the work to set up specialist training in areas with redundant hydro or geothermal energy (there’s already some work in this direction).
If AI is losing a couple of hundred billion dollars a year, it’s a bottomless money pit, a Tulip, a South Sea Bubble, and astonishingly poor value for 1 kWh of energy. Sam has only made two billion dollars out of it. He’d do better opening a daycare center.
Well, yeah. But if you can unload your tulips before people start thinking it’s stupid, you can make a ton of money.
And I’m not going to bet against these VCs timing it well. They sold Snapchat for about $30bn and it’s now worth about $13bn a decade later. Never made an annual profit.
To the extent that there are data centres being built solely to run AI, latency is not an issue, so they’ll be built where there’s cheap reliable electricity (e.g. Iceland), which rules out the UK.
It makes sense to use geothermal, excess hydro. You don’t even need it to be that reliable. You could run a training process on solar and checkpoint the process and stop when the sun goes in. Then restart when it comes out again. As long as you have 5 minutes of battery, that would work.
Bring back Stanley Baldwin. The last prime minister with any understanding of resource supply in economics. He realised that if you flooded the market (with electricity) it becomes dirt cheap and a commodity, allowing resources to be diverted into producing other stuff; so he pushed through the state building the National Grid and unifying supply voltage and frequency, and had the balls to let electricity suppliers who refused to comply get killed off, and told them to their face.
The last 30 years seem to be a concerted effort to de-commodify and de-floodify electricity supply.
If the price of electricity rises, the price of everything else rises with it. Come on Tim, this isn’t difficult.Nor is it difficult to stand up and say, “I was wrong.”
Tim’s not wrong. The price of electricity rises because of demand – the data centres can pay more for it, so they outbid everyone else – or constrained supply. Net Zero (and therefore, increasingly constrained and expensive reliable supply) is the basic driver of increasing electricity prices, not data centre demand. UK electricity prices rose well before AI kicked in in any meaningful way.
Were AI data centres able to build their own CCGT generators on-site there’d be no extra demand on the grid, so no need to spend more on it.
“Were AI data centres able to build their own CCGT generators on-site”
Thats exactly what they are planning to do, in the UK at least. I’ve had some interest in some land I own from data centre developers, precisely because I’ve got a gas main right by the site. Because the electric grid has a massive backlog of work to increase capacity there’s no way anyone can build a data centre in vast areas of the country because the grid infrastructure just isn’t there and won’t be any time soon. So the developer’s plan is to put in CCGT generators in the short to medium term while the electric supply/distribution system catches up in the long term.
“The price of electricity rises because of demand – the data centres can pay more for it, so they outbid everyone else”
Thats just not true. Its not that the electric co is sending electrons to Microsoft and not sending them to Mr Smith because MS can pay more. What its doing is spending money to increase capacity so it can supply Microsoft AND Mr Smith but charging all the costs of that extra capacity to Mr Smith (and all the other private consumers). Which is wrong – Microsoft should be forced to pay the full cost of the extra capacity it requires, all the new generating plant and distribution costs.
Trump has cottoned on to this and will rightly send the bill to those who have generated it.
It’s still true. The data centres have increased demand, so the price rises until supply can catch up. And if Microsoft can afford this additional electricity with the cost of generating and supplying it priced in, and everyone else can’t, then they’ve outbid everyone. Let’s also not forget that demand for electricity is being artificially increased across the board thanks to the general electrification policy.
The central problem remains that of constrained supply of reliable electricity thanks to Nut Zero. I’m amazed your putative data centre is allowed to install a CCGT. Must be a special dispensation because UK AI is more important than UK Nut Zero. Or Milliband’s an investor. Or summat.
The big question is whether AI is actually the most valuable use of electricity. Generally the price system can answer that but right now the market is totally distorted by VCs, so data centres can outbid everyone else even though what they do is likely to be of low value.
“The big question is whether AI is actually the most valuable use of electricity.”
There are really valuable uses of AI and really stupid uses, so the price system is the only way to determine that. And if VCs pay for it because of some bullshit build-to-flip thing it can’t last that long.
The alternative is men from the ministry determining what is “high value” and that is going to be worse.
Some years ago I worked through some calculations to compare installing a small gas leccy generator at home. Mains suppy won, but not by much. The more “they” artificially make electricity more expensive I should probably redo the calculations, the balance may start going the other way.
It’s not an either-or. Electricity prices can rise because of increased demand, AND constrained supply. In the five-year short term, supply is inelastic. Data center demand is exponential.
“UK electricity prices rose well before AI kicked in in any meaningful way.” You ain’t seen nothing yet.
“even a blind dog finds a truffle sometimes.”
I don’t belive dogs, or pigs, use sight to find truffles, which are below the surface.
A dog without a sense of smell surely?
Schrecklich!
Roughly speaking, 6-12 months from now you will barely hear a peep about AI. Richie will have moved on to some other nonsense.
All of this is the classic tech VC pump-and-dump. Hype up tech, then go IPO. Second half of 2026, OpenAI, Anthropic etc will go public. All the money being spent by VCs on hyping this up will stop immediately. OpenAI is a $60bn bet, with a $500bn upside if it works. You throw money at it, you hype it and a load of rubes buy the shares off you at IPO. You walk away with a nice profit.
You’re going to do interviews with the press, have “AI experts” available to talk to them who of course, you’re going to select for being the most hyped up lunatics. Invite them to a free presentation about your “self-driving cars” and have some free food and booze and they’ll keep on coming. Well, it’s what I’d do. What’s a column in a newspaper about how AI Is Going to Change the World worth to a share price? Probably a lot more than taking a journalist out for coke and whores.
People like Richie don’t get this. Anyone looking at real numbers, looking at the industry, using the technology knows that the numbers don’t add up. The likes of Andressen-Horowitz and Sequoia Capital aren’t going to keep dumping money into this shit forever. Trillions of dollars are going to be spaffed on this by naive investors. My guess, along with secondary effects on ETFs, there’s going to be a crash once the hype disappears and creates a vacuum which will be filled with “AI is bullshit” talk. Richie will probably switch to complaining about evil capitalists hyping it up.
OpenAI will run out of cash before it can IPO. It managed the largest VC fund raising round ever in history ($40bn) in 2025, and will need several times that in short order in 2026, of its to make good on its investment promises. The money just isn’t there. The PE funds are beginning to get cold feet, after all they’ve dug deep so far and seen no return on their money at all. The OpenAI IPO has already been postponed once. Its all beginning to look like WeWork all over again, but at an economy destroying level. Sam is now trying to drag in the Arab wealth funds, my feeling is they will pass and OpenAI collapses later this year.
Meanwhile, Shark Tank Kevin tells an interviewer in lofty tones that California is uninvestable and he won’t be building any data centers there. California missed a bullet.
Which is probably why there’s now circular investment.
Where NVidia buys a bunch of OpenAI stock so that OpenAI has the money to order NVidia cards. The circle is a bit larger than that, but it’s still a circle.
That only works if OpenAI can come up with something they can sell to other people for money to pay NVidia with. Otherwise eventually NVidia owns all of OpenAI and likely has to write it down.
Or Uncle Sugar ends up owning both companies and welcome to our glorious socialist future I guess.
Was it done via equity or debt? I thought debt (or mainly debt).
Of course, the lender can force the swap when things get tight and dilute existing equity to buggery and back.
Does it really make a difference? The money is coming from the people who make the things you need to buy, so you can afford to buy the things.
Whether it’s in exchange for a piece of paper that says they own a piece of you now, or in exchange for a piece of paper that says “I promise to pay you back”, it’s still a circle jerk.
I don’t know. My gut feeling is that AI hype is coming off the rails and they might have left it too late. But then, I thought Snapchat were mad for not taking billions from Facebook for their bonfire of cash.
Spud doesn’t understand the problem. Can’t explain it. But he knows the solution:
MOAR GOVERNMENT!
Difficult to say whose understanding is lower, Murphy’s or the government’s.
I don’t really understand why unemployment & inflation are mutually exclusive. Depends on why prices are rising. It needn’t be an increase in demand. Can be with falling demand. If costs are increasing that puts upward pressure on prices. Rachel’s achieving it with taxation increases & there’s also increased regulatory costs.
As for AI, as far as I’m concerned current implementations are little more than toys. It’s when it’s deployed for rules based data processing, you’ll see jobs go. Because most deskjockeying, is that distributed across multiple humans because of individual processing limits.. And 90% of their function is communication between processing nodes.
Inflation and unemployment are not *always* mutually exclusive, although a rise in unemployment *tends* to reduce the pressure of inflationary wage demands (those that are not justified by improved productivity). Hence “Stagflation” was coined as a word during the Wilson government and subsequently we got the acronym “NAIRU” for the rate of unemployment that was horrible enough for inflation to stop accelerating under a Labour government.
Both unemployment and inflation will be increased when the government buys off the public sector unions with unearned pay rises and then increases the price of coal/gas/electricity or indirect taxes/National Insurance.
AI will simultaneously cause too much money chasing too few goods and services by making goods and services so abundant and cheap that humans can’t compete economically?
I really wish people would move back to serif fonts so that I don’t always have to wonder who this guy Al is.
Turns out this is an excellent use of AI, the site having been entirely coded in a day by Claude Code:
https://www.ismypubfucked.com/
…and yes, my favourite pub is fucked all right.
The problem with my two nearest pubs is that they’re just shit pubs.
One of them used to be amazing, but the smoking ban killed off the regulars and it’s been struggling ever since. The other one is an estate pub with Sky TV and kids in the bar and mediocre food and expensive drink.
I mostly use Wetherspoons.
It’s a cool website, and this is one of my things with AI coding (I built cellarscanner.com over a few days with Google’s equivalent). It opens up a lot more things that you wouldn’t normally be able to afford to do.
Tangentially… here’s a new instance of the Circular Economy. Herberts are breaking car rear windows to steal parcel shelves, which they then put on eBay.
https://archive.ph/I1qWf
Why would you look on eBay for a parcel shelf for your car? It came with one. Oh, because yours has been nicked? And you’re going to buy it back again from the thief?
It’s almost perpetual motion, isn’t. it? Let’s see an AI do that.
By bizarre co-incidence, I bought a parcel shelf for a car. We bought a car for my daughter from our local garage for £600. One of the cords was broken. Didn’t really affect the car, so not a problem. But we hit eBay and got one from a breakers yard.
certainly the data centres should pay the full cost of the leccy they use. mostly there seems to be a to and fro about connection costs.
Generators also should have the cost of connects charged back to them. Of course that buggers up the ‘cheap green elec’ lie further.