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fwlr • yesterday at 11:17 PM • 3 replies • view on HN

  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.

Replies

augment_me • yesterday at 11:34 PM

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 • yesterday at 11:39 PM

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 • today at 1:35 AM

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.