Comment by jgbuddy

> The main thing holding people back is the housing crisis. This is orthogonal to the value creation of businesses.

This feels wholly at odds with saying most social mobility is upwards. So most of the social movement is into a class where a home and vacations are a given, but we also have a growing class of people who can't afford a home? Per BLS, average real wages are down 0.3% YoY https://www.bls.gov/news.release/realer.nr0.htm .

> Value creation is growth. If it didn’t exist the S&P would still be 42.55$.

This reductively assumes "value creation" is the only effect on the S&P pricing. You'll note a ton of graphs correlate with it, e.g. https://tradingeconomics.com/united-states/inflation-cpi is the US inflation rate, which also tracks the S&P pricing. Ie if a company is worth $100 a year ago and inflation was 4%, I'd expect to pay $104 for their stock with 0 value creation whatsoever.

The upper decile of income earners account for more than half of all consumption in the US. Household balance sheets and wealth have never looked stronger, again when you account for all the appreciated stocks and properties owned by the upper quartile. True incomes for the lowest decile rose significantly for the first time since 1970 in 2022 and then sort of stayed flat again. Sure, statistically significantly, not "significantly" as in personally meaningful after figuring in rising consumer costs. There is a narrative where you can see all this as hugely positive but this is also largely a "vibes" based narrative. I don't know why you'd expect most people to care about what the "vibes" are like for the best off in society, that's a bit removed from their daily concerns.

> Feelings aren’t fact... much of it has to do with rapid inflation and "continued vibes".

Oh the lost irony.

> Consumption has risen, inflation adjusted wages have risen for blue collar and white collar alike.

My wages haven't risen for nearly 5 years, while inflation has occurred over the past 5 years. Why the blanket statements?

> The main thing holding people back is the housing crisis. This is orthogonal to the value creation of businesses.

Are you suggesting a "housing crisis," in your words, wouldn't impact consumption? I'm watching my spending (and living like a child in his parent's house, except it's not my parent and I have to pay for it) in the hopes that in about a decade, I'll have saved up enough of a down payment for a home somewhere in my state that I could actually afford the mortgage on the remaining amount. There are plenty of things I'd potentially spend money on but won't as long as I feel like I'm economically stuck and have a chance in hell of saving my way out of it. So this feeling translates to fact.

If you think my personal experience is just an anecdote and doesn't count because it's not being told through the lens of large-scale numbers, fine. But I really agree with the person you replied to that you're gonna have to be a whole lot more specific than "value creation" if you want people to spend money on your AI products "in this economy," whether it's because they're actually strapped for cash or just pretending like you seem to think they are.

The most recent U Michigan 'Survey of Consumer Sentiment', which is THE authorative source in the US, shows consumer sentiment at the lowest levels since the survey started in 1977

From the U Michigan page: https://www.sca.isr.umich.edu/

or from the FED https://fred.stlouisfed.org/series/UMCSENT

Seems to be a thing in the US to need specialised software, an accountant or AI to file taxes.

In most of Europe individuals at least don't need any of that. I'm in France and it's just a connection to a government run website to enter a few figures, takes less than an hour most of it is already pre-entered (salary etc), the main thing to add manually is charitable donations.

If you're running a business then yes an accountant can be good (or be required depending on the legal form of the business) but not for individuals.

Taxes are one of those things that seem difficult and people reach for tooling or expertise without trying initially without, but are pretty easy to do yourself just filling out the forms.

Part of the value of paying an accountant is that you can get representation in case you are audited. Though I guess you did say you were confident it is correct.

This also sounds like rich people problems. Vast majority of people with a W-2 take the standard deduction.

I think that to sum things up, we will have to wait until we can evaluate the cost of the mistakes. You could be lucky but you could also end up with a very negative output value in the longer time frame.

I did my taxes this year too with 5.5 and 3.1

Otherwise normally costs around $800 to do, because I have a small business too.

> as long as I am confident it is correct

Are you? Does it cost you extra (time or money) to be?

> a driving factor will likely be how good we can make models that are so small they use almost no compute.

That will certainly help but it doesn't move the fundamental limit because resource efficiency is a cost driver not a demand driver - and my argument is against the thesis that lying beyond professional devs and knowledge workers, there's an untapped trillion dollar industry serving LLMs to mass global consumers.

Using Simon's cost estimates, I agree that halving the current $1,000 - $1,200/mo MSRP to profitably serve frontier inference to professional developers and knowledge workers (PD&K) will help Vendor A steal share from Vendor B or C. It will also increase LLM sales penetration into the segments of the global PD&K TAM which can't afford ~$1K/mo for every seat. A fair chunk of the PD&K workers in many SMEs aren't included in today's ~$1K/mo per seat license pool, especially in 2nd and 3rd world geos. When the price falls to $500 and $250 most will but that's still just saturating the existing PD&K TAM - not pushing into mass consumers.

While the PD&K TAM is big, justifying Trillion+ dollar capex spend requires believing the TAM is much more than PD&K and eventually grows into converting a couple billion non-PD&K consumers into ~$20/mo subscribers. I don't buy it for two reasons:

1) The Comps: There are vanishingly few examples of long-term, mass consumer adoption of a discretionary technology at that scale. Mobile phones at ~$15 to $30/mo are the obvious one but LLMs are nowhere near being that valuable to the average plumber in Des Moines, baker in Jakarta or retired nurse in Hamburg. Pondering it, I just imagined forcing any of those people to choose between their mobile phone and an LLM chatbot. Sure, some who are flush with cash might choose both but for most consumers in the world ~$20/mo is big enough they'd have to pick one and ~zero percent would choose the LLM over their phone. After mobile phones, the second comp for discretionary tech spend I thought about was XBox and Playstation monthly gaming subscriptions but combined they have less than 90M paying subscribers and the ARR is just under $10/mo. As an industry, "Big LLM" is spending well over a trillion dollars every five years. XBox and PS ARR doesn't even cover paying the interest on that capital, much less the 3 to 5x returns hedge fund investors are betting on.

2) The Alternative: It's useful to doubt my own intuitions and one counter to my skepticism is to assume "But LLMs aren't finished yet, they're going to get much better." How much better could an LLM which can be profitable at ~$20/mo get than Claude Mythos in the next five years? Instead of debating future unknowables with myself, I've found it's better to just imagine the most perfect future product I can that's still realistically plausible. So, let's imagine we're willing to spend a million dollars a month to very unprofitably deploy a prototype to test the consumer demand for "Tomorrow's Awesomest $20/mo LLM" today. So we gather a few hundred super smart, broadly knowledgeable intellectuals together at one top-tier university research library, where they'll have access to every commercial database and unlimited Claude Mythos 2.0 and ChatGPT 6.0. Since our experimental budget is $1M/mo we can afford to add in several Nobel prize and Fields Medal winners too. They'll work together manually reviewing and improving not only every LLM answer but also our test user's prompts - and of course our test chatbot will have human-level real-time speech recognition and vision (via Zoom and screen-sharing with actual genius-level humans), making this truly a test of the "smartest, most accurate, best consumer chatbot" we can imagine.

Now, let's run the test by having one thousand mass consumers try it out and see how many Des Moines plumbers, Jakarta bakers and Hamburg retired nurses we can convert to a 1 year @ $20/mo subscription for our $1M/mo ultimate chatbot simulation. Playing this thought experiment out in a bunch of ways, I find some percentage of outliers, iconoclasts and closet intellectuals would go for it but... the vast majority just don't find it enough better than "free" chatbot alternatives AT&T includes with their phone subscription or Samsung bundles with Galaxy phones - despite only being ChatGPT 5.4-level. It turns out, most plumbers, bakers and ex-nurses don't have a compelling "job to be done" in their daily lives that even an MoE panel of actual Nobel and Field's medalists with ivy league professors can make enough more valuable than an inferior but free-to-me chatbot, in the judgement of our Des Moines plumber. While the world's smartest chatbot is nice, when it comes time to pay, he prefers having one additional premium football match on TV and a six pack of cold beers every month.

> What are the non-tech people in your life using AI for?

Mostly asking random questions they used to search Google for.

> next to Starbucks and avocado toast, is discretionary.

Sure, but your description implies highly affluent, urban professionals in western nations. I was talking about getting several billion global mass-market consumers to all keep paying ~$20/mo. Mass consumer adoption of mobile phones worldwide is currently >5.8 billion or >70% of humans alive. Only ~50M people are paying $20/mo for an LLM and I suspect many of them are not pure consumers but actually knowledge workers that AI vendors are losing money on and will eventually force into higher tier plans just like the $200/mo developers they're currently losing money on. These heavily subsidized loss-leader offers are all going away post-IPO.

Personally, I know maybe a dozen people who pay $20/mo for an LLM but only two of them are really 'pure consumers' who don't use it for knowledge work. Both of them are multi-millionaires and neither has had a job in ten years. One is retired like me and the other is so wealthy she has a Netjets credit card and has new cars delivered like some people order shoes. Everyone else I know paying $20/mo is a professional who uses the LLM for a lot of office or knowledge work and writes it off as a business expense - examples include a couple of attorneys who are senior partners in a law office they own, a solo architect, and a dentist who owns his own practice.

At $20/mo, AI vendors are probably losing money on most of my professional friends because they use it pretty heavily all day. They're only making money on the two multi-millionaires who both use it so infrequently they could easily be using free chatbots instead but are so rich they could lose $10,000 in their couch cushions and not notice. While they are profitable at $20/mo, they aren't exactly "typical consumers" that there are billion more of. I expect AI vendors will find ways to force my lawyer, architect and dentist friends to switch to higher priced plans soon because they're really knowledge workers abusing a consumer tier plan into unprofitability.