AI and the Core Feature of the Silicon Valley Economy

As we have this on-going discussion about AI, I want to return to the question of scale and externalities and how they are the defining feature of the Silicon Valley economy. We can’t make any sense of today’s discussion of LLMs and AI without placing it in that context.

“Externalities” are all the byproducts and secondary effects of, in this case, a business enterprise. If you make paint or industrial solvents you create various kinds of pollution in the process. How is that dealt with? Specifically, are you the paint or solvent maker responsible for dealing with those consequences? More specifically do you have to pay for dealing with those consequences or are they absorbed by the society at large while the profits of the enterprise go exclusively to you? “Absorbing” those consequences can mean accepting levels of illness, diminished quality of life or simply having society at large pick up the tab for various kinds of remediation. The externalities are really just costs, but often semi-hidden ones. A huge amount of public policy deals with properly or improperly bringing costs and externalities into alignment.