Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
Upside of Inequality Oxford Unintended Consequences

AI Summary. Demand for frontier artificial intelligence models exceeds supply because computing capacity is scarce, allowing chip suppliers and their customers to resell compute at high margins. The author argues alarm over Chinese models is overblown, expecting the inference market to grow faster than training costs so labs can thrive at lower prices.

Ben Thompson Stratechery
Date Posted:

US AI labs look pricier than Chinese rivals right now — but that’s due to a transitory compute shortage, not a gap in the underlying cost structure. Once US compute scales up, the apparent gap will disappear.

Can AI labs thrive at lower prices as inference demand grows?

Core argument: Demand for frontier AI models exceeds supply because compute is scarce, allowing Nvidia to earn very large margins while its customers, such as SpaceXAI, resell compute at high margins to buyers like Anthropic.

Right now demand exceeds supply for frontier models, and supply is limited by a lack of compute. This computer shortage doesn't just mean that a compute supplier like Nvidia makes very large margins, but also that Nvidia's customers, like SpaceXAI, can turn around and resell compute at high margins as well to a company like Anthropic. Anthropic, meanwhile, can pay the markup because they can sell tokens with a higher markup still. I think the reaction to Kimi and Chinese models generally is pretty over-blown, at least from an economic perspective. As long as training consumed more GPUs than inference, it was critical to maximize inference revenue to help fund the next training run, which meant charging very high prices for inference. Going forward, however, I expect the inference market to grow much faster than training costs, which means they really can make it up in volume... frontier labs should have more confidence that they can not just survive but thrive with lower prices (once they have sufficient compute).

Takeaways by Macro Roundup® AI

  1. Demand for frontier AI models exceeds supply because compute is scarce, allowing Nvidia to earn very large margins while its customers, such as SpaceXAI, resell compute at high margins to buyers like Anthropic.
  2. Anthropic can absorb compute markups because it sells tokens at a still higher markup.
  3. The reaction to Kimi and Chinese models is overblown from an economic perspective, since the inference market is expected to grow much faster than training costs, letting frontier labs thrive at lower prices once they have sufficient compute.

Related Articles:

  • China’s Moonshot Unveils AI Model That Narrows Gap With US Firms — Chinese startup Moonshot priced its latest AI model at roughly the same level as Anthropic's Sonnet, a premium over other Chinese models, and said it has 2.8tn parameters and a 1m token context window. Artificial Analysis ranked the model ahead of Anthropic's Opus 4.8 on some frontier benchmarks, the first Chinese open-weight model to do so.
  • Semiquincententacles — Leading artificial-intelligence labs are moving to usage-based token pricing on a cost-plus basis that includes total ownership costs, pushing token prices higher and giving some enterprises reason to migrate to cheaper open models. Frontier models remain necessary for cybersecurity, distillation training, agents, and scientific discovery, where maximum performance is required.
  • Why .400 Hitters Disappeared — and What It Means for AI — Artificial intelligence models' capability gains are shrinking in percentage terms, falling from about 15% relative to the baseline early on to roughly 10% for the same absolute increment, narrowing the gap between frontier and good-enough models. The author argues this points to a commoditizing market where price, not minor model differences, becomes the main differentiator, pressuring frontier firms' margins.
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