>I do think there is a real but moderate Jevons effect here: because inference is so cheap now, I’m much more likely to implement marginal automations than I would have been before. But it isn’t unbounded. In practice, it’s maybe 2x or 3x as much code as I would have wanted at the old price, because I still have to specify what to build, review the output, and maintain it. When the price per task drops 20x, and my usage only goes up 2x to 3x, total dollar revenue into the ecosystem (and net GPU demand per user) still collapses by 70% to 85%.
I don't think this checks out. Jevon's paradox doesn't say when electricity becomes 20x cheaper, someone already using electricity will use 20x more on the same thing they already do, or even 20x more at all. It means a combination of more people and more enterprises will use it, and use more of it.
Concretely - at Claude API prices I'm not going to have AI run a bunch of things that I can do without it. But at DeepSeek API prices, I might.
Fundamentally, I think that we aren't even imagining a number of the use cases for AI, in large part because they don't exist yet. But I do think they will eventually exist in the next 20+ years. Right now we are strapping AI to everything, not reimagining life with coherent artificial intelligence. Similarly I couldn't have predicted something like Walmart+ or Amazon Prime back in 1995.
I have no idea which way it will go. Maybe most people will be satiated once they can generate video on demand. They don't need many tokens to read and write their email, book a flight, or do their homework.
However, I'm a geek who sits online all day, and I don't pay for the top tier of bandwidth available to me. I also see occasional comments where people are saying they use Sonnet or Luna because they're good enough. Maybe in 20 years people will point to the incompetence and greed in data center build outs too.
The thing is, these AI GPUs are sold at insane markups - a 5090 was like $1700 MSRP, and a datacenter GPU can't cost like more than triple to make - its just that there's so much demand, that people are paying these markups; thast means these companies are flush with cash, and its in their best interest that their customers don't become insolvent, because then its back to selling GPUs to us rubes, who get sticker shock at 'even' a $1000 price tag.
Therefore they both have the ability and willingness to maintain this forever.
Demand also seems to be there in droves, so the only scenario I can imagine is if datacenter or power infra buildout becomes impossible - plausible, but not what people are worrying about right now.
And the point I'm making, is that shovels are sold at min. 5x markup, and the shovel company (Nvidia and others) has no interest in seeing the market collapse, and is willing to use its generous profits to prop it up.
The catch is that the vast majority of that demand is from data center projects, not actual AI users. And data center projects are funded by private credit that is speculating about future demand (most of these centers will take years to build out). So a corporate user who would put the hardware into service now has to compete with a data center project that is hoarding GPUs for the future. If those GPUs end up being used AND the operative margins on AI SaaS are high enough, then the speculators may win. If either of those conditions are not met (and both look pretty shaky), then the data center bubble will burst and the GPUs will flood the market at pennies to the dollar.
This couldn’t be further from my experience; producing code has never been the bottleneck.