Reshaping America’s Economy for the Superintelligence Century with Jacob Helberg

0:05Hi, listeners. Welcome back to No Priors. Today, Alad and I are here with Jacob Halbert, the Undersecretary of State Designate for Economic Growth, Energy, and the Environment, co-founder of the Hill and Valley Forum, connecting Silicon Valley to policymakers in D.C., and author of the book, The Wires of War, Technology and the Global Struggle for Power. We talk about what America needs to change about its global supply chain, why nuclear is the key to energy abundance, the return of American manufacturing, and superintelligence as a means for productivity and economic growth. Jacob, thanks so much for being here.

0:37Thanks for having me. So very exciting in terms of your new role as undersecretary for economic growth, energy and the environment. Can you start by just telling us a little bit about what your initial agenda is or what you're excited about? A few of the topics that I discussed in my opening statement and my Senate confirmation are focused on securing our supply chains. Our economy is extremely over-reliant on a supply chain system that's very brittle. We have 90 % reliance on critical minerals that are refined in China, on semiconductors that are manufactured in Taiwan. We have one of the best innovation ecosystems in the world, but that innovation ecosystem is sitting on top of a supply chain system that is very exposed to potential geopolitical disruptions.

1:29And so helping move the needle to forge new partnerships with other countries to secure that is indispensable, as well as supporting ongoing efforts by the administration to reshore as much as we can right here in the U.S. would really go a long way to help give our builders the tools that they need to do what they do best, which is build products people love that are disruptive and that help grow the American economy. What are some of those things that you think are most important to be sure? And I think you also have sort of a broader purview of the anatomy of the U.S. economy changing and mutating.

2:02And could you actually give us the big picture and then kind of the specifics in terms of how you think things are shifting? And then what do you think is most important to kind of bring back? Yeah, totally. So one of the fascinating things about this current era and decade that we're in is we're actually really seeing the juxtaposition between the macroeconomic effects of the policies implemented by the Trump administration juxtaposed with incredibly powerful technological shifts, especially in artificial intelligence. And what I mean by that is President Trump came in and instated a blitzkrieg of policy reforms, fast-tracking data center permits.

2:43On day one, He rolled out an EO to unleash American energy to facilitate and support the production to surge production capacity for energy sources like oil, gas and nuclear, as well as clean, beautiful coal, as he says. And so the net effect of all of these different policies, combined with incredibly fast-paced progress in artificial intelligence, is actually changing the makeup of our economy. And we're starting to see that in the data because for a long time, the American economy was primarily a consumption-driven economy. We have, at different points in time for the last few decades, been between 70 % and 80 % consumption driven.

3:33Over two-thirds of our economy have been entirely driven by services, and about 10 % has been manufacturing. And we're starting to see those numbers move. And the manufacturing makeup of our economy as a share of GDP has remained as of now roughly the same, but that's a lagging indicator. The more interesting one is we're seeing massive CapEx investment, as you guys know, that has really picked up in a statistically significant way. It's over 2 % of GDP right now, and it's probably going to double by next year. Part of that is the result of tax incentives. Part of that is just making it easier to get permitting.

4:18Because as you guys know, a lot of this stuff boils down to how do you compress the window when you want to make a CapEx investment? You know, the business people make a decision about whether or not it's going to take seven years or five years to actually get something up and running. And compressing that window as much as possible actually really moves the needle. Are there common areas, sorry to interrupt you, but are there common areas of CapEx that you're seeing in particular? Is it defense? Is it space? Is it industrial? Is it other types of manufacturing? Is it biotech? I'm just sort of curious if there's like a clear breakdown of...

4:49I've seen analysis that basically says that it's added a full point of GDP just for AI in the last year, which is a lot because the economy grew 3%. So if a third of that came from AI infrastructure, that's a lot. Energy infrastructure is another really big one. For the first time since 2008, we're actually seeing an uptick in national demand for energy. Our total electricity supply has flatlined since 2008, which is just an interesting statistic that I've recently come across. And now we're seeing that trend change. And the other one is raw industrials. So things like mineral production, the DOD has forged a strategic partnership with a firm called MP Materials for$750 million to reboot domestic rare earth magnet production.

5:48And the last one is to, you know, one that you touched upon a lot, which is we're seeing a global trend across the world where governments are spending a lot more on defense. A record high was reached this year with$2.7 trillion in global spending on defense. 60 % of that came from, you know, countries that very large countries like the U.S., China, Russia, India, and Germany. And the big trillion dollar question is, what will they spend that money on? And the answer might actually really define the shape of hard power in the 21st century. As you guys know, I mean, a government is a little bit like a company.

6:31If you don't allocate capital efficiently and you actually end up wasting it, you could have a situation where some of these governments have militaries that are paper tigers. And that's where, you know, and you're kind of seeing a little bit of a window into this in Ukraine, where AI is really, AI and autonomy is really changing outcomes on the battlefield. So those different trends are incredibly fascinating to watch. What made you decide that you wanted to make supply chain security like the one of the primary things you addressed early? Like, how does the vulnerability to China and others for minerals and components end up mattering?

7:09Yeah, so that's such an important question. And the answer is that China is obviously a systemic rival. You know, some people say it's an adversary, regardless of the flavor that one wants to characterize it with. they're definitely a rival. They have fundamentally a different view of how the world should be run than we do. And a lot of what they have been doing internationally to compete with us really flows from, is an outflow of the fact that they are the world's factory floor. So their presence in Africa, I'm sure you guys have read articles that lament how China's taken over Africa. They're all over Latin America.

7:53They have the Belt and Road Initiative. All of that is a byproduct of the fact that they produce the lion's share of the world's manufacturing output. So they import raw materials from Africa, they manufacture it in China, and they re-export it everywhere else. And so if you solve the trade imbalance issue with China, you actually address all of the peripheral issues with their influence in all of these third markets. And so it is a national security issue to do that because obviously their footprint in some of these places has proven problematic. But it's also good for our companies because as we've seen with their export controls on rare earth magnets, the last thing we need as a country is for our best companies to beg Beijing for permission to get licenses for rare earth magnets in order to manufacture cutting-edge technological products.

8:52What's the solution to that? Because if you look at rare earth minerals, for example, nanomagnets are sort of a subset. They actually aren't that rare. There's huge deposits in Canada. There's big deposits in the U.S. There's deposits in India. Fundamentally, they're not actually rare, but they're called rare earth. And then they're fundamentally mined in a small subset of countries that actually have access to them. Should the U.S. be changing its mining policy around this? Should we be to Canada? I'm sort of curious how you think about how to address that, because there's a few different ways to approach it.

9:22One is just to mine more in certain places. China only emerged as a rare earth mining superpower about 10 years ago. It came out in 2015 with its Made in China 2025 plan. And from that date onwards, we actually saw China's refining activity of rare earth materials skyrocket. So what happened was they pursued a very aggressive industrial policy to build refinery capacity in China. And they started to flood the market, which sunk the price and started to really squeeze refineries located in the West, in Australia and Canada and in the United States. We actually have refineries. Historically, we have had refineries.

10:10And there is a huge refinery in Tennessee. There are refineries in Arizona and Georgia. and um and so the the solution to help put the genie back in the bottle is i think actually the dod's deal with mp materials offers a good template which is you need an anchor buyer and and an end customer and you need a price floor so you need to agree with the supplier in this case mp materials on a floor for a price because what happens when uh these big offtake agreements when a Western refinery tries to compete with China is China will artificially sink the price, the global price, depress it in order to put Western alternatives out of business.

10:59And then they raise the price again, which is classic monopolistic behavior. We can fix that with offtake agreements and a price floor. And I think the MP DOD deal offers a good blueprint for that. When you project forward from as you're talking about some of the leading indicators on CapEx and what's possible in terms of reengineering trade flows, like if it's not just consumption, like what do you imagine makeup of the American economy can be in terms of manufacturing other elements over the like the next 10 years? Because I think a lot of people took as a given like, oh, American labor costs are just too high.

11:36Like it's a service economy now. In school, they used to teach us that it was almost part of a natural evolutionary process that when you reach a mature stage in economic development, you know, your economy evolves into a service economy and it's just the natural order of things. And I actually think AI offers advanced economies, so to speak, a massive opportunity to violate that narrative. Isn't that narrative violated traditionally by Europe as well? So if you look, for example, the German industrial base or there's lots of examples in the Western world where that didn't happen. And so it seems like the underlying premise was kind of something that became self-fulfilling in the US, but didn't necessarily translate into a number of other Western economies at all.

12:23completely completely and i think so i mean the fascinating thing is um you know as as you guys know um in peter thiel's zero to one he talks about how you can either compete vertically or horizontally uh horizontally is globalization vertical vertical competition is um is uh innovation and i think the basic paradigm is um for a lot of the 2000s we were really growing our economy horizontally through globalization, and we weren't really growing a whole lot vertically. And the interesting thing is the last seven years or so, I would argue vertical growth has actually picked up a lot. And to really appreciate the potential impact that AI can have on productivity.

13:16If we increase productivity, it will totally erode the competitive advantages in labor costs that developing countries have. And we have an opportunity to re-industrialize. And to appreciate the extent to which AI can give us that opportunity, I think you can look at history and the first industrial revolution when industrial output in Britain, because Britain industrialized, China at the time did not. So it's an interesting comparison because Britain was obviously a tiny country by population from a population standpoint and a much more advanced country than China. But because of technology, Britain had an industrial output per capita that was over 50 times the industrial output per capita of China.

14:07And Britain's GDP far surpassed China. China's GDP in the 1800s totally collapsed. It went from being about a third of the world economy in 1800 down to about 7.5 % in 1913. And so it just shows the power of technology. Today, you can see differences between Israel and Nigeria. Nigeria is a huge country from a population standpoint. And Israel, a tiny country that's smaller than New Jersey, has a bigger GDP and a stronger military, and it's all because of technology. And so the people who say that we can't re-industrialize because China has a bigger population or people are more expensive, I think are totally missing the plot.

14:53I think I'm a believer that AI will, far from replacing humans altogether, will actually give humans superpowers, workers superpowers, and will massively increase productivity. And I've become somewhat fascinated with this macroeconomic theory called Jevons paradox, which is that the basic economic principle that when you have a technology that massively increases efficiency, demand for in a resource, demand for that resource actually increases. It doesn't decrease because the relative cost of that resource goes down. So that's my basic take, my optimistic take for manufacturing in America. So I feel like you are perhaps the first policymaker I've talked to whose first instinct on AI is like it's about productivity versus, you know, addressing some very real risks.

15:49But, you know, we were talking and you said to me, like, what if the economy was 45 trillion? Right. Like there there are historical analogies for that kind of increase in productivity. But as you also recognize, it's not the dominant narrative today around AI. Like, what do you think will help more people see that opportunity or what do you think they should understand about that potential productivity gain? Yeah. So I guess, I mean, the way that I would frame it differently is if you believe that agentic AI is going to make each individual worker be able to do a lot more stuff, if you're a company or if you're a country, you're basically looking at two outcomes.

16:34If you're a country with a GDP of 10 trillion and all of a sudden you only need a tenth of the workers to perform the task that 100 workers previously were able to perform, you either need a lot less workers or the totality of your workers will produce 10 times more. And I actually think companies will choose, far from laying off workers, I think companies will choose to increase output because if they don't, their competitors will. and if you believe that from a first principle standpoint that human wants are unlimited which I would argue they are I mean just look at our everything we consume today compared to our grandparents I think we're looking at a world that's just going to produce a lot more stuff and workers will just do a much bigger range of things because of AI and so I'm actually quite optimistic about the future of work.

17:38You've talked a little bit about about this being kind of a super intelligent century. Could you explain what that means? Has it started? Is it about to start? Like, how do you think about that concept? We're starting to see the contours of a totally new world. And if you think about what the narrative was 10 years ago, 10 years ago, the narrative was the 21st century is going to be the Chinese century or, you know, the century where the East rises, so to speak. What it's proving today is I actually think the defining feature of this century is not the rising of the East or the rise of China. It's really the rise of superintelligence.

18:19And the way that we're seeing this change the global landscape is, on the one hand, I think we're likely to see a second great divergence. So for the first time since the first industrial revolution, I think we're going to see the economies that are first movers in integrating AI into their economy, reap massive productivity and growth benefits and start to leapfrog the rest of the world that is lagging in AI adoption. Number two, and a byproduct of this, is a collapse of the cheap labor advantage that a lot of developing economies have benefited from for the last 50 years. The third big feature, which really hasn't been discussed a lot in the press, is that Europe's economy has been collapsing.

19:16And so, you know, the narrative today isn't that China's rising. The plot twist that no one saw coming is that it's actually Europe that's just completely collapsing. So Europe's economy went from being 65 % of global GDP in the early 20th century to roughly a third in the 80s and 90s. And now it's down to 15 % of global GDP. What are the drivers of that? Are there specific policy things that happen, specific decisions? The Europeans blame it on the oil shock of the 70s, but that was 50 years ago. So reasonable people have different takes. I would argue that you can really just that they missed the boat on a lot of really big technological revolutions.

20:08They missed the boat on, you know, they were very late to adopt the Internet. They were very late to embrace the digital and Internet revolution and the consumer app revolution. and now with the AI Act that the EU passed and the digital services tax, they just keep shooting themselves in the foot and I think the AI Act is basically single-handedly ensuring that Europe will not be a first mover in AI because it's now subject to these incredibly punitive set of rules and that's actually a great segue to another interesting feature, which I find to be a total plot twist, is the part of the world that we're really seeing surging is the Middle East, which is just really interesting because when you consider that GDP per capita in the UAE and Israel is higher than in France today, which is wild.

21:09It's higher than in South Korea. And so you're seeing parts of the Middle East actually emerge in completely unexpected ways, because I think in the West, we've long talked about the Middle East as a war-torn region, a region that struggles with all kinds of geopolitical instability issues and regional conflicts. And you're seeing a totally new Middle East emerge. You're seeing leaders in the Middle East that are super tech forward. And a silver lining of the recent conflict is Iran's influence in the region being greatly diminished actually paves the way for a much, much more peaceful region that's not being held hostage every day to terrorist groups.

21:52So I find the Middle East fascinating. The last two features are, I think the US and China are going to be locked in a very aggressive race to control the scaffolding of the AI architecture for the world. So they're going to, you know, obviously the rest of the world at one point or another will need to import intelligence. A lot of them will not need the super fancy Blackwell chips. They'll need the normal stuff. But who sells them that, whether it'll be NVIDIA or Huawei, will really make a huge difference because both companies and the Chinese will definitely bundle the stack. So they'll have AI out of the box with the Ascend platform and DeepSeek and all of these Chinese tools.

22:40And the Chinese are very good at aggressively competing for market share. So obviously having a strategy to compete in the global South and third markets will be important. And the last is the one that we talked about earlier, which is the global rearmament across the world. How do you think about open source in that context? Because really a lot of the Chinese companies are pushing open source models. And those are ones that can be optimized in all sorts of ways by enterprises and others, by government, et cetera. There's a lot of sort of sovereignty rising. In the U.S., obviously, we have Meta as a champion for open source.

23:15In Europe, there's Mistral. But my sense is that there's a lot of Chinese government involvement in some of these open source models in terms of funding them or promoting them or accelerating them. What role, if any, do you think the U.S. government should play in our own sort of open source AI ecosystem? Well, I think we need to have a strategy to figure out how we promote the American stack overseas, and whether that's through open source or through other models. I mean, I would argue, again, reasonable people have different takes on what happened with DeepSeek. I think the basic building blocks of the main takeaways of how DeepSeq achieved its performance was incremental efficiency gains.

24:03They lied about their compute capacity because they have a billion-dollar cluster, and they distilled ChatGPT's model weights. So while DeepSeq is open source, I would argue it's not really open source if they stole the model weights from a model that is closed source. With that being said, it will definitely be an integral part of China's strategy to try to get market share by using the open source ecosystem. And so in that sense, I think Meta's efforts are very important. But I think having a holistic approach to make sure that we have the very best models and they're as widely used is super important.

24:41What do you think is the relevance of the Middle East, given their level of investment and this, you know, set of leadership that is very lean forward on AI? And, you know, I want to go like broadly into energy, but the availability of energy for gigawatt data centers there and plus like to this fight. Right. Is it like a swing vote? Is it the capital that matters? Like, do you believe in these compute partnerships? Like, should they be a closer ally? Yeah, well, I think the Middle East is actually, you know, has the potential for being a completely new kind of partner for the U.S. And the reason is that, first of all, they actively say they want to move in a much more pro-American direction, which is obviously a good start.

25:28Second of all, as a country, we're energy constrained, so we can expand our energy supply. And obviously the administration and along with the private sector is actively working to do that. But that's going to take time. And so if we want to move really fast, working with partners that have abundant cheap energy offers our companies an opportunity to actually compete on raw energy powers combined with compute and with speed against China's approach. The trick there is really going to be finding the right framework that satisfies security concerns that national security professionals have in Washington.

26:11Some of those concerns are that include that we want to make sure that China doesn't get access to those clusters. But I think it's eminently doable. And ultimately, I know that this is something that the administration is looking at taking a close look at. Maybe we can move to that then, just given we're like in the low single digits at best of actual energy production growth in the U.S. right now. And people have said numbers like we need to double energy production in the United States. Maybe beyond that, if you believe we're going to be a manufacturing hub again, like how do we like what's a feasible way to get there and close that gap?

26:49I think we need nuclear energy. There's no doubt in my mind that nuclear energy offers the best path. And this is where a partnership with the Middle East could also be very interesting because the president has done a superb job at securing very, very large foreign investment commitments into the United States. There's a lot of room for those commitments to be channeled towards productivity enhancing areas. And I would argue nuclear energy infrastructure is a productivity enhancing area because it makes our electricity and energy supply more abundant, cheaper. We know from 200 years of history that there is a direct correlation between the cost of energy and economic growth.

27:37The cost of electricity in the U.S. is half of the cost of electricity in Europe. And we see that difference play out in GDP growth. And so but the challenge is that large nuclear plants that actually produce a lot of energy take a lot of CapEx. They're very expensive. They're dozens of billions of dollars. They also take sometimes seven years to build. Now, the administration is doing a superb job at taking a very hard look at regulations and figuring out ways of actually compressing that window. but it's still very capital intensive. And so working with partners, including in the Middle East, to make sure that we actually get those projects capitalized could actually potentially really move the needle.

28:28I think it's kind of interesting because I think in the US, we're still at what, 17, 80 % nuclear power from the perspective of the overall base. And we haven't really added any capacity roughly since the 70s. And so 50 years later, like 17-18 % of all of our output, which is kind of amazing. With minimal accidents, with high safety profiles, clean energy, it's dramatic that that didn't really take off as an energy source. What do you think is the path to actually deploying more nuclear? Because I know that there's some initiatives from the DoD, there's some initiatives more broadly from the government.

29:04Is there like an initial entry point or starting point to actually start to rebuild our nuclear industry, or do you think it's still TBD in terms of the right policy approach? I mean, I think it really starts with policy uncertainty. So you have, I mean, if compressing the window has a huge impact on the cost analysis that a lot of investors make when they decide whether or not to invest. And then as far as pockets of money go, you know, there are a lot of - But to pause really quick on that first point, I looked into this years ago, and I remember seeing that a lot of the cost of nuclear is actually financing costs overruns where you start building a plant.

29:44There's protests and other things organized against the plant. There's other regulatory red tape that suddenly crops up. And a five or six year project suddenly takes 12 years. And you have huge CapEx loans that are sort of put out against that. And so to your point on the time frame, A, you're losing time on ramping up the actual plant. You start producing energy later and making money later. but also those delays are incredibly costly from a financing perspective. And as you know, when you have delays like that, the costs compound because you're paying interest on loans, because you're paying legal fees.