The Economy’s Weekly Recap

11/3/23 - 11/10/23

Raymond Lin

This Week’s Prominent Events

Elon Musk’s Innovative(?) AI

• When it comes to Musk, there seems to be no tech industry that he doesn’t want to get involved in. Musk is already involved in EVs, space exploration, solar energy, social media, self-driving AI, neurological AI, and, now, generative AI. 

• Musk’s company xAI has, after about a year of existence, launched Grok. Grok is a generative AI like ChatGPT, but appears to have unique traits like witty responses, improvements in certain capabilities, and access to data from Twitter. Musk has said the usage of Twitter’s data will give Grok a leg up since it can use current information. 

• It remains to be seen how useful Grok is, but, as of now, OpenAI’s ChatGPT appears to still be dominant. It launched its ChatGPT-4 Turbo on Monday, which has numerous improvements like…

  • Personalization of ChatGPT that can be easily accessible and transferred through a GPT store, which may be able to generate money for uploaders and OpenAI.

  • Data up to April 2023, an improvement over the previous limit of September 2021.

  • An increased input limit of 300 pages

  • Compatibility with DALL-E 3 for AI generated images and text to speech

  • Lower costs for developers per token

• When taking the competition into consideration, it seems Grok and its competitors have a long way to go before unseating OpenAI.

SpaceX’s Future 

• Speaking of Elon Musk’s businesses, Elon’s space exploration company SpaceX has recently made headlines for its successes and future potential. According to people that Bloomberg interviewed, SpaceX is on track to make $9 billion in revenue. Furthermore, this is expected to rise to $15 billion in 2024. 

• This revenue and associated growth comes from SpaceX’s Starlink satellite internet service and rocket launches that ferry NASA astronauts among other things. 

• Additionally, according to SpaceX COO Gwynne Shotwell, SpaceX’s cash flow is positive and will make money. Adding onto this, Elon Musk has said that the Starlink satellite internet service has already reached the break-even point in terms of cash flow. 

• This financial success and future potential of SpaceX has led billionaire investor Ron Baron, whose firm owns over $1 billion in SpaceX shares, to predict that SpaceX will be worth between $250 billion and $300 billion in the next 3 years. Additionally, Baron said that he expects SpaceX to hit a valuation of around $500 billion by 2023. 

• The company is currently valued at around $150 billion after shares were sold at $81 earlier this year. 

The State of the News Industry

• Newspapers have been one of the most important industries in society, serving to provide people with pertinent news about culture, politics, or, like Phi Fiscal, the economy. 

• However, newspapers have generally been struggling ever since the rise of the internet, which led to decreased interest in and advertising revenue for traditional newspaper companies. In response, many newspapers have pivoted towards focusing on the higher margin digital side of their business. 

• A newspaper that has succeeded with this strategy is the New York Times. In its third quarter, the NYT had 9.41 million digital subscribers and 670,000 print subscribers. It also had adjusted operating profit of $89.8 million and revenue of $598.3 million, up 30.1% and 9.3% year over year respectively. Their digital transition and multi product bundle has led to growth and success, even in troubled times for others in the industry.

• The Washington Post, for example, has had fairly poor recently. It projects a loss of $100 million this year and will try to reduce headcount by 10% to cope with its losses. Additionally, The Washington Post’s loss comes despite having 2.5 million digital subscribers and largely getting revenue from its digital business. 

The End of SAG-AFTRA’s Strike

• After 118 days of striking, the longest strike in the 90 year history of the actor representing union SAG-AFTRA, a tentative deal has been reached between the union and the Alliance of Motion Picture and Television Producers. 

• This deal comes a few weeks after the Writers Guild of America, which was striking simultaneously and for similar reasons as SAG-AFTRA, reached a deal with the AMPTP. These strikes have massively slowed down Hollywood and caused, according to California's Governor Gavin Newsom, more than $5 billion in economic losses to California. 

• However, for the actors and writers involved, the strike has been a massive success. The actors have managed to secure…

  • A large increase in minimum wage

  • A residual, which is a form of royalty, for streaming programs

  • Protections against AI usage

  • Increase in pension and health plan caps

  • Increased compensation for background performers

  • Protections for diverse communities 

• Specifics of the deal are still scarce and will come out soon, but it has also been revealed that the contract is worth over a billion dollars.

US Credit Card Debt

• According to a report by the Federal Reserve, credit card debt rose $48 billion to become $1.08 trillion in Q3 2023, a 4.7% increase in just one quarter. While this figure is staggering, it hasn’t come out of left field. The US economy and its consumers have remained robust and resilient, even as pandemic funds dry up, interest rates rise, and inflation proves steadfast. 

• This credit card spending may be a good thing in the short term, but it can lead to unsustainable lifestyles and poor financial planning, contributing to economic inequality and poor future planning. Additionally, 10% of credit card users are already in persistent debt, where their debt grows more than they pay.

Future Events

The US and China

• Over the last few years, the US and China have drifted apart economically. They have slapped tariffs on each other’s goods, restricted or banned the activity of certain companies, and largely restricted dialogue between each other. This has led to a frosty business and political environment, even as global tensions warm up over things like Taiwan. 

• However, there have recently been some moves in the right direction. Earlier this week, high ranking officials from both countries, Treasury Secretary Janet L. Yellen and Vice Premier He Lifeng, met and communicated their primary concerns to each other. 

• While this was only a dialogue, it paths the way for friendlier communications and leads to proper diplomatic channels being maintained. This, along with President Biden and President Xi’s meeting next week, may alleviate some worries regarding political and economic conflict.

• However, it should be kept in mind that these meetings are just that, meetings. They are very unlikely to bring about any effect in the near future, but they go a long way to sustaining relations in what looks like a new cold war.

A Looming Government Shutdown

• Just like during September, House Republicans are trying to pass a continuing resolution(CR) by next Friday to avoid a government shutdown. A CR is a short term funding bill that will maintain current spending until a later date to allow for more negotiation time. It was also passed at the end of September to allow the government to continue operating.

• That CR resulted in United States Representative and former Speaker of the House Kevin McCarthy being removed because he compromised with Democrats. This leaves current Speaker Mike Johnson with a serious dilemma as he tries to piece together a CR next week. If this fails, the federal government will shut down, resulting in…

  • Millions of military and civil government workers facing delayed paychecks.

  • Many Federal workers being furloughed, meaning they don’t work and don’t get paid.

  • Shortened or closed federal offices.

  • Delays in clinical trials, firearm permits, and passports.

  • Major economic disruptions to sectors like travel.

  • General uncertainty, the bane of investors.

• This uncertainty over the US government’s ability to operate has resulted in Moody’s putting the government’s credit rating on a negative outlook, which means they may downgrade American debt.

Fighting Climate Change

• Climate change will have, and to some extent already has, an immense impact on people’s lives. It will cause economic devastation and loss of life in rich countries, but it will be especially dangerous in poor countries.

• To combat this, countries and companies have moved towards more renewable energy sources, less pollutive practices, and, now, carbon capture technology. 

• Heirloom Carbon Technologie has launched the first direct air capture commercial plant, where carbon dioxide will be pulled from the air and stored in concrete or, in the future, in underground storage tanks. The company makes money by selling carbon removal credits to clients like Microsoft, which has signed an agreement to purchase up to 315,000 tons of carbon dioxide being removed. 

• This carbon capture technology will be a powerful supplement in the battle against climate change, serving to supplement renewable energy in reducing our carbon footprint. However, as of now, the technology is still nascent and expensive. While it should be watched, it shouldn’t be depended on in the near future as a source of significant impact.

Weekly Question

Which of the following does not have an X in it?

• A: Elon Musk’s youngest child

• B: Elon Musk’s social media platform

• C: Elon Musk’s space company

• D: Elon Musk’s first company

Answer: While it would be funny if all of these were true, one of them isn’t: D. Elon Musk’s first company was called Zip2, which was an online business directory like the yellow pages. He sold Zip2 for $300 million and was then ousted from his position as CEO by investors. His second company was called X.com though, so his X obsession has been with him since the start.