Kevin Warsh Says U.S. May Only Have an 18-Month Lead in AI

The United States currently leads in the AI-driven technological revolution but may only have an 18-month advantage over global competitors, warned former Federal Reserve Governor Kevin Warsh.

“The question in economics is: Is it an 18-month head start and everyone catches up, or can they permanently build a moat?” Warsh said in a new exclusive interview with Aven founder and CEO Sadi Khan. Warsh serves on the company’s advisory board.

Productivity gains may not happen quickly or evenly, Warsh explained, advising companies and business leaders to move fast. “It won’t happen evenly, but those that strike first, that can drive productivity first, they’re going to differentiate themselves from their peers in their industry, have higher margins, have bigger market share, and have a bigger opportunity.”

Discussing how AI could shape employment, governance and society, the former Fed governor expressed his belief that the United States is best positioned to reap the largest benefits.

“What country is most likely to benefit most from the cost of curiosity being zero and the fruits of knowledge being as large as ever? I think it’s the United States,” Warsh said.

“I think it’s super exciting for the United States,” he added. “My bet would be that we’re in the early innings, but the relative growth of the United States at the cutting edge of this productivity wave relative to the rest of the world will gap out even further in the next five years than it has in the past.”

Below is a transcript (edited for clarity) of part of a conversation between former Federal Reserve Governor Kevin Warsh and Aven CEO and co-founder Sadi Khan at Stanford University. The longer conversation is available on Aven's YouTube channel.

Sadi Khan: You were there for the invention of the Internet. You were there for the invention of mobile devices. Now, you’re here for the invention of AI. How do you see AI shaping employment, shaping governance, and shaping society around us, given that you’ve seen some of the most important technical revolutions in the last 50 years?

Kevin Warsh: So, I’m not a technologist. I’ve never been a technologist. And when I graduated here [Stanford University] in ‘92, all my best buddies, they were really technologists. They were engineers. They were computer scientists. I started as a math major—that didn’t work so well, so I turned to economics because math and physics were too hard for me.

Khan: But, you and I do have that in common. I, too, was a math and physics major that switched to engineering because I thought it was easier than math and physics.

Warsh: But I switched to economics, which is still like 14 degrees easier than the kind of engineering you did, the kind of programming you did.

So, in each of these waves, I’ve been an observer. I have not rolled up my sleeves, been at the cutting edge. My buddies were at the cutting edge as I’ve gotten older, and I’ve observed them. So, we can’t make any perfect predictions, but my guess is this is the most productivity-enhancing wave of our lifetimes—past, present, future.

The way I think about it is the cost of curiosity is now zero.

The cost of curiosity when I was in public school, even the cost of curiosity when I showed up in California for the first time in orientation here [Stanford], there was a lot of friction. You’d still go to the library. You’d still be looking through some card system, even if it was on a computer, to find the book, so that’s a very big deal that the cost is now zero.

The fruits of the knowledge from that curiosity are now larger than ever before. So, for most of the last 20 years, I think what we’d say in economics is the best of everything accrued the most significant gains—the best basketball player, the best violinist, the best programmer, the best mathematician, the best of everything.

At this moment, that’s probably truer still because the world is changing so quickly. Market structures are changing. Businesses are being redefined.

So, what country is most likely to benefit most from the cost of curiosity being zero and the fruits of knowledge being as large as ever? I think it’s the United States.

Now, that might sound like a very parochial view from a has-been government economist, but I believe it. I think the best companies in the world are here. The most talented engineers—you can say it better than I—are here or wanting to come here. That’s an amazing development.

So this productivity wave should happen in the United States first. It won’t happen evenly, but those that strike first, that can drive productivity first, they’re going to differentiate themselves from their peers in their industry, have higher margins, have bigger market share, and have a bigger opportunity.

The question in economics is: Is it an 18-month head start and everyone catches up, or can they permanently build a moat?

So, I think it’s super exciting for the United States, and my bet would be that we’re in the early innings, but the relative growth of the United States at the cutting edge of this productivity wave relative to the rest of the world will gap out even further in the next five years than it has in the past. So, it’s an incredibly exciting opportunity, and it’s one where if the U.S. plays its cards right, we’ll end up with a stronger workforce, more important companies, and that prosperity we’ll have in economics will find its way into national security so the rest of the world can look at the U.S. again as a shining city on the hill.