Exponential Impact

Exponential Impact

Investing philosophy and research invariably comes with a certain degree of mild and persistent anxiety. There’s always a fear that growth has topped out and can’t possibly go any further. It’s helpful to keep in mind that technological progress (human ingenuity) is the ultimate driver of continued growth regardless of where you might see slowing growth.

GDP growth is a function of population growth, productivity growth and debt growth. Going back to the 80’s there was a famous bet (Population Bomb, Simon-Erlich wager) that the global population would not be able to grow beyond its current size due to global resource constraints. Erlich, the doomer, lost the bet. We’re going to dive into this in more detail in a future post. Innovation is often closely tied to productivity growth, but it can also be tied to population growth, as you will see below.

GPT + GLP = GDP

Credit goes to Jason Kirby of the Globe and Mail for this clever phrase. AI (ChatGPT) + Ozempic (GLP) = Economic Growth (GDP).

ChatGPT AI

AI enhances productivity. I’ve covered this in full detail in previous posts so I won’t spend too much time on this topic this week. Waymo’s driverless taxis are now delivering 100,000 rides / week. For context, Uber drivers do about about 180m rides / week. AI will clearly replace jobs. The pessimistic view is those people will never find another job and that innovation results in a net loss. The optimistic view is that AI unlocks that human capital so it can be used elsewhere for other more beneficial tasks. In other words, the rides are still happening productively and now we have new people freed up to contribute in other ways. It’s capitalism’s natural function to find a way to match those displaced workers with new opportunities.

GLP-1s (Ozempic and other brands)

GLP-1 is a naturally occurring hormone in the small intestine that triggers changes related to blood sugar, insulin response and your brain’s perception of hunger and satiety. It’s known primarily as a diabetes and weight loss treatment.

The medical community has been aware of the GLP-1 hormone for a while, but it wasn’t until the success of Ozempic that its full potential caught the interest of the news cycle. Now, there’s growing evidence of significant and positive impact in other areas. There are clinical trials underway for positive benefits unrelated to weight management or diabetes, including:

• Heart attack and stroke risk reduction
• Alzheimer’s and dementia cognitive function improvements
• Fatty liver disease and kidney disease treatments
• Addiction treatment like alcohol, nicotine, opioids, stimulants, and behavioral addictions like compulsive overeating, gambling and shopping.
• Inflammation control benefiting cardiovascular and metabolic function
• Potentially as a fertility treatment for both men and women
• Potential to lower the risk of certain cancers

This growing list of benefits has inspired a debate as to whether healthy people should consider taking a dose at some point in their lifetime as a general preventative measure. These medications aren’t all that cheap at roughly $1000/mo in the US and $250/mo in Canada. Insurance can justify paying for prevention mechanisms because the cost of a real medical emergency is an order of magnitude more expensive. An ounce of prevention is worth a pound of cure.

The 2nd and 3rd order impacts are where GLP-1s start to impact GDP. Medical emergencies keep people out of work for long potentially permanent stretches. Chronic illnesses are expensive financially, timewise and emotionally to manage. At the extreme level, emergencies can ruin people’s financial lives and can add extreme stress for their family members. Even at the lowest level, people battling a health concern are less productive in general. As the saying goes: a healthy person wants many things, a sick person only wants one.

Aggregate Impact

It’s hard to predict the magnitude of the impact. Fortunately, we don’t have to worry about calculating a precise figure. All we have to do is recognize that the impact exists and that it’s positive and the rest will largely take care of itself.

If GLP-1s increase the supply of healthy people, that’s as good as increasing the total population – think a penny saved is a penny earned. If AI can also make those people more productive, you end up with a multiplicative effect. We know AI impacts everyone and every industry. If the impact of GLP technology is as pervasive as AI, then dual exponential benefits come into play. The economic impact does not have to be priced into markets yet because it’s unrealized, it hasn’t happened.