Finance

Science advances one funeral at a time, to paraphrase Max Planck. The Nobel prize-winning physicist was arguing that new ideas in his field would only catch on once the advocates of older ones died off. With a little adaptation he could have been describing the dismal science, too: economics advances one crisis at a time. The Depression provided fertile soil in which John Maynard Keynes’s theories could grow; the Great Inflation of the 1970s spread Milton Friedman’s monetarist ideas; the global financial crisis of 2007-09 spurred interest in credit and banking.Sure enough, the recovery from the covid-19 pandemic has given economists another chance to learn from their mistakes. Papers presented at the recent conference of the American Economic Association (AEA) offer clues as to the theories that might eventually become the received wisdom of the next generation.One such paper takes a harder look at the Phillips curve, which describes a theoretical trade-off between unemployment and inflation. When unemployment is low, the logic goes, inflation should be higher as competition for workers exerts upward pressure on wages. This ought to raise consumer prices. Yet during the 2010s the curve had seemed to vanish. Unemployment kept falling but inflation stayed quiescent. Then, after the pandemic, the relationship suddenly seemed to re-exert itself: inflation rose as swiftly as unemployment fell.At the AEA conference, Gauti Eggertsson of Brown University suggested that adding a kink to the (previously smooth) Phillips curve might rescue the concept. The idea is that, at a certain point—as the last available worker is employed—the relationship between inflation and unemployment suddenly becomes non-linear. “As you hire all the people you hit the maximum level of employment…there is only one way to go,” he told the conference. Beyond that point, inflation no longer rises smoothly as unemployment falls, but instead shoots up.Mr Eggertsson’s kink could explain both inflation’s absence in the 2010s and its sudden resurgence in 2021. To understand how inflation has recently faded without a rise in unemployment, he suggests examining how a tight labour market interacts with supply disruptions. A scarcity of materials and components exacerbates labour shortages; a scarcity of workers prevents businesses from both ramping up production and using labour as a substitute for other inputs. As supply shortages eased, this process went into reverse. And so the inflationary effect of a tight labour market abated without leading to a rise in unemployment.Part of the confusion over the Phillips curve, suggested another paper presented by Stephanie Schmitt-Grohé, of Columbia University, arose because the Great Inflation looms too large in economists’ minds. Friedman’s work emphasised the role of inflation expectations during that episode. Workers and businesses lost faith in central bankers’ willingness to fight rising prices. Then came a vicious cycle in which soaring inflation fuelled expectations of future price rises, which then became self-fulfilling.But the experience of the 1970s was far from typical, suggests Ms Schmitt-Grohé. Peering further back, she points to frequent instances of American inflation suddenly rising, then falling just as suddenly. One such episode took place amid the Spanish flu pandemic, starting in 1918. That year annual inflation rocketed to 17%. But by 1921 it had turned to deflation, with prices falling by 11%. Consider data from the whole 20th century, and not just its second half, and the fading of the most recent bout of inflation is much less surprising. Ms Schmitt-Grohé suggests that the shocks now hitting the economy—such as climate change, conflicts and a pandemic—mean a return to the greater volatility of earlier ages.Meanwhile, others are trying to refine models for the overall economy. These have traditionally represented production as taking place in a single sector—employing workers, renting capital and producing output—that is hit by shocks to demand and supply. Iván Werning, of the Massachusetts Institute of Technology, suggests instead considering a set of different sectors, each hit by such shocks in its own way. The challenge for monetary policy is then to control inflation without inhibiting the necessary reallocation of labour between sectors.Mr Werning’s model is a good fit for the post-pandemic economy. It adjusted not just to a shift in demand from services to goods, but to supply-chain disruption, energy shocks and employees in some sectors working from home. As such, inflation moved through the economy in waves, starting in select goods then spreading out. That is not to say that monetary and fiscal stimulus did not also contribute to rising prices, says Mr Werning. It is more that the rejigging of the economy acted like a supply shock, raising inflation for any given level of aggregate demand.New ideas in old booksMany of these ideas are not exactly new. Mr Eggertsson, for instance, said that the experience of the past few years led him back to an “old Keynesian fairytale”, and that his version of the Phillips curve is similar to the original. Mr Werning points to a speech by James Tobin, a Keynesian economist, in 1972. Like Mr Werning, Tobin suggested that inflationary pressure can arise from sectors growing and shrinking at different rates. Combine that with a non-linear Phillips curve, Tobin argued, and you can envisage inflation taking off even without a hot labour market.That crises spur a search through the archives is itself nothing new. To make sense of the Depression, Keynes looked to Thomas Malthus, a 19th-century economist. Friedman’s take on the causes of the Great Inflation owes much to the quantity theory of money, which was first mentioned in ancient Chinese texts and popularised in Europe by Nicholas Copernicus, a 16th-century astronomer. Science may indeed proceed one funeral at a time. Economics, however, has resurrections. ■ More

JPMorgan Chase CEO Jamie Dimon said he remains cautious on the U.S. economy over the next two years because of a combination of financial and geopolitical risks.
“You have all these very powerful forces that are going to be affecting us in ’24 and ’25,” Dimon told Andrew Ross Sorkin on Wednesday in a CNBC interview at the World Economic Forum in Davos, Switzerland.
Goldman Sachs CEO David Solomon added that he was concerned about soaring U.S. debt levels.

JPMorgan Chase CEO Jamie Dimon said he remains cautious on the U.S. economy over the next two years because of a combination of financial and geopolitical risks.
“You have all these very powerful forces that are going to be affecting us in ’24 and ’25,” Dimon told Andrew Ross Sorkin on Wednesday in a CNBC interview at the World Economic Forum in Davos, Switzerland.

“Ukraine, the terrorist activity in Israel [and] the Red Sea, quantitative tightening, which I still question if we understand exactly how that works,” Dimon said. Quantitative tightening refers to moves by the Federal Reserve to reduce its balance sheet and rein in previous efforts including bond-purchasing programs.
Dimon has advocated caution over the past few years, despite record profits at JPMorgan, the nation’s largest bank, and a U.S. economy that has defied expectations. Despite the corrosive impact of inflation, the American consumer has mostly remained healthy because of good employment levels and pandemic-era savings.
In Dimon’s view, the relatively buoyant stock market of recent months has lulled investors on the potential risks ahead. The S&P 500 market index rose 19% in the past year and isn’t far from peak levels.  
“I think it’s a mistake to assume that everything’s hunky-dory,” Dimon said. “When stock markets are up, it’s kind of like this little drug we all feel like it’s just great. But remember, we’ve had so much fiscal monetary stimulation, so I’m a little more on the cautious side.”

Goldman Sachs CEO David Solomon said Wednesday that while the market environment excluding geopolitical issues “feels better today” than a year ago, he was troubled by soaring U.S. debt levels.

“I’m very concerned about the growing debt,” Solomon said. “It’s a big risk issue that we’re going to have to deal with and reckon with, it just might not happen in the next six months.”
Dimon is no stranger to dire predictions: In 2022, he warned investors of an economic “hurricane” ahead because of quantitative tightening and the Ukraine conflict.
In Wednesday’s wide-ranging interview, Dimon discussed his views on Ukraine, former President Donald Trump, immigration, commercial real estate and bitcoin.
“We have to teach the American public that this is about freedom and democracy for the free world, and that’s why the battle is being fought,” Dimon said about the Ukraine conflict.
Read more: Jamie Dimon says ‘brace yourself’ for an economic hurricane caused by the Fed and Ukraine war More

“HOW SHOULD one look at the Chinese economy?”, asked Li Qiang, the country’s prime minister, at the World Economic Forum in Davos on January 16th. “It is similar to looking at the Alps,” he suggested, an “undulating mountain range” that is best appreciated from afar. Official figures released the next day revealed two notable undulations in China’s economic landscape. The country’s population fell in 2023 for the second year running. And its GDP shrank in dollar terms.In his previous job as party chief of Shanghai, Mr Li oversaw a strict lockdown of the city to quell an outbreak of covid-19. After China hastily abandoned such measures at the end of 2022, many people succumbed to the virus, although doctors were pressed to attribute their deaths to other causes. One academic model, drawing on Hong Kong’s experience, suggested the national death toll might have been as high as 1.4m between December 2022 and February 2023. Another, based on obituary notices published by universities, yielded an even higher estimate of over 1.8m.The official data released this week showed that deaths from all causes in 2023 rose to 11.1m, up from 10.4m in the previous year. The 0.7m increase is lower than the academic models’ estimates of the covid death toll. But some of the fatalities included in those estimates would have occurred in the last month of 2022. And some of the elderly and infirm people killed by covid in early 2023 might have died anyway from other frailties before the year was out. In China it is relatively easy to fudge the cause of a death. But it is harder to pretend it never happened.The increase in deaths was mirrored by a decline in births, which fell by over half a million despite China’s reopening. All told, the country’s population dropped by more than 2m last year. And it is greyer as well as smaller: over a fifth of its people are now aged 60 or above. If these 297m elderly Chinese were to populate a country of their own, they would be the fourth-largest in the world.Despite its shrinking and ageing population, China struggles to employ its younger workers. After the unemployment rate among the urban young exceeded 21% in June, China abruptly stopped releasing figures for it. This week the National Bureau of Statistics (NBS) began publishing a revised measure which excludes students who may be looking for work. By this new metric, youth unemployment in China’s cities was 14.9% in December.It is hard to know how much of an improvement that represents, because the NBS statisticians did not show what the figures from previous months would have looked like under the new method. Excluding those students who were looking for work might have made a big difference. In April last year an official disclosed that almost 39% of China’s unemployed young people had yet to graduate. Removing them from the labour force, and hence dropping them from the unemployment count, would have reduced the youth unemployment rate for March 2023 from 19.6% to 13%.In another departure from statistical norms, Mr Li revealed China’s 2023 growth figure in his speech at Davos, a day before its scheduled release. The economy grew by 5.2% in real, inflation-adjusted terms, comfortably meeting the government’s official target of about 5%. Consumption (private and public) contributed over 82% of that growth, its highest share since 1999, offsetting some of the enduring weakness in the country’s property market.image: The EconomistAll this looks good from afar. But zoom in, rather than appreciating the view from a distance, and the landscape looks more treacherous. Prices across China’s economy are falling on average. The drops are concentrated in food and fuel but not confined to them. The price of vehicles, for example, declined by 4% in 2023. The GDP deflator, a broad measure of prices, fell in 2023 for only the fifth time in 40 years. As a consequence, China’s nominal GDP, which makes no adjustment for changing prices, grew by only 4.2% in 2023.To fight this deflationary pressure, China’s central bank eased monetary policy last year even as America’s Federal Reserve continued to raise interest rates sharply. China’s wobbly growth, its regulatory crackdowns and its geopolitical rivalry with America also spooked the kind of cosmopolitan investors who congregate in Davos. One result is that the yuan weakened against the dollar in 2023. Indeed China’s GDP, converted into dollars at market exchange rates, fell in 2023, even as America’s GDP may have grown by 6% or so this year in nominal terms.Exchange rates, like mountain ranges, tend to undulate. And the dollar may not always be so strong. But economists have nonetheless begun to wonder whether China’s recent setbacks are harbingers of something more fundamental holding the country back. According to some forecasts, China’s GDP might stop rising relative to America’s in the next decade or so, and lose ground thereafter. There is much talk of “peak China”. Mr Li’s big speech was an opportunity to shift this perception a little. But in the Alpine village of Davos, mountainous metaphors are hard to avoid. ■ More

Nicola Mendelsohn, head of global business group at Meta, reflected on her outlook for artificial intelligence in 2024.
“This is a seismic moment,” Mendelsohn told CNBC at the World Economic Forum in Davos, Switzerland.

The new artificial intelligence era represents a huge moment for the tech industry that has not been seen in a decade, according to a top executive at Facebook parent company Meta Platforms.
Reflecting on 2024, Nicola Mendelsohn, head of global business group at Meta, said it was important to talk about the potential for AI as a force for good, while also paying mind to the dangers of the technology.

“This is a seismic moment,” Mendelsohn said, in conversation with CNBC’s Tania Bryer at the World Economic Forum in Davos, Switzerland. “We will look back on this year seeing a really pivotal year in terms of how it was across society.”
In her role at Meta, Mendelsohn leads relationships with top marketers and agencies. She is also a seasoned advertising executive, with past experience including partner and executive chairman at London advertising agency Karmarama, and non-executive director of alcoholic beverages firm Diageo.
Meta had a banner year in 2023, with shares climbing sharply, while investors praised CEO Mark Zuckerberg’s push for a “year of efficiency” driven by sharp cost-cutting and a change in focus towards more profitable lines of business.
Last year also marked a major pivot toward artificial intelligence for Meta — an area where the company plays a key role with its LLaMA large language model. Meta also remains heavily focused on the metaverse with its Quest 3 headsets.
“From a Meta perspective, we can be a leader and a pioneer,” Mendelsohn said. More

UBS completed its takeover of Credit Suisse in June 2023 after a rescue deal was brokered by Swiss authorities to prevent the 167-year-old institution’s collapse and protect the Swiss economy.
Ermotti was brought back to the helm at UBS to oversee the complex integration of Credit Suisse’s business, a mission thus far deemed a resounding success by the market.

Sergio Ermotti, chief executive officer of UBS Group
Stefan Wermuth | Bloomberg | Getty Images

UBS CEO Sergio Ermotti on Wednesday said people with concerns about the size of the bank’s balance sheet are getting “indoctrinated” by academics and should “do their homework.”
UBS completed its takeover of Credit Suisse in June 2023 after an emergency rescue deal was brokered by Swiss authorities to prevent the then 167-year-old institution’s collapse and protect the Swiss economy.

Ermotti was brought back to the helm of UBS to oversee the complex integration of Credit Suisse’s business — a mission thus far deemed a resounding success by the market. The bank’s share price has recovered from below 17 Swiss francs ($19.69) per share in the aftermath of the deal to over 25 Swiss francs as of Wednesday morning.
However, the new entity’s combined balance sheet is estimated to be around twice the size of the entire GDP of Switzerland, raising concerns about the concentration of risk in the Swiss economy.
Speaking to CNBC on the sidelines of the World Economic Forum in Davos, Switzerland, on Wednesday, Ermotti said he understood why some portions of the Swiss population still have reservations, as they are being “indoctrinated almost daily by a lot of academics” and focusing solely on the size of the bank’s balance sheet versus the national GDP.

“If you look at risk-weighted assets as a percentage of GDP or as a percentage of our balance sheet, you will discover that the new UBS is de facto very low risk, very focused business model. The risk we have is in Swiss mortgages, in Lombard loans, in stuff that is very low risk,” he said.
Ermotti contended that the “new UBS” incorporating its fallen rival to create a globally competitive, low-risk bank is a “reflection of Switzerland.”

“Switzerland is a small country that punches well above its weight in many sectors — in food, in pharma, in innovation — and having a strong bank that can compete, not only in Europe, but globally, is part of our economy,” he said.
He also argued that the focus on the risk to the Swiss taxpayer fails to take into account the scale of the bank’s own tax contributions, urging the public to “look at the risks but also the benefits.”
“In that sense, our role is to help the people who are not convinced, that want to listen to arguments, to inform them so that they come to an opinion that is informed, hopefully the right one. I respect people having other opinions, but I do expect them to do their homework,” he added. More

Economists polled by Reuters had expected a modest decline in the annual headline consumer price index to 3.8%, after November’s sharper-than-expected fall to 3.9%.
The closely watched core CPI figure — which excludes volatile food, energy, alcohol and tobacco prices — came in at an annual 5.1%, above a 4.9% Reuters forecast and unchanged from November.

Andresr | E+ | Getty Images

LONDON — U.K. inflation unexpectedly nudged upwards to 4% year-on-year in December, fueled by a rise in alcohol and tobacco prices.
This was the first month in which the annual consumer price index has risen since February 2023.

Economists polled by Reuters had expected a modest decline in the annual headline CPI to 3.8%, after November’s sharper-than-expected fall to 3.9%.
Month-on-month, the headline CPI rose by 0.4%, above a consensus forecast of 0.2% and up from -0.2% in November.
“The largest upward contribution to the monthly change in both CPIH and CPI annual rates came from alcohol and tobacco while the largest downward contribution came from food and non-alcoholic beverages,” the Office for National Statistics said.

The closely watched core CPI figure — which excludes volatile food, energy, alcohol and tobacco prices — came in at an annual 5.1%, above a 4.9% Reuters forecast and unchanged from November.
The largest upward contribution to the core figure came from travel and transport services, the ONS said.

Inflation still on track for 2%
“As we have seen in the U.S., France and Germany, inflation does not fall in a straight line, but our plan is working and we should stick to it,” British Finance Minister Jeremy Hunt said in a statement.
“We took difficult decisions to control borrowing and are now turning a corner, so we need to stay the course we have set out, including boosting growth with more competitive tax levels.”
U.S. inflation also rose in December to an annual 3.4% from 3.1% in November, while euro zone CPI jumped to 2.9% from 2.4% in the previous month.
The Bank of England will hold its next monetary policy meeting on Feb. 1, after hiking interest rates rapidly over the past two years in a bid to tame runaway inflation.
“This unexpected rise in inflation is a timely reminder that the struggle against soaring inflation is not yet over, particularly given stubbornly high core and services inflation,” said Suren Thiru, economics director at ICAEW.
“While inflation may rise again in January, following the increase in Ofgem’s energy price cap, it should fall at a decent pace thereafter, aided by the expected drop in energy bills from April and lower food inflation.”

Although ongoing tensions in the Red Sea could make core inflation more sticky, Thiru suggested the rate should pull back throughout the year as slower wage growth and a stagnating economy begin to suppress demand.
This was echoed by PwC Economist Jake Finney, who said headline inflation is still on track to return to the Bank of England’s 2% target as early as April.
“It is likely that the Bank of England will respond to easing inflation pressures by materially lowering their projections in the upcoming February Monetary Policy Report,” he added.
“This should pave the way for rate cuts later this year, potentially as early as May if the labour market continues to cool.”
A fresh round of jobs data on Monday also highlighted the tricky path ahead for the British central bank, as it decides when, and how sharply, to cut interest rates in 2024. Markets are currently pricing more than 100 basis points of cuts to the benchmark rate across the year.
The number of vacancies posted declined by 49,000 over the final quarter of the year, while the unemployment rate remained largely flat at 4.2%.
Pay growth, a key data point for the Bank, slowed significantly in the three months to the end of November. As inflation is falling faster than that rate, average pay is still growing in real terms. More

GDP for the last three months of 2023 rose by 5.2%, missing analysts’ estimates of 5.3% in a Reuters poll. GDP growth for the full year was also 5.2%.
Retail sales grew by 7.4% in December from a year ago, also missing expectations for 8% growth.
China resumed reporting the unemployment rate for young people.

Construction at China Vanke Co.’s Isle Maison development in Hefei, China, on Monday, Nov. 27, 2023.
Bloomberg | Bloomberg | Getty Images

BEIJING — China missed fourth-quarter GDP estimates on Wednesday, while it resumed reporting the unemployment rate for young people.
GDP for the last three months of 2023 rose by 5.2%, according to China’s National Bureau of Statistics. That’s below the 5.3% growth forecast in a Reuters poll.

GDP growth for the full year was also 5.2%, compared with a 3% increase in 2022.
“Macro data from 2023 shows China’s economy is going through a transition to a new growth model,” Zhiwei Zhang, president and chief economist at Pinpoint Asset Management, said in a note.
“With investment in the property sector falling, the economy is more dependent on the manufacturing sector and service sector,” he said. “This transition will take time to be accomplished. The key question in the market is when the transition in the property sector will finish.”

Property prices in 70 major Chinese cities fell by 0.4% in December from the prior month, maintaining a pace of decline not seen since 2015, according to data released Wednesday and analysis using Wind Information.
Real estate, which makes up well over 20% of China’s economy, has seen a government crackdown on developers’ high reliance on debt for growth.

Investment into real estate fell by 9.6% in 2023, while those into infrastructure and manufacturing rose by 5.9% and 6.5%, respectively.
Overall, fixed asset investment for 2023 rose by 3%, a touch above the predicted 2.9% increase.
China’s property sector is in a process of “adjustment and transformation,” Kang Yi, director of the statistics bureau, told reporters in Mandarin, translated by CNBC.
Looking ahead to 2024, he said the economy faces a number of challenges including insufficient domestic demand, overcapacity in some industries and weak expectations about the future.
Kang said authorities needed to respond to those difficulties in accordance with the directives from China’s top leaders in an annual meeting last month.

Youth unemployment remains high

The statistics bureau on Wednesday also resumed reporting figures on youth unemployment.
Excluding people still in school, the unemployment rate for young people aged 16 to 24 was 14.9%, while the rate in cities in December was 5.1%.

The bureau had temporarily suspended the release of the younger age group’s unemployment rate in summer, citing the need to reassess calculation methods. That unemployment rate had previously climbed to records above 20%.

The statistics bureau said China’s population shrunk by more than 2 million people to 1.41 billion in 2023 from the prior year. The population had declined by 850,000 people in 2022 from 2021.
“The improvement [in youth unemployment] is a bit surprising to me, but I can see that it is a result of government efforts and not so much economic fundamentals,” Dan Wang, chief economist at Hang Seng Bank, said Wednesday on CNBC’s “Street Signs Asia.”
“High income jobs have been difficult to find, but lower-skilled work has not been difficult to find in 2023,” she said.
Uncertainty about future income has weighed on consumption.
Retail sales rose 7.4% in December from a year earlier, missing expectations for an 8% growth. They rose by 7.2% for the full year.
December saw a 29% surge in jewelry and 26% increase in purchases of clothes and shoes.
Sales of daily necessities, medicine, cultural and office products, as well as construction-related materials fell in December.
China had abruptly ended its Covid-19 controls in December 2022 and people had rushed to buy medicine amid widespread illness that month.
Industrial production rose by 6.8% in December from a year earlier, beating forecasts for 6.6% growth.

Questions about stimulus

The economic data was as the market generally expected and already priced in, said Bruce Pang, chief economist and head of research for Greater China at JLL.
He said there’s uncertainty over how much stimulus Beijing will choose to pursue, and how authorities will balance short- and long-term risks. Pang said China will likely focus on fiscal support this year.
The statistics bureau indicated in a release Wednesday that as a part of economic support, Chinese authorities would work to improve policy coordination among different regulatory bodies.
“We must effectively enhance economic vitality, prevent and mitigate risks, improve social expectations, consolidate and boost the sound momentum of economic recovery and growth,” the bureau said, “in a bid to effectively upgrade the quality and appropriately expand the quantity of the national economy.”
China ended its stringent Covid-19 controls in late 2022, but its rebound from the pandemic wasn’t as fast as several economists had expected at the start of 2023.
This year, unless there are significant stimulus measures, China’s GDP growth could slow to 4.6% from 5.2% in 2023, according to an average of five investment firms’ forecasts compiled by CNBC.
“Monetary and fiscal policy last year was actually quite conservative. Given that we (China) is in such an economic downturn, we should have seen lower interest rates and more fiscal money spending in all levels of government,” Hang Seng Bank’s Wang said.
Chinese Premier Li Qiang in speech on Tuesday at the World Economic Forum in Davos noted that “in promoting economic development, we did not resort to massive stimulus. We did not seek short-term growth while accumulating long-term risks.”
“Rather, we focused on strengthening the internal drivers,” he said.

Read more about China from CNBC Pro

The statistics bureau also said Wednesday that retail sales in services surged by 20% in 2023 from a year ago.
Online retail sales of physical goods rose by 8.4%, accounting for nearly 28% of overall retail sales.
Analysis of digital payments transactions by BigOne Lab found the low-income segment — earning 5,000 yuan ($700) or less — rapidly increased their average spending per person in 2023 from a year ago.
The low income segment is mostly made up of young people ages 18 to 24, the report said.
That contrasts with the high-income segment — making 10,000 yuan ($1,400) or more a month — whose spending tapered off in the second half of 2023.
— CNBC’s Shreyashi Sanyal contributed to this report. More

OpenAI CEO Sam Altman speaks out on being fired by his board in November.
The unusual corporate structure of OpenAI is what led to Altman’s surprise ouster.
The night that the board of OpenAI voted out its founder and CEO, Sam Altman said he thought it was “wild,” felt “super confused” and was “super caught off guard.”

Sam Altman, CEO of OpenAI, during an interview at Bloomberg House on the opening day of the World Economic Forum in Davos, Switzerland, on Jan. 16, 2024.
Chris Ratliffe | Bloomberg | Getty Images

DAVOS, Switzerland — OpenAI founder and CEO Sam Altman said the night he was pushed out by the board was “wild,” and he felt “super confused” and was “super caught off guard.”
“But this is the structure, and I immediately just went to go thinking about what I was going to do next,” Altman, OpenAI’s CEO, said in a private gathering convened at the Bloomberg House on the Davos Promenade on Tuesday.

“It was not until some board members called me the next morning that I even thought about really coming back,” continued Altman, reflecting on the dramatic turn of events that led to his ouster — and subsequent re-instatement — in November. “But, like, the board did have all of the power there.”
Indeed, the unusual corporate structure of OpenAI — the creator of the buzzy A.I. tool ChatGPT — is what led to Altman’s surprise ouster.
Typically, it’s rare to see a founder forced out of their company, but Altman’s power differs to that of other major tech founders, in part because he has no actual ownership of the entity itself.
“I have no equity in OpenAI,” Altman said in a May Senate hearing on artificial intelligence.
“You need a lawyer or an agent,” Senator John Kennedy quipped, in a remark that proved prescient.

The organizational chart of the generative AI startup, valued by private investors at $86 billion, is decidedly confusing. It ultimately proved to be bad for its founder, both in terms of safeguarding control and holding a financial stake in the firm.
OpenAI’s board of directors sits at the top of the power pyramid, and they are the consortium of voices responsible for controlling the 501(c)(3) charity, OpenAI Inc.
Between the board and the non-profit sits a capped-profit company dubbed OpenAI Global, which Microsoft inked a $10 billion investment deal with in January last year. There are also a few other entities, including a holding company, that comprise the somewhat convoluted organization behind the biggest name in generative AI tech.

I would like to make all of our shareholders a bunch of money, but it was very clear to me what people’s priorities were.

Sam Altman
CEO, OpenAI

In November, the board said it had lost confidence in its leader and expelled the chief executive from the organization. The events that followed in the subsequent hours were messy and involved virtually the entire staff of OpenAI threatening to resign after their founder’s departure.
Concerns over AI safety and OpenAI’s role in protecting were at the center of Altman’s brief ouster from the company.
Despite Microsoft’s sizable investment in the startup, the tech giant neither had a board seat nor a say in Altman’s firing.
Within days, Altman was reinstalled to his original post, but speculation ran amok over the OpenAI drama that dominated the news cycle during Thanksgiving week.

Altman told the afternoon gathering in Davos that “in the middle of that crazy few days,” roughly 98% of the company had signed a letter saying they would resign if Altman was not restored to his position of CEO.
“That would have torched everyone’s equity, and for a lot of our employees, like this is all or the great majority of their wealth, and people being willing to go do that, I think is quite unusual,” Altman said of his team, adding that OpenAI’s investors were also about to watch their stakes go to zero, including Microsoft.
“I would like to make all of our shareholders a bunch of money, but it was very clear to me what people’s priorities were,” Altman said of the solidarity of his staff and investors.
Altman, who has demurred countless invitations from the press to speak out about his surprise firing and re-hiring, questioned the moderator over pursuing the line of questioning in the first place.
“Is [this] really what we want to spend our time on, like this soap opera rather than what AGI is going to do?” Altman asked in earnest.
When asked whether OpenAI would reform its structure and become a traditional Silicon Valley for-profit company, Altman was adamant that his startup wouldn’t go that way.
“We will never be a traditional company,” he said. “But the structure, I think we should take a look at the structure. Maybe the answer we have now is right, but I think we should be willing to consider other things.”
Altman added that now was not the time to reconsider company structure. Instead, he said the focus was on the board first.
“I think one of the things that’s difficult to fix for us about OpenAI is the degree to which our team and the people around us, invest in us or whatever, are committed to this mission,” Altman said.
— CNBC’s Rohan Goswami contributed to this report. More