Can AI supercharge global economic growth?

Summary

In this thought experiment, experts Jason Palmer and Henry Kerr explore the potential impact of AI on the world economy. They discuss how AI could drive explosive economic growth, moving from traditional 2-3% growth rates to potentially 20-30% as AI replaces human labor. They examine factors such as AI's rapid scalability, investment in infrastructure, and potential disruptions in labor markets. However, they caution that bottlenecks, regulatory challenges, and economic uncertainties could shape the pace of transformation, making AI's long-term impact uncertain and comparable to past technological disruptions like the internet.

Takeaways

• 😀 The global economy's growth has accelerated significantly over time, from a 0.1% average annual growth pre-1700 to over 2.8% in the 20th century.
• 🤖 Many Silicon Valley inhabitants predict AI will drastically transform the economy by automating most tasks, leading to explosive economic growth.
• 📈 Current AI predictions suggest growth rates of 20-30%, a far cry from the typical 2-3% in advanced economies today.
• 🔬 The rapid accumulation of AI agents, which can scale faster than human populations, could contribute to much faster economic growth compared to historical trends.
• 🔄 A self-reinforcing loop of AI development, where investments in AI infrastructure fuel further growth, could lead to rapid economic expansion.
• 👷‍♂️ Despite AI's potential, many tasks remain outside its scope, such as plumbing, and there will likely be bottlenecks as AI advances gradually.
• ⚖️ The transition to AI-driven industries could lead to disruptions, but workers displaced by AI might benefit from wage increases in sectors that AI cannot replace, a phenomenon known as 'cost disease.'
• 💼 The future of labor could see reduced human value in jobs, with capital (AI companies, data centers) becoming more important for wealth generation.
• 📉 While AI may drive explosive growth, increased demand for infrastructure could lead to higher interest rates, which might offset asset price increases.
• 💡 The true measure of AI's economic impact will be seen in long-term bond yields, which could signal whether markets believe in explosive growth or just valuable AI companies stabilizing the economy.
• 🌐 The impact of the internet on economic growth is a useful parallel, as many economists believe AI could have similar disruption without yielding large observable increases in economic growth, unless it significantly advances human knowledge.

Q & A

What was the average growth rate of global output up until 1700?

The average growth rate of global output up until 1700 was just 0.1% per year.

How did the industrial revolution affect global economic growth?

The industrial revolution led to a significant increase in global economic growth, with output growing by 0.5% per year between 1700 and 1820. By the end of the 19th century, the growth rate had increased to 1.9%, and in the 20th century, it reached an average of 2.8%.

How do proponents of AI view its impact on the economy?

Proponents of AI believe it will drastically transform the world economy by automating tasks currently performed by humans. As AI becomes more powerful, it is expected to drive explosive economic growth, potentially leading to growth rates of 20-30% annually.

What is the 'accumulation of labor' in economic terms, and how did it affect growth?

The 'accumulation of labor' refers to the idea that the size of the economy was closely tied to the population size, as more people led to more ideas and, ultimately, more output. This accumulation of labor during the industrial revolution contributed to the rise in global growth rates.

How might the accumulation of AI workers differ from human labor in terms of economic growth?

AI workers can accumulate much more rapidly than human workers. Since AI can be created and deployed at scale without the generational delays seen in human population growth, it could lead to much faster economic growth compared to the accumulation of human labor.

What role do investments in AI infrastructure play in economic growth?

Investments in AI infrastructure, such as data centers and energy production, are key to powering AI and enabling growth. These investments can lead to exponential growth as they enable automation across various sectors of the economy, creating a self-reinforcing loop of investment and growth.

What is 'cost disease,' and how might it relate to workers displaced by AI?

Cost disease occurs when productivity growth is uneven across different sectors, leading to higher wages in low-productivity sectors. Workers displaced by AI might benefit from cost disease as high-wage jobs become more available in sectors where automation hasn't yet made an impact.

Should someone invest in AI companies or become a plumber to prepare for AI-driven changes?

While investing in AI companies might seem attractive, it’s too early to make definitive predictions. The future of labor is uncertain, and though AI may replace many jobs, there are still areas where human workers, like plumbers, are irreplaceable for the foreseeable future.

What impact could AI-driven economic growth have on interest rates and capital markets?

AI-driven explosive economic growth could lead to a capital shortage, increasing demand for investment and pushing up interest rates. Higher interest rates could, in turn, lower asset prices, making it challenging to predict exactly how capital markets would react to this scenario.

What lesson can we learn from the internet's impact on economic growth?

Despite the widespread belief that the internet would revolutionize economic growth, its actual impact on measured economic growth has been limited. This suggests that even though AI may transform many industries, its direct effect on long-term economic growth might not be as dramatic as some expect.