The success or failure of artificial intelligence plays a crucial role in the global economy, leading to a sense of impending doom regardless of the outcome.
Job growth has stagnated; wage increases are slowing, particularly in low-wage sectors. Instances of loan defaults are on the rise, accompanied by an increase in bankruptcies. Consumer confidence has plummeted, while imprudent policy actions are taking their toll. President Donald Trump’s trade war has restricted farmers from accessing Chinese markets and cut off manufacturers’ access to rare earth magnets from China. His immigration policies are also adversely affecting labor availability, spanning sectors from agriculture to healthcare. A lengthy government shutdown is on the horizon, with implications for economic growth.
Yet, none of this seems to compare to the AI boom. Amid a plethora of dismal statistics, the reckless investments by a handful of tech companies chasing the elusive dream of superhuman AI are single-handedly fueling economic growth. This surge is propping up business investment and enabling sustained gains in the stock market, propelling consumer spending and enhancing the sentiment of the 60% of Americans who own stocks.
How long can this last? Predicting economic turning points or stock market volatility may be futile, but the fragile state of the American economy suggests we may be heading toward uncertain times. Are we simply satisfied, or how will the AI narrative unfold moving forward?
What if the stock market rise fueled by AI is merely a bubble? Investors are clearly feeling apprehensive. Just last week, the VIX index, known as the financial market’s “fear gauge” that tracks expectations for future stock price movements, reached its highest point since “Emancipation Day” in April, a time when President Trump imposed drastic tariffs that disrupted the markets.
This casts a shadow over the entire AI initiative, as immediate and tangible fears arise. What happens when investors realize that the astounding productivity advancements touted by Silicon Valley could justify the expenditure of billions into increasingly sophisticated AI systems? Trillions in equity could vanish almost overnight.
Gita Gopinath, former chief economist at the IMF, estimates that if the market were to crash, akin to the dot-com bust at the start of this century, $20 trillion in wealth owned by American households and $15 trillion possessed by global investors would be lost.
On the flip side, what if the promise remains intact? Advances in AI in the upcoming months may authenticate Silicon Valley’s productivity visions, with signs of its advantages beginning to manifest in corporate profits. Investors are becoming more comfortable with the elevated valuations of companies like Nvidia, Alphabet, and the rest of the so-called “Magnificent Seven.” Their combined market capitalization now represents approximately a third of the entire S&P 500 index. What kind of world will that create? What implications does a massive leap in productivity hold for humanity?
In economic terminology, heightened productivity is inherently advantageous. It serves as a catalyst for improved living standards. Technological innovation enables the faster and cheaper production of new products and services, thus enhancing productivity. However, it could create inequalities. Consider agricultural laborers, who constituted 40% of jobs in the early 20th century, or administrative roles that became obsolete with the advent of PCs, or horses that lost their economic significance due to the internal combustion engine.
However, generally, workers benefit from higher wages as they adapt to new technologies. Increased wages stimulate demand for new products and create job opportunities. Since the Luddites began dismantling textile machinery in the 19th century, the market price for labor, and consequently wages, has risen tenfold, despite ongoing employment growth.
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Some may contend that AI is no different from tractors or power looms. However, the ambition behind AI is far grander. Certain human tasks are irreplaceable. It aims to emulate human capabilities entirely; in fact, AI pioneers aspire to forge agents that outperform humans in nearly every task. This technology is not merely designed to impose new duties on employees, but is intended to execute all functions at a superior level than human laborers.
This presents a problem traditionally addressed by the labor market: how do individuals earn a living? Redistribution might be a possible solution. Nevertheless, Erik Brynjolfsson of Stanford University asserts that such an arrangement could centralize wealth and authority significantly. He indicates that many will become increasingly reliant on those who control technology, leading society into an equilibrium where the powerless lack means to enhance their circumstances.
Perhaps we should wish for the AI revolution currently unfolding to implode like a bubble. If it bursts, resulting in a global recession, we all face hardship. But after such a collapse, humanity might be positioned to construct something more promising and less perilous from the remnants.
Brynjolfsson points out that the benefits derived from automation are dwarfed by those gained from pioneering new innovations. He proposes that instead of displacing human labor, AI should pursue the development of agents that augment human ability, allowing for the execution of tasks currently beyond human reach. AI is already aiding in the design of new proteins. On a more practical level, it can provide nurses with the technical expertise needed to undertake roles previously exclusive to physicians.
Investment bubbles ultimately leave behind valuable knowledge and infrastructure. The current information ecosystem arose from the debris of the dot-com crash. A century and a half earlier, investors lost significant amounts in the aftermath of a massive investment in British railroads. The British economy sank into a severe recession, yet the bubble left behind miles of crucial railway lines.
Perhaps the impending AI collapse could pave the way to shift technology away from Silicon Valley’s pursuit of creating overtly intelligent, software-driven agents that could replace humans and unleash chaos. Our synthetic version of humanity could expand beyond earthly bounds. Instead, a focus on fostering advancements that genuinely enhance human existence might be achieved.
Source: www.theguardian.com
