The newest generation of AI technology became widely accessible on November 30, 2022, when OpenAI released the AI chatbot ChatGPT. In the few months that have passed since then, ChatGTP has been banned in Italy due to privacy concerns, leading figures in technology have called for a halt to the development of AI systems, and even well-known researchers have warned that we should be ready to carry out airstrikes on data centers linked to rogue AI.
It is now obvious that the increasing adoption of AI and its possible effects on human society and economies are in the focus.
What will AI mean for economic growth and productivity? Will it usher in a time of universal automated luxury or will it merely exacerbate current inequalities? What does that mean for the function of humans, then?
These issues have been the subject of extensive research by economists.
The overall economic situation with AI
Globally speaking, the share of national revenue that goes to employees has decreased over the past 50 years or so. While this is happening, productivity growth, which measures how much output can be made with a given amount of inputs like labor and materials, has slowed down. The development and use of automation and information technology have also undergone significant advancements over this time.
Productivity should rise as a result of improved technologies. A conundrum economists refer to as the Solow paradox is the seeming failure of the computer revolution to produce these improvements.
Will AI end the long decline in productivity worldwide? And if so, who will benefit from it? These inquiries pique the interest of many people.
Although consulting companies frequently portray AI as an economic panacea, policymakers are more worried about possible job losses. Unsurprisingly, economists have a more cautious outlook.
Radical economic shift, quick movement
The enormous uncertainty surrounding the development of AI technology is possibly the single greatest source of caution.
AI has the potential to expand considerably more quickly than earlier technological advances like the development of railroads, motorized transportation, and, more recently, the steady encroachment of computers into every part of our lives. And it can do this with a lot less upfront cash.
This is due to the fact that the use of AI mostly involves a software revolution. A large portion of the infrastructure needed for it, including computing hardware, networks, and cloud services, is already in place. You can utilize ChatGPT and the fast growing horde of comparable apps right now from your phone, negating the necessity for the laborious process of laying out a physical railway or broadband network.
The cost of using AI is also reasonably low, which significantly lowers entrance barriers. The extent and domain of the repercussions are related to another significant AI uncertainty.
From education and privacy to the organization of global trade, AI appears set to fundamentally alter how humans conduct several daily activities. AI may alter the economy’s overall structure rather than just specific components.
It would be extremely difficult to adequately represent such a complex and drastic transformation, and nobody has yet attempted it. However, economists are unable to make precise claims about the impacts that are likely to have on the economy as a whole without such modelling.
Increased inequality and weakened institutions
Economic studies generally agree that AI would exacerbate inequality, despite the fact that academics’ views on the effects of AI vary.
This might, for instance, result in a further shift of the advantage from labor to capital, undermining labor institutions along the way. The government’s ability to redistribute wealth may likewise be weakened if tax bases are reduced at the same time.
The majority of empirical studies suggest that using AI won’t result in a decline in overall employment. However, it is probably going to decrease the proportion of income going to low-skilled labor, which will lead to more inequality in society as a whole.
Additionally, employment would be redistributed and trade would be restructured as a result of AI-induced productivity growth, which would tend to further increase inequality within and between nations.
Controlling the use of AI technology will therefore probably slow down the rate of societal and economic change. As a result, the adjustment period for relative losers and beneficiaries will be lengthier.
Governments may be able to address income inequality and its detrimental effects by implementing policies that aim to lessen inequality of opportunity in the face of the advent of robotics and AI.
After AI takes over, what will be left for humans?
According to the eminent economist Jeffrey Sachs, the only thing humans can do in the age of artificial intelligence is to just be human because neither robots nor AI are capable of this.
But what does that actually mean? least in financial terms?
Humans are frequently equated with “labor” in conventional economic modelling, as well as acting as an agent of optimization. What is there for humans if machines can perform labor, make judgements, and even generate ideas?
The development of more complex representations of people and the “economic agents” that live in economic models is a problem presented by the rise of AI.
A universe populated by AI beings may actually behave more like economic theory than the real world does, according to American economists David Parkes and Michael Wellman. AIs interact using unique rules and incentive systems that are significantly different from those designed for people, showing a greater respect for idealized assumptions of rationality than people.
Importantly, having a clearer understanding of what constitutes “human” in the context of economics should aid in our consideration of the novelties that AI will introduce into an economy.
Will AI tinker with current production technologies or will it introduce some sort of fundamentally new production technology? Is AI merely a replacement for labor or human capital, or is it an independent economic actor in the economy?
For economists to fully grasp how the world will evolve over the next few years, it is crucial that they provide answers to these issues.
