The world’s advanced economies are stuck in a prolonged productivity crisis, with output per hour worked growing at less than 1% a year since the 2008 financial crisis. Investors are pinning their hopes on artificial intelligence (AI) to turn things around, but this optimism is misplaced. AI’s impact on the economy will be less impressive than expected, and may even exacerbate the productivity crisis.
The problem is that AI models are not capable of developing the causal theories needed for new scientific discoveries, they are only good at predicting patterns in huge datasets. Additionally, AI’s ability to automate basic knowledge work will have a modest impact on productivity growth. Furthermore, the adoption of AI in competitive industries will lead to an arms race, increasing costs but leaving overall revenues unchanged. This will ultimately lead to oligopolies, decreased competition, and even lower innovation and productivity.
The hype around AI is misplaced, and its economy-wide consequences will be disappointing. The productivity crisis is a complex issue that requires more than just a technological fix.
