It is a radical suggestion, no doubt, but some analysts predict that AI might enable the US economy to achieve an annual growth rate of 30%. Even more dramatic accounts — though you should be wary of biased authors — suggest that AI will, after reaching some critical mass of expertise, bring about a revolutionary utopia.
I am a believer in the power of current AI trends. But a look at the way economies work argues for more moderate (but still substantial) estimates of AI’s impact. The most likely scenario is that economic growth will rise by a noticeable but not shocking amount.
Economic historians typically cite Britain’s England’s Industrial Revolution as the single most significant development ever in boosting living standards. Through the late 18th and 19th centuries, it took people from a near-subsistence existence to modern industrial society.
Yet economic growth rates during the Industrial Revolution were hardly astonishing. From 1760 to 1780, often considered a “take-off” period, annual British growth was about 0.6%. The strongest period was 1831 to 1873 when annual growth averaged about 2.4% — a very good performance, but “revolutionary” only if sustained over longer periods of time.
The important feature of the Industrial Revolution, of course, is that growth did continue for decades, and thus living standards did not regress. But it was not possible to move quickly to an advanced industrial economy. For each step along the way, a lot of surrounding infrastructure and social practices had to be put into place. A profitable steel factory may require a nearby railroad, for instance, and an effective railroad in turn requires agreement on compatible gauges and equipment, and all these numerous decisions take a long time to sort out. There are always bottlenecks, and there is no simple way to fast forward through the entire process.
One way to estimate the impact of AI on economic growth is to look at all the human intelligence brought into the global economy by the social and economic development of Korea, China, India and other regions. There are many more potential innovators and researchers in the world, and the market for innovation is correspondingly larger. Yet all that new human intelligence does not seem to have materially boosted growth rates in the US, which on average were higher in the 1960s than in more recent times. All that additional talent is valuable — but getting stuff done is just very difficult.
My best guess, and I do stress that word guess, is that advanced artificial intelligence will boost the annual US growth rate by one-quarter to one-half of a percentage point. That is nothing to sneeze at: Consider that US per capita income is currently approaching $80,000. If it grows at 2% a year, in 50 years that figure will be almost $215,000. Alternatively, if the economy grows at 2.5% a year, it will be almost $275,000 — a substantial difference, and with compound returns that gap widens with time.
In the shorter run, that difference in growth rates could mean the difference between an easy path forward vs. a looming fiscal crisis and big tax increases. It could mean a world where most cancers are cured in 30 years, rather than 70 or 80. It’s possible to recognize the importance of those developments for human well-being, while still understanding that most of GDP is a huge lump of goods and services, most of whose production cannot be revolutionized quickly, no matter how much intelligence (artificial or otherwise) is available.
McKinsey has estimated that generative AI could add up to $4.4 trillion to the global economy. Relative to a world GDP of about $100 trillion, that also qualifies as noticeable but not spectacular.
None of those estimates should be taken to suggest that AI development will be anything less than hugely impressive over the next few decades. But as one set of constraints is relaxed — in this case access to intelligence — the remaining constraints will matter all the more. Regulatory delays will be more frustrating, for instance, as they will be holding back a greater amount of cognitive horsepower than in times past. Or as AI improves at finding new and better medical hypotheses to test, the lags and delays in systems for clinical trials will become all the more painful. In fact, they may worsen as the system is flooded with conjectures.
AI won’t be ready to run the world anytime soon, if ever. So progress in one area will remain limited by bottlenecks at other constraints. If there is one thing that smart people need to recognize, it is that not everything is a matter of intelligence.
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