AI’s Effect on the US Economy Will Be Wildly Uneven

One of the only things growing faster than progress in AI applications is speculation about AI’s effect on the economy. I don’t have all the answers, not by a long shot, but I do think we should expect great unevenness in adaptation, and that itself will alter our world.

To see how this is likely to play out, start with a distinction between sectors in which it is relatively easy to go out of business, and sectors in which it is not. Most firms selling computer programming services, for example, do not typically have guaranteed customers or revenue, at least for long. Employees have to deliver, or they and their company will be replaced. The same is true of most media companies: If they lose readers or customers, their revenue disappears. There is also relatively free entry into the sector in the US, due to the First Amendment.

Another set of institutions goes out of business only slowly, if at all. If a major state university does a poor job educating its students, for example, enrollment may decline. But the institution is still likely to be there for decades more. Or if a nonprofit group does a poor job pursuing its mission, donors may not learn of its failings for many years, while previous donors may pass away and include the charity in their wills. The point is, it can take a long time for all the money to dry up.

Which leads me to a prediction: Companies and institutions in the more fluid and competitive sectors of the economy will face heavy pressure to adopt AI. Those not in such sectors, will not.

It is debatable how much of the US economy falls into each category, and of course it is a matter of degree. But significant parts of government, education, health care and the nonprofit sector can go out of business very slowly or not at all. That is a large part of the US economy — large enough to slow down AI adoption and economic growth.

As AI progresses, the parts of the economy with rapid exit and free entry will change quickly. Large-language models are already performing a huge amount of programming, for instance, albeit with human guidance. If programming consulting firms do not keep pace, in a year or two they will be gone. And it is only a matter of before the production of words and pictures is revolutionized as well. Graphic design already is in the midst of a revolution, and a lot of graphic designers have joined it.