Growth Effects of AI: Modest for a Decade or Two, At Least

A recent paper published in the Journal of Economic Perspectives suggests that artificial intelligence (AI) may have only a modest impact on overall economic growth over the next decade or two. While AI capabilities are advancing rapidly, the author argues that the technology's growth will contribute only slightly to total economic growth in the medium term.

To illustrate this point, the author compares a graph of US economic growth since 1870 with actual growth of average US income per person. Over the past 150 years, the average annual growth rate has been around 2%. Despite numerous transformative innovations, such as electricity, airplanes, transistors, and the internet, the long-run growth rate of the US economy has remained relatively stable.

The author suggests that this lack of significant impact on growth may be due to the presence of limiting factors, often referred to as "O-ring factors." Just as the speed of a car is limited by its weakest component, the growth of the economy may be constrained by factors beyond AI. For example, even if AI tools make software infinitely cheap, the total economy would not experience infinite growth.

Similarly, if AI were to automate 100% of production, while some resources would remain scarce, the gains for consumption would still be limited.

The author suggests that organizational and political changes in response to AI capabilities may also act as limiting factors. While AI may automate many tasks, it is unlikely to create more land or natural resources, which are essential for producing physical goods and energy. Therefore, the author argues that the impact of AI on economic growth is likely to be modest for the next few decades.