The AI productivity delusion

AI and Productivity: A Delusion

Is artificial intelligence (AI) a bubble? That depends on whether investments in the technology will boost productivity dramatically. Optimists believe massive gains are inevitable, even if a market correction is needed to ease some of the hype. Pessimists, like Goldman Sachs' Jim Covello and MIT's Daron Acemoglu, remain skeptical.

However, both camps are caught in what I call the AI productivity delusion. The problem is that we view today's world through the lens of a different future, shaped by cloud capital enhanced by AI, which has rendered many things obsolete. Until now, it was assumed that every technological revolution would bring creative destruction—old sectors and professions being eliminated in favor of new ones.

Automobiles replaced saddlers, farriers, and knackers, but they also birthed auto workers, road builders, mechanics, and service station personnel. In the end, more was created than destroyed, and creative destruction became synonymous with economic growth. With AI, we must reconsider our definition of productivity. If productivity means the number of tasks completed per unit of human labor, AI will undoubtedly succeed.

However, if we continue measuring productivity by monetary value produced per unit of labor, AI could lead to a catastrophic economic downturn. While AI may boost productivity in material output, especially in China where it's paired with robotics, in the West it could shrink markets in the service sector. This includes professions like paralegals, coders, translators, accountants, architects, mathematicians, and school teachers, as well as a potential collapse of entire industries.

More concerning is the conversion of markets into cloud fiefs and the transformation of profits into rents. Amazon, for instance, may seem like a market, but it's more centralized than the Soviet planned economy. An opaque algorithm decides which consumer is matched with which vendor based on a model optimized to maximize profits for Jeff Bezos.

As AI becomes more integrated, services like Alexa will move beyond being mere shopping assistants to become all-knowing friends, companions, and therapists, leading to massive profits being funneled to tech lords in the form of cloud rent. As Apple's Siri, Google's Gemini, and other AI-powered assistants develop similar capabilities, the capitalist market domain will shrink further.

AI will be exceedingly productive in terms of economic activity per human labor, but the profit rates of capitalist enterprises will collapse, dragging down society's aggregate wages to rock bottom. The liberal state's tools, such as quantitative easing, universal basic income, and wealth taxes, will be powerless to prevent a systemic collapse.

To avoid the AI productivity delusion, we must distinguish between the two ways AI can affect productivity—increased economic activity per human labor and the collapse of profit rates in capitalist enterprises. Only then can we realistically envision a post-capitalist future of abundance, where AI helps us produce according to ability and distribute according to need.