There’s a great deal of recent discussion about how AI will affect the economy. Too often, the debate centers around the issue of who will profit from AI. I am much more interested in the question of what AI will do to output.
Suppose you are applying for a job at Google, and they ask you to estimate the number of washing machines in America. You might think to yourself that the vast majority of American households have one washing machine, a much smaller number have either zero or more than one. So perhaps the number of washing machines is similar to the total number of households. You might recall that America has 340 million people, and guesstimate that we have somewhere around 130 million households, assuming an average of 2.6 people per household. (AI Overview says 132.5 million households and an unknown number of washing machines.)
Similarly, if asked to estimate the number of calories consumed each day by Americans, I might multiply 3000 calories times the total population, say roughly a trillion calories. For India, I might multiply 2000 calories by 1.4 billion people, or 2.8 trillion calories. (I didn’t check this, so go ahead and laugh if I’m wrong.)
Now suppose that Google asked me how many private yachts of longer than 200 feet were owned by Americans. I honestly would have no idea.
What can we infer from these thought experiments? For many types of goods, gross output data provides a rough estimate of widely shared prosperity. You don’t hear people worrying “What would happen if 60 percent of the washing machines were owned by the top 1% of Americans?” That’s even more true of food consumption, given the constraints of stomach capacity.
But this generalization is not true of big yachts, which are rare and owned by a tiny elite. Even in that case, countries with higher median incomes will tend to have more billionaires as well. Nonetheless, I could imagine a situation where a middle-income country like Turkey, Russia or Mexico might have more mega-yachts per capita that some advanced economy like Germany and Japan. It’s at least possible. In contrast, it is not plausible that the median consumption of calories would be higher in a country with an average per capita consumption of 2000 as compared to a country with an average consumption of 3000 calories.
The key to higher living standards for average people is to produce lots more output, which requires more automation. When I was born back in 1955, there were about 300,000 people working as telephone operators. At the same time, the restaurant industry was fairly small, people tended to eat at home. Many of the telephone operator jobs were done by single women. Was that demographic hurt by the automation of phone switching? I’d say no, as the decline in operator positions was offset by rapid growth of waitressing jobs in the restaurant industry. Indeed, the decline in jobs working as telephone operators actually enabled the growth of the restaurant industry, by freeing up labor.
Today, the unemployment rate in America is about the same as back in 1955, but we have much cheaper telephone service and many more (and higher quality) restaurant meals. Even the women that previously worked as telephone operators are mostly better off (although not in every single case.) They often found other jobs in the rapidly growing service sector.
The real issue is not “Who will get the profits from AI?”; the most interesting question is whether AI will lead to the production of 130 million household servant robots, or the production of another 2000 mega-yachts. When examining issues of inequality, it often makes more sense to focus on the structure of output, not the distribution of income. If AI leads to the production of 130 million household servant robots, then it is very likely that the benefits of AI will be widely shared, even if it takes a UBI to make it happen. The same is true if it leads to self-driving cars.
Economists who argue that total output is more important than distribution are often viewed as “right wing”. In some cases this is true, but I don’t believe this assumption applies to me. Like many utilitarian economists, I favor a steeply progressive consumption tax. And I often find myself opposed by people on the left who fail to understand the basic principles of economics. Consider:
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