Unleashing a potential economic force akin to "the new electricity", Artificial Intelligence (AI) holds the power to fundamentally transform the global economy and address persistent macroeconomic crises. This was the key conclusion of a high-level discussion hosted by GOOGLE, featuring James Manyika, Senior Vice President at Google and Alphabet, alongside Nobel laureate economist Michael Spence and President of Queens College, Cambridge, Mohamed El-Erian.
James Manyika initiated the conversation by asking about AI’s potential to impact the economy. Mohamed El-Erian described AI as a "massive productivity enhancement" and the necessary "weapon" to solve significant global economic issues. AI’s promise lies in its ability to enable "a whole set of existing needs that are not being met" and increase "the efficiency of those that are being met". This anticipated productivity surge could address problems like "rising dependency ratios, aging populations, fragmented global supply chains", and could even help in "lowering inflation and long-term interest rates".
Mohamed El-Erian stated that he is "less worried" than he would normally be about major global problems because he "can actually see a way through it" if the application of AI is handled correctly. He pointed out that while his generation is leaving behind "growth models that are exhausted" and "debt levels that are excessive," they are also leaving behind "a tool that can help solve this". This massive productivity shock could literally step up growth, changing the "whole trajectory" and making debt more sustainable. Furthermore, AI offers a tool to help on the inequality side by enabling "low-income households to leapfrog certain things in education, in health, in finance".
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Michael Spence strongly reinforced this optimism from a macroeconomic perspective. Michael Spence cited the Congressional Budget Office—an organization "not known for flights of fancy"—which suggested that the productivity potential driven by AI could produce "real growth at the 4% range," provided that this technology "goes through the whole economy". Michael Spence explained that this level of growth would essentially remove the "unsustainability in the debt trajectory". From a macroeconomic point of view, Michael Spence views AI as looking "so close to a silver bullet". He also added that AI will help advance "scientific discovery," including in areas like "drug discovery, in health care, in material science, innovations that can drive the economy forward".
Despite the enthusiasm, both economists raised critical concerns. Mohamed El-Erian warned that like electricity, one "has to learn how to use it so you don't electrocute yourself". Moreover, the necessary "infrastructure to produce the power to run this electricity" is also required. Regarding the impact on work, James Manyika noted that research suggests that while some occupations will decline and others will grow, "many, many more that will change" as people transition skills. Mohamed El-Erian stressed that if the productivity effect is "large and fast," the economic adjustment mechanism that moves people into new lines of work "just isn't fast enough to keep up". It is also vital to ensure that "the wages continue to go up" as productivity gains happen.
Mohamed El-Erian cautioned that innovation often immediately "reduces the barrier to entry," potentially leading to "overconsumption and overproduction" if not carefully managed. He cited the global financial crisis, where securitization—a good invention for allocating risk—was "over consumed and overproduced," leading to an unsustainable dynamic. The policy response, according to Mohamed El-Erian, must also look beyond purely economic solutions and consider the "social and political" implications of labor market disruption. While the potential for the massive benefits is evident, Michael Spence agreed that it is "not a done deal", underscoring the need for careful execution to realize the full promise of AI.
