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Joe Walker serves as interlocutor in (The Joe Walker Podcast, October 22, 2024). Here are a couple of points that caught my eye, but there is much more in the interview itself.Here’s Summers on the long-term increase in economic output over time and the interrelationship with technology:
[T]he more I study history, the more I am struck that the major inflection points in history have to do with technology. I did a calculation not long ago, and I calculated that while only 7% of the people who’ve ever lived are alive right now, two-thirds of the GDP that’s ever been produced by human beings was produced during my lifetime. And on reasonable projections, there could be three times as much produced in the next 50 years as there has been through all of human history to this point. .. Of course, I think that this [AI] technology potentially has implications greater than any past technology, because fire doesn’t make more fire, electricity doesn’t make more electricity. But AI has the capacity to be self-improving.
There’s an interesting dynamic between strong technological advance in a given sector and the share of that sector in the economy. Imagine that it becomes much cheaper to make something, so that its price is falling sharply. The quantity demanded of the good increases, at least up to a point. In the context of the economy as a whole, the size of a given sector is determined by the quantity it produces multiplied by the price. If price keeps falling, and quantity demanded doesn’t keep rising as quickly, then the share of a high-productivity sector in the economy will decline. Similarly, as AI technologies plummet in price, it’s at least possible that the output share of AI technologies in the economy will decline as well. Here’s Summers:
[S]ectors where there’s activities where … there is sufficiently rapid growth almost always see very rapidly falling prices. And unless there’s highly elastic demand for them, that means they become a smaller and smaller share of the total economy. So we saw super rapid growth in agriculture, but because people only wanted so much food, the consequence of that was that it became a declining share of the economy. And so even if it had fast or accelerating growth that had less and less of an impact on total GDP growth. In some ways we’re seeing the same thing happen in the manufacturing sector where the share of GDP that is manufacturing is declining. But that’s not a consequence of manufacturing’s failure. It’s a consequence of manufacturing’s success.
A classic example was provided by the Yale economist Bill Nordhaus with respect to illumination. The illumination sector has made vast progress, 8, 10 per cent a year for many decades. But the consequence of that has been that on the one hand, there’s night little league games played all the time in a way that was not the case when I was a kid. On the other hand, candlemaking was a significant sector of the economy in the 19th century, and nobody thinks of the illumination sector as being an important sector of the economy [today]. So I think it’s almost inevitable that whatever the residuum of activities that inherently involve the passage of time and inherently involve human interaction, it will always be the case that 20 minutes of intimacy between two individuals takes 20 minutes.
And so that type of activity will inevitably become a larger and larger share by value of the economy. And then when the productivity growth of the overall economy is a weighted average of the growth individual sectors, the sectors where there’s the most rapid growth will come over time to get less and less weight.
To put it another way, the economic issues about AI do not involve the capabilities of the technology in splendid isolation; instead, it’s how AI technology interacts with workers and consumers, with production and consumption of goods and services. Some tasks that workers currently do will be replaced, but possibilities for brand-new goods and services, as well as improvements in existing ones, will be created. I do not pretend to know how it will all work out in the decades to come, but I do know that in the globalized world economy, the AI cat is already out of the bag. Paul Romer () offered a a few years ago: ”Everyone wants progress. Nobody wants change.” Alternatively, one might say that some folks are fearful or hesitant about change until or unless society or government has full control over the direction of change and complete knowledge of its future effects–in which case, of course, it barely qualifies as “change” at all.More By This Author:
