The Two Tales of the Twenty-twenties
There is general acceptance of two modern-day behemoths: looming global recession and the boundless economic potential of artificial intelligence (AI). However, in some ways, they exist in contradiction and with deeper implicit economic narratives propagating them. It is pertinent to consider the evidence and reasons for and against these two projections of the prosperity of our shared future as we stand at the crossroad.
Recent, and – to cut ourselves some slack – somewhat unforeseeable economic developments, such as the aftermath of Covid-19, have left the world in a 127 Hours-style situation, also known as teetering on the edge of global economic recession. Whilst Covid-19 is now largely a memory around the world, its legacy is the incitation of a near-universal inflation-fighting vs growth-spurring battle. The International Monetary Fund’s (IMF) World Economic Outlook April 2023 stipulates that inflation, specifically the Consumer Price Index (CPI) which reports the price changes of an average consumers’ basket of goods and services, is very unlikely to drop back to target levels before 2025. The CPI has certainly been stubbornly rising in OECD countries, reaching levels not seen in over three decades. In the US, this level of inflation is on the magnitude of historical wars or global oil shocks. The IMF states that core inflation, which excludes food and energy – the typically more volatile goods – will only decline slowly. The more stubborn inflation is against our efforts to mitigate it, the larger the so-called economic ‘sacrifice ratio.’ This is the amount of national income that must be foregone to reduce inflation by one percent. This is a reason for the confronting warning of Indermit Gill, Chief Economist at the World Bank, that “A lost decade could be in the making for the global economy.” The World Bank projects an average growth of global potential output of only 2.2% per year until 2030, a 30-year low… The drop-off is predicted to be sharper for developing countries in particular. To make the narrative more dismal, Mr. Gill outlines the expanding challenges of our times, chief among them “stubborn poverty, diverging incomes, and climate change,” which become harder to address as growth slows. The realness and severity of this prospect can simply not be understated. They point to the end of the so-called ‘golden-era’ of development, with the economic engine of China and other countries no longer driving global economic expansion.
A November 2022 European Parliament policy paper, Tackling global inflation at a time of radical uncertainty, discusses how against the background of surprisingly differentiated economic circumstances across countries, central banks walk a tight rope between the risk of under- or over-tightening. If they are too loose, inflationary expectations may ‘de-anchor’from the central bank’s control, reducing credibility and potentially ultimately leading to an inflation spiral. By contrast, if they are too tight, the risk of global recession may indeed be realised. Regardless, the most predominant impact of inflation is on those who directly feel the loss in real income, the poor. The European Commission’s Joint Research Centre wrote this in stone in December 2022, finding that current inflation is widening existing economic and social inequalities in the EU. We can now understand the dismaying picture painted by the World Bank.
The AI industry on the other hand, undergoing a formidable infancy, appears immune to this looming recession in the coming decade. In fact, AI’s potential contribution to the global economy is estimated by PricewaterhouseCoopers (PwC) at USD$15.7 trillion by 2030. Almost 70% of this impact is predicted to occur in China and the US, with China’s GDP poised to be boosted by a whopping 26% in 2030 and America’s by 14.5% as a result of AI. Further to this, renowned Stanford economist Erik Brynjolfsson believes we are past the turning point of an AI-driven productivity J-curve, and a rapidly accelerating one at that, as a very result of the state of the post-covid-19 economy, at least in the US. So while global growth is apparently slowing dramatically, these unprecedented advances will plough ahead.
Mind you, we must manage this technological revolution very carefully, as considered with industrial robotisation, because AI has the power to change the economic game systemically. The huge economic potential of AI means we cannot take its dominant narrative at face value. There have not been big criticisms levelled at AI developments insofar as they have the potential to upheave society. The most prominent step back was the Future of Life Institute’s open letter to Pause Giant AI Experiments with high-profile signatories, amongst them Elon Musk and Yuval Noah Harari. Jim Hightower, a middle-class defender not afraid to question the establishment, claims that “the AI agenda is not coming from the gods, nature or machines. It's a choice being made by an elite group of corporate and political powers trying to impose their selfish interests on everyone else.” To bolster this, Erik Brynjolfsson says that mimicking human intelligence with AI, as opposed to developing it to augment our capacities and tasks, is the “single biggest explanation” for the rising concentration of wealth. As humans get replaced by machines, wages are driven down, and income and wealth inequality are only exacerbated. In fact, Kai-Fu Lee, author of A.I. Superpowers: China, Silicon Valley, and the New World Order estimated in his 2018 book that by 2033 AI and automation will be able to do 40-50% of our jobs. Despite the economic boosts, such as those projected by PwC, Mr. Brynjolfsson remains critical of the implicit narrative of necessary job destruction heralded by tech giants like Sam Altman, CEO of OpenAI, who gatekeep AI development. Indeed, in March 2021, Mr. Altman wrote “This technological revolution is unstoppable.” This view, if perpetuated top-down, precludes even the possibility to discuss the vast potential to steer AI development towards augmenting creativity and productivity of workers, not replacing them.
Then, is there a way to unify these disparate visions of the prosperity of the coming decade and beyond? More importantly, is there a way to avoid the crunches and ride the booms? What does it take? Well, World Bank officials suggested that international monetary and fiscal policies should be more aligned. This is exactly echoed by the European Parliament’s Policy Department for Economic, Scientific and Quality of Life Policies. What exactly this entails is a matter for central banks and governments. If we trust the institutions – and trust them we must – they can delicately steer our path through this turmoil. Trust, in this case, has economic implications and is a necessity; the biggest wrong would be for the people to – without even knowing it – run the economy into their imagined hell of self-fulfilling inflationary expectations, and thereby undermine the power and legitimacy of central banks to actually affect prices. At the same time, I propose we elicit some more critical reflection in policymakers, agenda-setters, and tech and AI tycoons. The public should want to have a stake in the discussion, make sure to examine the narrative, and express distrust if deemed necessary.