Full speed ahead on AI: Our economy needs it

Authored by Steven Rattner

Release Date: Tuesday, 11 July 2023, 8:08 PM

Latest Update: Tuesday, 11 July 2023, 11:27 PM

The issue is not that technology is advancing too rapidly, but rather that it's not progressing quickly enough to boost our declining productivity.

In 1675, English textile workers, fearing that new mechanical looms would jeopardize their jobs, broke into factories, seized machinery, and set it on fire. This was met with widespread public support and even implicit approval from the authorities.

This fear of job loss due to labor-saving devices is not new. Centuries ago, the introduction of the fulling mill sparked outrage among workers who were forced to seek other jobs. Sixty years ago, Life magazine warned that automation would lead to job scarcity. Instead, employment flourished.

The recent launch of ChatGPT and other AI platforms has triggered a wave of exaggerated worry about the future of white-collar jobs. Will AI replace paralegals or even some lawyers? Will AI diagnose medical conditions more quickly and accurately than doctors? Will my next guest essay be written by a machine? The media has already started reporting on the first job losses.

Unlike previous technological advancements, the emergence of AI has also sparked non-economic fears, ranging from disinformation and privacy issues to the fate of democracy. Some even suggest that AI could have a more devastating impact on humanity than nuclear war.

While these concerns are valid and require serious attention, I believe that when it comes to the economy and jobs, history offers reassuring lessons. The problem is not that we have too much technology, but rather that we have too little.

Artificial intelligence, in its broadest sense, has been around for millennia. The abacus, invented in Babylonia over 4,000 years ago, replaced more labor-intensive methods of mathematical calculation, saving time and reducing work.

In the early 1980s, when I started my career in finance, we used handheld calculators for numerical analysis. We wrote our calculations in pencil on large sheets of paper (hence the term 'spreadsheets'), which were then typed by a secretarial pool. Any changes meant redoing the entire spreadsheet. Now, all of that can be done with a click of a mouse.

Less than three decades ago, conducting library-type research required hours of sifting through dusty volumes. Now, it requires a few keystrokes. Not surprisingly, the number of librarians has remained steady since 1990, while total employment has grown by more than 40 percent.

Other job categories have almost completely vanished. When was the last time you spoke to a telephone operator? Or rode in a manned elevator? In place of these and other obsolete tasks, a vast array of new job categories has been created. A recent study co-authored by MIT economist David Autor found that approximately 60 percent of jobs in 2018 were in occupations that didn't exist in 1940.

Despite fears of a robot invasion, the United States created 20.2 million jobs in the decade following the Life magazine article, and today, the unemployment rate is 3.6 percent, just above its 50-year low. The number of Americans employed in finance has surged, even as computers, Excel, and other technologies have made them far more productive.

Higher worker productivity leads to higher wages and cheaper goods, which in turn increases purchasing power, stimulates consumption, induces production, and creates new jobs. This is essentially how growth has always occurred.

This makes AI not just a luxury, but a necessity. We can only achieve lasting economic progress and rising living standards by increasing each worker's productivity. Technology, whether in the form of looms, robots, or artificial intelligence, is key to achieving this goal.

Generative AI, despite its potential to be a particularly transformative innovation, is just another step in the continuum of progress. Our ancestors were likely just as startled when they first witnessed other remarkable inventions, like a telephone transmitting voice or a light bulb illuminating a room.

In the golden age of commercial innovation, between 1920 and 1970, productivity grew at an annual rate of 2.8 percent. Since then, except for a brief period of acceleration between 1995 and 2005 (the modern computer revolution), the annual growth rate has averaged a modest 1.6 percent. To pessimists, this suggests that the most impactful technological advances are behind us. To me, it signals the need to forge ahead with AI.

What 'forge ahead' means remains to be seen. For every person who believes that AI will be revolutionary, there is another who doubts it will be a game changer. My best guess is that it will help boost productivity, but not to the levels seen in the last century.

The benefits of productivity growth don't always trickle down to workers as fully and efficiently as we'd like. Since 1990, labor efficiency has increased by 84 percent, but average real (adjusted for inflation) hourly compensation has only increased by 56 percent.

The compensation that workers have missed out on has largely gone into corporate profits, fueling a stock market boom and record income inequality. The reasons for this disconnect are varied, ranging from declining union membership to imports to anti-labor practices by companies, like non-compete clauses for hourly workers.

The government can help mitigate these dislocations. For over a century, redistribution has been a necessary part of managing the benefits of industrial and technological advancements.

The progressive income tax, introduced in 1913, was designed in part to offset the vast income inequality generated during the Gilded Age. More factory improvements and more income inequality in the 1920s helped stimulate a variety of New Deal policies, from additional protection for labor to the introduction of Social Security.

Today, the consequences of Washington's failure to uphold its part of the bargain are clear. Disgruntled white factory workers in the Midwest with stagnant or falling real wages became supporters of Donald Trump (despite his policies favoring the wealthy). With only 22 percent of Americans saying our country is on the right track, America feels more politically and socially divided than at any time in my 70-year lifetime.

We did a poor job of preparing Americans for the transition from a manufacturing economy to one dominated by services. We must do a better job this time.

If artificial intelligence proves as transformative as its advocates (and some opponents) believe, we could face a significant need for better education and training. The impact will not just be on factory workers but on Americans across industries and up and down the employment chain, from financial analysts and coders to graphic designers and customer service agents and call center workers.

A recent report from Goldman Sachs, one of the most optimistic of the techno-optimists, concluded that AI can help return our productivity growth rate to the levels seen in the mid-20th century. I, for one, am fervently hoping that the Goldman report is correct and that AI ushers in a new era of technological and economic progress — and that we take the right steps to ensure the rewards are widely shared.

This article originally appeared in The New York Times.