Will AI Cause Mass Deflation?
Forbes magazine warns AI will set off “The Great Deflation Bomb.”
Will we be buying eggs for fractions of a penny, houses for a song?
The impact of Artificial Intelligence on the economy is heating up as AI begins to seep from its original killer app of cheating on college essays and porn.
According to layoff firm Grey, Challenger, in the last year AI has accounted for one in ten layoffs in the tech sector, and one in 50 layoffs overall.
Small potatoes compared to the panicked warnings of a few years ago.
But as Ray Kurzweil says, 1% in an exponential process is half-way there. And AI's economic impact is likely to be exponential -- so small you can barely see it, then it blows up and takes over everything.
AI and Jobs
The question of whether AI is a blessing or a curse very much depends how hard it is to create new jobs.
If it's easy to create new jobs, AI isn't a job crisis at all -- it's a ladder.
Think Silicon Valley in the 90's, when the new jobs paid much better than whatever Palo Alto townies were doing before tech showed up.
On the other hand, if it's hard to create new jobs, think Detroit in the 1970's. A hellscape. The old jobs gone, nothing to replace them. Minimum wage at best, riots over universal basic income at worst.
AI and Deflation
Still, setting aside the job dynamics, one thing we can be sure of is AI will radically reduce prices -- deflation.
This is because across the board AI replaces things that were more expensive -- especially when you consider AI combined with robots.
Contrast with the 1990’s internet, which reduced some prices -- say, buying things from Amazon or downloading an mp3 or movie. But a lot of the benefit from the internet was quantitative -- meaning stuff got better. It didn't necessarily get cheaper.
After all, the 1990's internet couldn't run a factory. Or a chicken farm. It couldn't drive you to work, deliver your supply chain, or produce historical documentaries with a one-sentence prompt.
So, yes, we could conceivably get eggs for pennies.
The Fed and Deflation Phobia
Now, there is one caveat. Because our Federal Reserve has a giant money printer, and they fear deflation more, apparently, than they fear World War 3.
Meaning that as soon as AI and robots start bringing down prices -- which is a good thing -- the Fed's immune response will kick in and they'll do everything they can to print money. Potentially for years on end.
Aside from what easy money does to the economy, that will make assets boom.
So eggs for pennies, houses for millions.
What’s Next
Putting it together, if we did the jobs thing right, AI is a utopia, up there with the mechanization of agriculture -- or fire itself -- as one of the most amazing things to happen to humanity's quality of life.
We might expect ten-fold plus increase in standard of living, so roughly the difference between Switzerland and Botswana.
But if we did the Detroit thing on jobs, making it hard to create jobs with regulation, licensing, and taxes, we become a continent-sized Detroit of former middle-managers warming their hands in steel drums made of rusted-out windmill turbines.
A tiny AI-enabled elite at the top. A huge underclass below.
Clamoring, no doubt, for Universal Basic Income.
AI’s impact will take awhile, and the first decade might look closer to the internet — qualitatively better but similar prices.
But when it hits in full I think we’re looking at something akin to the industrial revolution.
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Technology was always supposed to lower prices.
The Fiat system was stood up to counter that, inflation was always the plan.
It led to rising rates for all the assets the elite owned.
It also provides an off-ramp for the giant debt load they have incurred, they can just debase the currency.
If they want to blame tariffs, or if they want to blame AI for the economic implosion that is going to happen in the next 12 months that's fine.
People who are paying attention know better.
Central Banks have been coordinating theft through intentional purchasing power transfer for more than 70 years.
Evil bastards.
A tiny AI-enabled elite at the top. A huge underclass below. That is the way it will be.
This is the way everything is now. Deflation? With trillions of dollars washing around and more to follow? The big companies will keep the profits themselves and never hand them down to consumers. Just like when factories moved to China but the product still cost the same. Levi's jeans are still expensive but are now made overseas. Instead of passing the savings on to the consumer, they kept it themselves.
As for Silicon Valley, they just have jobs for non-Americans and Congress has been happy to oblige them. Think AI will be any different?
Lastly, AI is a lot more hype than it really is. As they say, garbage in, garbage out. Look at Google's black Nazis for an example. Robots were also supposed to take over the workplace. Other than some specialized applications, usually something humans got incredibly bored doing, they never lived up to the hype.