There is no doubt that AI is changing the global economy at an unprecedented speed. But will it rescue rich countries from growing debt pressures, especially as rapidly aging populations increase pressure on entitlement programs? If so, could these countries safely run even larger deficits, effectively indebting future ultra-rich generations? No one should bet on it. There is no doubt that an extremely optimistic assessment of the potential impact of AI on economic growth has driven asset markets higher in recent years. This is especially true of euphoric stock markets, which continue to rise despite political paralysis in France, a government shutdown and a frontal attack on central bank independence in the United States, and an exodus of highly skilled talent from the United Kingdom. Although I have long been saying that AI will eventually solve the problem of anemic growth in advanced economies, I have also warned that several Possible obstacles could slow the pace of this transformation. Among the many material, legal, economic and social factors to consider are power supply, intellectual property rights, the lack of skilled AI workers, and the need to establish a comprehensive framework that regulates the way chatbots communicate and exchange information, including some type of pricing mechanism. AI companies have invested large sums of money in the race to dominate the market (if governments allow it), apparently willing to lose money in exchange for users and information. But over time, possibly in the not-too-distant future, these companies will have to develop revenue streams, most likely through advertising, as social media companies did before them. Although President Donald Trump’s administration has shown signs of moving full speed ahead in the field of AI, complex questions about how moral judgment is encoded in these models – currently the purview of a small group of developers – will ultimately be addressed. by the US Congress and courts, as well as by authorities in other countries. But the greatest resistance will likely come from hundreds of millions of displaced white-collar workers, who will become the new political cause, just like manufacturing workers today and farm workers in the 1960s and 1970s. Anyone who works with a computer is vulnerable to automation. The idea that a handful of companies can replace a large portion of the workforce without massive political upheaval is pure fantasy. Barring a drastic authoritarian turn, unrest is virtually guaranteed. This will give the Zohran Mamdanis of the world a lot to talk about (Mamdani, a 33-year-old socialist, is the favorite to become the next mayor of New York in November), especially since AI appears to be eliminating jobs for younger workers. There is also the uncomfortable reality that many cutting-edge applications of AI are in the military realm, which could trigger a massive arms race and even lead to a proliferation of wars fought with drone armies and other AI-based weapons systems. Geopolitical fractures and conflicts are detrimental to long-term growth and are just as likely to reduce tax revenues as increase them. AI could also empower smaller states and terrorist groups by giving them access to leading physicists and biologists at the touch of a button. Finally, just because Trump, an unrepentant climate change denier, has returned to the White House doesn’t mean the threats posed by global warming have gone away. The costs of unchecked climate change are expected to rise dramatically in the coming decades – unless our AI overlords can solve the problem (although they might conclude that the solution lies in having far fewer people). The idea that, after a long and painful transition, the advent of artificial general intelligence will solve all of the rich world’s problems is hyperbole. Even if generative AI triggers growth, it will almost certainly lead to a much larger share of capital in production, and a correspondingly lower share for labor. In fact, the stock market is booming precisely because companies expect labor costs to fall. Taking this into account, it cannot be understood that the high expectations of profits implicit in the rise in share prices translate, one by one, into widespread growth. This brings us back to public debt. There is no reason to assume that AI-driven growth will lead to an equivalent increase in state tax revenue, even though that might have been a reasonable assumption in the past. After all, capital is much harder to tax than labor, partly because it tends to be more concentrated and politically powerful, and partly because it can move freely across borders. Of course, higher tariff walls could prevent this capital flight, but any such strategy would end up being counterproductive. So yes, the AI transformation is coming, and it has already contributed to a new arms race between the United States and China. But it would be reckless to assume that advanced economies can rely on AI to solve budget problems that human politicians cannot solve. Continue reading