🧠 What Are the Limits of AI-Powered Economic Growth?

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In today’s Sunday Special:

• 📜The Prelude

• 📈Today’s GenAI Foreshadows Explosive Future Growth

• 💰Can GenAI Increase GDP by 30% Each Year?

• 🔑Key Takeaway

Read Time: 7 minutes

🎓Key Terms

• Labor Productivity: Measures the output produced per unit of labor.

• Nanobody: A small, artificially created antibody that can fight against various diseases.

• Gross Domestic Product (GDP): The total value of all goods and services produced in a country.

• Generative AI (GenAI): Uses AI models pre-trained on text, image, audio, video, or code data to generate new content.

• Artificial General Intelligence (AGI): A theoretical concept where AI systems achieve human-level learning, perception, and cognitive ability.

🩺 PULSE CHECK

📜THE PRELUDE

Empowering employees like lawyers, accountants, or engineers is one of the most widely discussed use cases for GenAI. When companies incorporate this technology into employee workflows, the Labor Productivity of each employee increases.

Labor Productivity is a key factor when predicting the output of an economy over time. Experts agree on GenAI’s transformative potential on the economy but disagree on key questions like how much and when. For instance, McKinsey & Co. (McK) estimates that implementing GenAI into banking sectors and retail industries will produce $600 to $800 billion worth of yearly cost savings and productivity gains.

Each year, Americans create $25 trillion in GDP. GDP would experience significant growth if similar yearly cost savings and productivity gains from GenAI in banking sectors and retail industries were applied to all sectors and industries. Higher GDP isn’t just crucial to executives and shareholders; it leads to higher living standards with improved lifespans.

At the current pace of AI developments, GenAI could become capable of performing the vast majority of an employee’s workflows by the end of the century. So, what happens to economic growth then? Will it increase, stagnate, or decrease?

📈TODAY’S GENAI FORESHADOWS EXPLOSIVE FUTURE GROWTH

In 2021, Open Philanthropy attempted to answer whether GenAI could drive explosive economic growth. In their controversial report, Senior Research Fellow Tom Davidson predicted GDP to increase by 30% each year by the end of the century.

Economics Professor Ben Jones at Northwestern University (NU) reviewed Davidson’s prediction and found it ridiculous: “At a 30% growth rate, we’ll be 1,000 times where we are now. We’d need to experience the technological gains and productivity realizations of all of human history, not just once but ten times over, in just 25 years.”

While many experts, executives, and professors are skeptical of Davidson’s eye-popping numbers, AGI would unquestionably create a massive positive economic impact. Still, it depends on how likely we are to achieve AGI in the next few decades. For Davidson, AGI refers to AI systems sophisticated enough to replace employees across the economy. That not only requires AI systems with human-level cognitive abilities but also humanoid robots capable of performing a wide range of physical tasks, from fixing a leaking toilet to taking care of toddlers. Though AGI is a theoretical concept, the current capabilities of GenAI and the rapid pace of AI developments make AGI seem remotely plausible.

How GenAI Is Used Today?

Many employees are using GenAI tools, and workplace studies have shown sizable productivity gains from this technology across three major job categories:

1. Administrative and Clerical: Approximately 24% of routine tasks, such as scheduling, data entry, and report generation, are highly exposed to GenAI.

2. Finance, Legal, and Marketing: Approximately 45% of a lawyer’s work involving summarizing, analyzing, and drafting legal documents is highly exposed to GenAI.

3. Technology and Software Development: Developers using GitHub Copilot enjoy 27% higher productivity with streamlined code suggestions.

These results are impressive considering the general public and most executives at Big Tech companies only became aware of GenAI in the past two years following the release of OpenAI’s ChatGPT in 2022.

How GenAI Will Be Used Tomorrow?

AI systems are evolving beyond reactive chatbots to proactive companions with voice, personality, and memory. For instance, AI Agents are beginning to eliminate swaths of digital work by automating an employee’s workflows. AI Agents are like virtual employees who can think, reason, and adapt to changing circumstances.

Researchers at Stanford University (“Stanford”) developed “The Virtual Lab,” a platform that enables a team of five specialized AI Agents to collaborate on scientific challenges. This platform successfully designed 92 Nanobody candidates to fight the SARS-CoV-2 Virus, a strain of the Coronavirus (COVID-19).

Microsoft introduced “Magentic-One,” a framework that enables a team of four specialized AI Agents to collaborate on complex tasks, such as ordering food from a restaurant’s website. This framework could be a game changer for data-driven industries. For example, it could help enterprises analyze customer service data to improve customer service support processes.

In the not-so-distant future, AI Agents could assist in improving their own programming with minimal oversight from developers. Davidson predicts that AGI could enable billions of virtual employees to work on refining AI systems. This self-refinement could drive an unprecedented surge in innovation, allowing GenAI to become capable of automating nearly all of an employee’s workflows.

While Davidson estimates a 50% chance of achieving AGI by 2040, others anticipate a longer timeline through 2100. AGI might not emerge until the next century, but the technological advancements and economic impact from it will be felt much sooner.

💰CAN GENAI INCREASE GDP BY 30% EACH YEAR?

While achieving AGI would significantly increase economic output, it probably wouldn’t cause explosive economic growth. Many jobs might still prove highly resistant to automation.

For example, no matter how sophisticated GenAI software or robotic hardware gets, it’s hard to imagine a parent entrusting their child to a humanoid robot that looks like Tesla’s Optimus Gen-2. Why? Because love and affection are essential to the healthy development of your child, who is unlikely to form a healthy relationship with a humanoid robot no matter how competent it becomes at changing diapers, feeding, or bathing. Even if future generations become comfortable interacting with humanoid robots as people, the most advanced humanoid robots wouldn’t overcome harsh economic realities.

There are inherent limitations to economic growth that can’t simply be overcome through technological advancements. This fact is constantly mentioned by Economists critiquing predictions of extreme AI-driven expansion. For instance, the laws of physics impose constraints on technological progress. Within our current understanding of the universe, achieving exponential improvements in transportation efficiency is impossible. After transportation is fully automated, the limiting factor becomes the speed of cars, trains, and planes. Commercial airliners can’t conceivably advance from current speeds of 600 miles per hour (mph) to 6,000 mph.

This example may seem extreme, but for GDP to increase by 30% each year, that would literally mean what used to take thousands of years would take a few decades. Since ancient times, the speed of transportation used by everyday people has increased by 30x, from 20 mph by horse-drawn carriage to 600 mph by airplane. It took centuries to 30x the speed of transportation with all the groundbreaking technological movements that occurred from then to now.

🔑KEY TAKEAWAY

While integrating GenAI into the workforce promises substantial economic growth, we’re unlikely to increase GDP by 30% each year by the end of the century. AGI could revolutionize industries, but implementing the technology will likely face resistance in areas reliant on human touch and emotional intelligence.

In other words, economic growth from AGI may be limited by demand more than supply. There’s no doubt that GenAI and humanoid robots will expand our capacity to make better and cheaper goods faster. But what we produce depends on consumer preferences. As we collectively get wealthier, we may find that what we value most are personal, face-to-face experiences that can only be supplied by other people in the real world.

📒FINAL NOTE

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