AI's Economic Impact: Less than the Hype
Historical perpective of past tech revolutions hints that AI hype is out of control.
Consultant EY Parthenon is the only adult in the AI room! Combating the insane hype over AI they look at how earlier tech revolutions played out.
What they find is that while there is no doubt that the AI revolution is significant, it may not be quite as explosive as the hype promises.
👉TAKEAWAYS: (my comments in italics)
1. Significant productivity boost:
Yes AI will boost productivity but by 20-50% not the 70-100% seen in many studies. MIT and Stanford’s recent study found that for a real implementation of AI, worker productivity increased a mere 14%. That is merely one data point but it’s a real number. The AI revolution pales before the Industrial Revolution and electricity! ….Read on…….
GenAI will likely lead to a significant acceleration in productivity growth and raise living standards like prior general-purpose technologies. By examining the 1990s IT-driven acceleration in productivity growth, we estimate that GenAI could lift productivity growth by 20% to 50% in the coming decade. However, it will likely fall short of the doubling or tripling of productivity growth resulting from the Industrial Revolution or adoption of electricity.
2. Potentially delayed impact:
The AI party will not happen overnight! We are already seeing reports asking what impact AI is having on bank revenue when banks for the most part can barely cobble together an AI chatbot. Slow down!
The productivity boost from GenAI will likely occur with a lag, but the faster speed of technological diffusion and adoption could mean that the boost to economic activity is felt in the next three to five years versus multiple decades for the steam engine and 10 years for the computer age.
3. Nuanced job reshuffling:
So fire me! The concept that banks, in particular, will fire their employees en-masse due to AI adoption is total bunk. Sure AI will cause job losses but humans still have a place in the workforce, albeit with different jobs for many.
AI technologies are poised to cause significant labor market disruptions by automating some tasks and displacing workers, but it will also create new types of jobs and functions within roles across many sectors of the economy that will help offset AI-related job losses.
AI isn’t the first tech to disrupt labor markets. The rapid mechanization of US agriculture in the early 20th century spurred one of the greatest structural shifts in employment in modern history.
👊STRAIGHT TALK👊
I love AI, and see it as totally transformative technology. At the same time, however, I rail against the insane hype that surrounds the tech.
The hype has become a form of reality distortion field. Let me share a great example.
Yesterday I read the headline: “European Firms Struggle to Generate Value from Generative AI” from a report titled “Generative AI Radar” by Infosys.
So what really made me laugh is that the title frames it so that it is the companies are at fault for their inability to generate value! The real headline should be “GenAI struggles to generate value in companies!”
How are any companies going to put to work a technology in less than a year when it has such obvious flaws, and has huge ethical consequences? It’s not the company’s fault it’s GenAI’s for hallucinating and having biases.
So I loved this EY Parthenon report because it brings historical context to AI, which at this point is desperately needed.
We’re going to have to wait a bit longer for the AI revolution than the hype would have you believe. That’s not bad, it’s coming, but as with the steam engine in the graph above it won’t happen overnight! That’s not to say it will take 100 years, but you get the point.
Love AI, hate the hype.
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