Artificial Intelligence: Ιmpact on Economics

Advances in artificial intelligence (AI) have the potential to affect growth, inequality, productivity, innovation, and employment. OpenAI’s ChatGPT, in particular, has greatly increased public awareness about the significance of AI and its implications for the future. What impact will the development of AI have on economic inequality, the composition of the workforce, and economic output as a whole? How can nations prepare for the micro and macroeconomic changes brought about by AI?

Artificial intelligence (AI) in a term that has become ubiquitous in our quotidian lives. It has been treated by both wonder and trepidation by the global community as the scope of its infiltration into our society is as yet unknown. There are those who have vehemently voiced opposition towards its development and others who welcome it as a transformer of society into one in which a great number of mundane, but also complex tasks can be performed by this new algorithm-driven intelligence. This essay adopts a more tempered view of the phenomenon that goes by the epithet ‘artificial intelligence,’ striving to determine the economic and social impacts derived thereof. As such, the author will assume a benevolent iteration of AI, and ignore the science-fiction-driven fearmongering of impending Armageddon.

Artificial intelligence as it exists to date is defined as “the simulation of human intelligence processes by machines,” and not some novel life-form with a penchant for sentience, as science fiction afficionados would claim. AI is a component of technology that incorporates machine learning algorithms that transcend any single programming language. Given the postulate that AI is destined have a significant impact on global society, the question of its degree of infiltration into a given economy on both a microeconomic and macroeconomic level is a subject of significant contention.

 Economic Inequality

A first aspect AI’s economic and social impact is on economic inequality, where, as expected both positive and negative impacts will be felt. AI has the potential to boost productivity and to drive economic growth through the creation of new industries. This could reduce income inequalities within a given society. Arguably however, just as the case for job creation may be valid in associated fields to AI, it may just as easily destroy many traditional occupations, serving the vested interests of the upper echelons within society to the detriment of the poorer economic and social strata who stand to become occupationally obsolete.

It should be noted at this juncture, that AI is not the same as the automation witnessed in the previous century where capital replaced human labour for mundane and repetitive tasks initially, and then with the advent of the computer age, gave rise to many mental activities being processed more efficiently and quickly by hardware and software, than by human ‘liveware.’ Where human beings have been shown to excel is in the field of critical thinking and this has, as of yet, to be superseded by any machine intelligence.[1] Now, AI is calling this previously accepted claim to question. As AI more closely resembles human intelligence and learns to teach itself with the use of a massively superior repository of immediately accessible data, it will be able to engage in superior critical thinking, rendering liveware obsolete.

Composition of the Workforce

AI is not, as its precursors of technological inventions and innovations. The technological unemployment that has been witnessed in the last century will surely be a continued trend as AI takes root in economic activity, however, the use of ‘intelligent learning algorithms’ endanger high-profile and high-skill professional occupations. What was previously true for the displacement of workers in low-skilled tasks will continue, but adding to them, some high-skilled jobs will also become more efficiently served by AI. For example, an AI programme could perform a medical diagnosis based on a series of tests performed on the patient quickly and cost-effectively. To be sure, the human element would be missing, but as this technology develops, even a bedside manner could be learned by the algorithms.

An opposing perspective is that AI will be the catalyst for job creation, affording new opportunities in affiliated fields and generally in all technologically related modes of employment. A key factor in the evolution of the labour markets will be the adaptability of workers in terms of re-training those who have been made redundant and here re-skilling and up-skilling will be the means to survive the AI age. For workers, adaptability will become a key and this goes hand-in-hand with higher levels of education and training. Hence, society will have to adopt a grass-roots approach to the AI era by providing young workers and old alike with the tools to ensure their adaptability in the ever-changing landscape of the labour market and the economy.

Economic Output

AI’s impact on economic output will almost unquestionably be to embolden and to enhance it. Higher economic performance and activity will be functions of its ability to never cease to produce, unencumbered by the biological trappings that mark human physical and mental tasks of labour activity. The question of human fatigue goes further in comparison to an artificially intelligent substitute, as it constitutes a factor that contributes to reduced efficacy in task performance and in an increased propensity to commit mistakes. AI has the further advantage that it will be oblivious to the subjective prejudices that all human actors carry within them, and which can compromise performance. AI does not fall ill, nor need rest, as do biological life forms.  Hence, economic activity can be a 24/7 process across the globe as AI never sleeps, and since money never sleeps either they will make a good bed-friends.

As AI takes root, it will doubtless generate many new industries and reveal new permutations within existing ones; it will lead to the emergence of novel business models, and this will most assuredly contribute to economic growth. The fusion of AI algorithmic intelligence and liveware (human intelligence) as both work in tandem to a given task will have the potential to increase productivity, as each of the two specialize further in the areas in which they possess a comparative advantage. The key will be to find the balance and to remember that as AI continues to develop, this balance will shift. Hopefully, the human element will not become entirely obsolete, because unless a new economic paradigm is created this will not bode well on people striving to acquire and hold employment as a means to survive.

Preparation Strategies  

Preparation for a society in which AI shows an ever-growing presence is no easy task. Given the potential scope of an AI revolution, preparation must also be multi-faceted. The following are suggestions that can allow human society to welcome the advent of this new age.

Firstly, investment in education will be necessary to educate and to train the workers of today and tomorrow to acquire new skills that will enable them to adapt where redundancies are expected and to work in unison with AI in an AI-driven global economy. The implementation of social safety nets to re-train those who find themselves redundant will be a priority, as AI continues to infringe upon formerly human-driven occupations.  Support for those who are occupationally displaced will be in the form of special retraining programmes, welfare payments in the short-term to keep these people afloat and possibly emotional and psychological support to prevent the onset of despair by those whose services are no longer needed.

What is equally important, if not the most pressing measure, will be to set ethical boundaries and standards, whereby AI continues to be developed and used. This should always have the interests of the human element at its core and should be address issues of bias, privacy, ethics, and accountability.  For this to be pertinent, internationally concerted action will be necessary. It is clear that AI poses a challenge and possibly a threat for economic agents and society on a global scale. As such, the standardization of ethical practices and international compliance will be necessary if there is to be a successful outcome in converging global practices and access to AI technologies.

Another important collaboration will be that between the public and the private sector. This means specifically that government and private sector agencies will have to align their policies as a means to foster a joint effort that will facilitate the responsible development and deployment of AI technologies. Here too, academia will play a vital role in guiding both public and private sector agents, and in offering advise of a preemptive nature to avoid some of the less palatable effects of an AI-driven economy and society. These same academic institutions can pioneer in the support and development of AI technologies for its benevolent usage and for the avoidance of some of the more concerning aspects of this new dimension to our lives.

In conclusion, whilst no preparation can be said to be adequate when the very nature of that for which one is preparing is of uncertain potential, it is indeed imperative that nations act collectively in the manners stated above to mitigate potential dangers and to promote the beneficial aspects of an AI-driven world. It is hoped that nations will act with maturity and sobriety now that AI is already part of our daily existence, and that unlike the mythological opening of a societal ‘Pandora’s Box’, AI will serve to create a more inclusive and sustainable future for us all.

References

“Generative AI is a critical piece of a technological mosaic that can drive productivity growth, but by how much?” (2023, October 6). World Economic Forum. https://www.weforum.org/agenda/2023/08/generative-ai-realistic-economic-impact/

Bushwick, S. (2023, November 12). Unregulated AI will worsen inequality, warns Nobel-Winning economist Joseph Stiglitz. Scientific American. https://www.scientificamerican.com/article/unregulated-ai-will-worsen-inequality-warns-nobel-winning-economist-joseph-stiglitz/

Impact of artificial intelligence (AI) on the economy & jobs. (n.d.). Bank of America. https://business.bofa.com/en-us/content/economic-impact-of-ai.html

John, M. (2023, August 7). Will AI be an economic blessing or curse? History offers clues. Reuters. https://www.reuters.com/technology/will-ai-be-an-economic-blessing-or-curse-history-offers-clues-2023-08-07/

Laskowski, N., & Tucci, L. (2023, November 13). artificial intelligence (AI). Enterprise AI. https://www.techtarget.com/searchenterpriseai/definition/AI-Artificial-Intelligence

Szczepański, M. (2019). Economic Impacts of Artificial Intelligence (AI). In European Parliament. European Parliament. https://www.europarl.europa.eu/RegData/etudes/BRIE/2019/637967/EPRS_BRI(2019)637967_EN.pdf

The impact of artificial intelligence on growth and employment. (2023, June 20). CEPR. https://cepr.org/voxeu/columns/impact-artificial-intelligence-growth-and-employment

[1] Laskowski, N., & Tucci, L. (2023)