This is the first in a series of the opportunities and threats to productivity. I begin the series with a focus on the productivity effects of AI adoption.
There has been a lot of excitement over the productivity-enhancing promise of artificial intelligence. From a policy perspective, productivity is important as it defines the rate of non-inflationary growth potential of an economy.
The accompanying chart shows the evolution of U.S. total factor productivity during the post-war era, shown on a log scale. I focus on two periods, the PC revolution and the internet revolution. The IBM PC was introduced to the market in the early 1980s, though the technology was known to hobbyists in the 1970s. It wasn’t until the mid to late 1980s that they became ubiquitous and the economy began to see productivity gains from the PC revolution. Two black lines on the chart estimate the range of effects of PC revolution, which only produced relatively minor gains. The lower line is not much different from past trend growth, though the higher and steeper line shows the upper band of the productivity gains from this innovation. The internet revolution was different, as depicted by the solid red line, which shows a much steeper rate of growth that began in the early 2000s. I drew a dotted red line with the same slope as the internet revolution and superimposed it over the PC revolution period to show how much more the internet affected productivity during that period.
Looking forward, no one can accurately forecast the productivity gains from AI adoption. While different analysts can produce point forecasts, the error terms on the forecast are enormous. Will it be like the PC revolution, the internet or even better?
The full post can be found here.
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