Economists are trying to wrap their head around the impact of AI, or what they often call transformative AI (TAI), which is shorthand for labor-replacing AI. As you would expect, the arrival of transformative AI would significantly change the economy.
But modeling precisely how TAI would change the economy seems to be very difficult. A new paper, Strategic Wealth Accumulation Under Transformative AI Expectations by Caleb Maresca of NYU, suggests that there might some unexpected economic results. Specifically, the paper’s model suggests that interest rates might rise even though everyone starts to save. Normally, if everyone is saving, interest rates go down because more capital is available for borrowing and investing. But if everyone starts saving in anticipation of TAI (including companies), then capital becomes less accessible for productive investment because everyone is hoarding it, and interest rates nevertheless go up.
It’s an interesting theoretical result, but the model has to make major assumptions which are unlikely to be true. Two major assumptions in this paper are (1) there is a fixed supply of AI labor that simply replaces human labor in a zero-sum competition; and (2) everyone will hold the same beliefs about TAI and act strategically in the same way to hoard capital. As a result, it’s difficult to actually draw broad conclusions.
But many people are indeed worrying about AI altering the balance between labor and capital in the long term.