Artificial intelligence is both the hot innovation and hot topic of the moment. To date, it has the fastest adoption rate of any technology in history. ChatGPT is used by 700 million people each week, almost 10% of the world’s population. Will it prove to be the next game-changing technology? Will it kill more jobs than it creates? Will it usher in a new era of economic growth?
What can be said with conviction is that, to date, every technological innovation in history has ultimately generated more jobs than it cost. At every turn (such as with the Luddites), pessimists have predicted doom from new technology or other business efficiencies. In 1963, Life magazine ran a breathless article with the cover line: Automation’s really here; jobs go scarce. POINT OF NO RETURN FOR EVERYBODY. It turned out that Life magazine was what went scarce; the magazine went out of business in 2000.
Meanwhile, the economy motored on. In the five years following the article, the country created 11.9 million jobs, compared to 5.3 million in the preceding five years. The unemployment rate dropped from 5.6% in 1963 to 3.6% in 1968.
When it comes to jobs, we have had what economists call “creative destruction” for centuries. Think of all the occupations that have largely or entirely disappeared: telephone operators, elevator operators, many railroad tasks, lamplighters, film projectionists, typewriter mechanics, paperboys, and on and on.
Meanwhile, other occupations have either appeared (like most jobs in technology) or become substantially more numerous, such as those who work in health care. The Bureau of Labor Statistics projects strong growth in those categories over the next decade, which generally pay above the median wage.
How do innovations turn into jobs and prosperity? First, they lower costs for companies and ultimately, the prices that consumers pay. Consider the examples of the Model T (a beneficiary of assembly lines and supply chain improvements), long distance phone calls (once metered; now essentially free) and electronics like personal computers and televisions. As prices come down (or go up less fast), consumers have more money to buy other products and services.
Another way to think about the impact of innovation is through productivity, the holy grail of economic growth. Unless workers become more productive — whether through technology, innovation or finding other efficiencies — increases in their inflation-adjusted wages are unsustainable and hence their standards of living will stagnate. Note the strong growth in productivity in the 1950s and 1960s (generally viewed as periods of robust economic performance), paltry results in the 1970s and 1980s when we were battling inflation, and resumed growth in the 1990s and 2000s as computers and other technologies become omnipresent. And it is not a coincidence that there has been very weak productivity growth over the past 15 years while Americans have become more and more disenchanted with the state of the economy.
