Comment by xenophon
16 hours ago
Well-written; seems like an expanded and more detailed version of the Twitter essay that made the rounds a couple weeks ago.
One thing this piece doesn't contemplate is deflation. Competition will still exist in this world; if friction decreases and renders switching costs lower for a wider variety of industries, while AI efficiencies improve margins, prices in those markets will be competed down to a substantially lower marginal cost floor.
In other words, people may make less money, but goods in industries which benefit from AI should become cheaper in a growing set of competitive markets. The magnitude of the impact on prices should correlate with the magnitude of the employment impact; the better AI is at taking our jobs, the cheaper prices should get for an ever wider basket of goods.
How will AI affect the price of real goods and their inputs: lumber, food, electricity, textiles and the like? And will companies pass on the service-based savings to consumers?
The point is that if this article is correct about the assumption that AI is capable enough to reduce the friction of consumers rationally comparing options for a far wider basket of goods, then competition will reduce prices. No company wants to reduce prices if they don't have to -- their hand is forced by declining market share (or, with discounters, price reductions are a deliberate strategy to increase market share and absolute profit).
The bull case for AI and consumer welfare is 1) turning more markets into "perfect competition" like airline tickets, and 2) driving actual prices lower because the marginal cost of production is lower with less labor. Even if real inputs don't change, removing labor will reduce marginal cost (which implies that you'll see the largest price declines in labor-intensive industries).
but doesn't this implicitly assuming the reduction in labour cost and household income is like for like price reduction. When there's probably just as likely (& if not more) that the reduction in household income is lopsided so overall ability to purchase is reduced. You'll then need fewer people to buy more to make up for the loss of some buyers which is unlikely for many goods.
I do think the idea that AI is good for economic growth is for the fairies personally under the current model. I cant square the circle of a consumer based economic model will see higher growth by the apparently significant reduction in said consumers income.
It will still be decades before necessities (housing, food, etc.) deflate. How long will it take to develop humanoid AI robots that can manufacture/farm/build, and then how long until that gets widespread adoption and then lead to deflation? If this scenario plays out, people will be jobless and poor long before that happens.