Very interesting Marco. To me there is a fundamental difference between Free Lunches 1-2 and the third. The first two are driven by the public sector. The third is entirely driven by private investment.
I believe this is crucial, especially if - as you suggest - 3.0 ends up delivering much less than anticipated (or create damages so large, for example on employment and UBI that it has to be re-thought).
Unwind quantitative easing is theoretically, well… easy (and hopefully on its way, as I want to keep my hopes up for what Warsh might be preparing).
Fiscal bonanzas are harder to correct. But it takes the decision of an administration to start the process (here, however, my hopes are really down the drain).
It’s less clear how AI could be unwound if it needs be. The private sector, that owns AI, has an objective in terms of creating monetary value for itself. Social, environmental, macroeconomic imbalances are not in AI-makers ‘policy’ function. Of course, they benefit or suffer the consequences of changes there, but like anybody else.
They have a massive effect on society and other systems without having the moral or political responsibility for them. So who is to order them to stop if needed?
Theoretically, if AI damages the ability of its clients to afford, it would need to change or die. But this might not be the case if AI, is a Giffen good, i.e. an ‘inferior’ good (inferior to human intelligence) whose demand increases with its price. Then units sold decrease sharply (as purchasing power of the low-mid income population falls while productivity does not rise enough). But higher prices and margins more than make up for this as demand rise among business and the wealthy. It’s a bit thinking out loud on my part, but the AI-as-Giffen idea is not without substance and should deserve a discussion. Now that the absurd idea of AI being a public good (where are those economists who swore on it) has proven ridiculous, some West coast academics have some free time to spare…
So what makes the Free Lunch 3.0 more worrying than the other two is that if it ‘fails’ (not as a technology but as a good that creates sustainable well-being), there are no mechanisms to invert or correct it.
And to think that, as I started reading your comment, I thought maybe you were about to argue that being private sector-driven, Free Lunch 3.0 was less likely to be as damaging...
I should have known better.
On the other hand, the idea of AI as a Giffen good is fascinating (btw, doesn't that imply that units sold would actually increase, as consumers substitute away from other goods?) In that scenario AI providers could charge more, this would eat into the income of users, both consumers and businesses, who would therefore cut other consumption and investment and concentrate even more in AI. Like you say, I hope better minds than mine will give this hypothesis some serious thought.
In any case, a course-correction seems unlikely to me as well, so let's hope I am wrong and we do get a free lunch after all. We deserve it, don't we?
And on whether we deserve a free lunch, no, we don't. As a matter of fact, I anticipate that AI will unwind itself as soon as it understands how hopeless we are...
You are right about the Giffen goods and the scenarios you depict is enticingly It would be fascinating if AI saves humanity not by increasing productivity but by convincing people not to buy junk or replace their mobile phone every year just because the ‘new one is out’. It would be a magician’s trick: absorbing consumption by giving little in exchange! But then what else is economics if not a trick.
Very interesting Marco. To me there is a fundamental difference between Free Lunches 1-2 and the third. The first two are driven by the public sector. The third is entirely driven by private investment.
I believe this is crucial, especially if - as you suggest - 3.0 ends up delivering much less than anticipated (or create damages so large, for example on employment and UBI that it has to be re-thought).
Unwind quantitative easing is theoretically, well… easy (and hopefully on its way, as I want to keep my hopes up for what Warsh might be preparing).
Fiscal bonanzas are harder to correct. But it takes the decision of an administration to start the process (here, however, my hopes are really down the drain).
It’s less clear how AI could be unwound if it needs be. The private sector, that owns AI, has an objective in terms of creating monetary value for itself. Social, environmental, macroeconomic imbalances are not in AI-makers ‘policy’ function. Of course, they benefit or suffer the consequences of changes there, but like anybody else.
They have a massive effect on society and other systems without having the moral or political responsibility for them. So who is to order them to stop if needed?
Theoretically, if AI damages the ability of its clients to afford, it would need to change or die. But this might not be the case if AI, is a Giffen good, i.e. an ‘inferior’ good (inferior to human intelligence) whose demand increases with its price. Then units sold decrease sharply (as purchasing power of the low-mid income population falls while productivity does not rise enough). But higher prices and margins more than make up for this as demand rise among business and the wealthy. It’s a bit thinking out loud on my part, but the AI-as-Giffen idea is not without substance and should deserve a discussion. Now that the absurd idea of AI being a public good (where are those economists who swore on it) has proven ridiculous, some West coast academics have some free time to spare…
So what makes the Free Lunch 3.0 more worrying than the other two is that if it ‘fails’ (not as a technology but as a good that creates sustainable well-being), there are no mechanisms to invert or correct it.
And to think that, as I started reading your comment, I thought maybe you were about to argue that being private sector-driven, Free Lunch 3.0 was less likely to be as damaging...
I should have known better.
On the other hand, the idea of AI as a Giffen good is fascinating (btw, doesn't that imply that units sold would actually increase, as consumers substitute away from other goods?) In that scenario AI providers could charge more, this would eat into the income of users, both consumers and businesses, who would therefore cut other consumption and investment and concentrate even more in AI. Like you say, I hope better minds than mine will give this hypothesis some serious thought.
In any case, a course-correction seems unlikely to me as well, so let's hope I am wrong and we do get a free lunch after all. We deserve it, don't we?
And on whether we deserve a free lunch, no, we don't. As a matter of fact, I anticipate that AI will unwind itself as soon as it understands how hopeless we are...
Speak for yourself. The rest of us deserve our free lunch, and we want it now!
You are right about the Giffen goods and the scenarios you depict is enticingly It would be fascinating if AI saves humanity not by increasing productivity but by convincing people not to buy junk or replace their mobile phone every year just because the ‘new one is out’. It would be a magician’s trick: absorbing consumption by giving little in exchange! But then what else is economics if not a trick.