We are in the midst of the artificial intelligence hype. As is typical with a hype, some of the more dramatic predictions may not come true. But one thing is clear: artificial intelligence is here to stay and will have a profound long-term impact on our society and economy. These structural effects may, in turn, affect monetary and fiscal policies in various ways. For instance, relationships between macroeconomic variables could shift significantly during a period of rapid structural change. Just in case, we should engage even more than before with various scenarios, so as not to be caught off guard by possible future developments.
Many effects are still uncertain (for a valuable overview, see Imas). Some studies – particularly at the microeconomic level – show tangible effects of artificial intelligence on productivity and the number of job postings. At the macroeconomic level, it has so far been – at least in my perception – more difficult to demonstrate tangible effects, for example, on labor productivity or the number of jobs.
Artificial intelligence may, much like the PC or the internet did a few decades ago, have significant effects on society and the economy, but without causing truly strong disruptive impacts in the short term. In this case, there would be an adjustment process, but one that is manageable overall. It would be naive, however, to blindly rely on this. Since we do not know exactly what the coming years will bring, we should also consider alternative scenarios.
One such scenario that keeps coming up in various forms describes the rapid penetration of almost the entire economy by artificial intelligence, accompanied by rapid structural change in the labor market (see, for example, Dabla-Norris and Korinek). Such a scenario raises questions, for instance, about our education system, inequality, and the market power of individual companies. Fiscal and monetary policy would also face new challenges in such a scenario. For instance, relationships between macroeconomic variables could shift significantly during a period of rapid structural change, making it harder to interpret macroeconomic developments and determine the appropriate monetary policy response. Rapid structural change could also increase the risk of disruptions in financial markets.
Tax policy, too, could face challenges if, for example, wages are structurally suppressed. This may seem far-fetched today. But it is not unrealistic.
Furthermore, it is to be expected that control over artificial intelligence will become a geopolitical factor of power, one that could influence financial and investment flows and create new dependencies.
Within our network, we are establishing a platform for an AI-Macro Observatory that will evolve organically and, through a range of activities, help develop future scenarios and appropriate policy responses.
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