<p><a href="https://www.forbes.com/sites/richkarlgaard/2023/04/20/the-great-ai-deflation-bomb/" rel="noopener noreferrer" target="_blank">Forbes Magazine</a> warns AI will set off “The Great Deflation Bomb.”</p>
<p>Will we be buying eggs for fractions of a penny, houses for a song?</p>
<p>The impact of Artificial Intelligence on the economy is heating up as AI begins to seep from its original killer app of cheating on college essays and porn.</p>
<p>According to layoff firm <a href="https://www.challengergray.com/blog/job-cuts-announced-by-us-based-companies-surge-136-to-82307-to-begin-2024-financial-tech-lead/" rel="noopener noreferrer" target="_blank"><em>Challenger, Gray & Christmas</em></a>, in the last year, AI has accounted for one in ten layoffs in the tech sector and one in 50 layoffs overall.</p>
<p>Small potatoes compared to the panicked warnings of a few years ago.</p>
<p>But as <a href="https://www.technologyreview.com/2024/08/27/1096148/ray-kurzweil-futurist-ai-medicine-advances-freedom" rel="noopener noreferrer" target="_blank">Ray Kurzweil</a> says, 1% in an exponential process is halfway there. And AI's economic impact is likely to be exponential — so small you can barely see it, then it blows up and takes over everything.</p>
<h2><strong>AI and Jobs</strong></h2>
<p>The question of whether AI is a blessing or a curse very much depends on how hard it is to create new jobs.</p>
<p>If it's easy to create new jobs, AI isn't a job crisis at all — it's a ladder.</p>
<p>Think Silicon Valley in the 90s, when the new jobs paid much better than whatever Palo Alto townies were doing before tech showed up.</p>
<p>On the other hand, if it's hard to create new jobs, think Detroit in the 1970's. A hellscape. The old jobs are gone, nothing to replace them. Minimum wage at best, riots over <a href="https://fee.org/articles/why-universal-basic-income-is-a-pipe-dream/" rel="noopener noreferrer" target="_blank">universal basic income at worst</a>.</p>
<h2><strong>AI and Deflation</strong></h2>
<p>Still, setting aside the job dynamics, one thing we can be sure of is AI will radically reduce prices — deflation.</p>
<p>This is because, across the board, AI replaces things that were more expensive — especially when you consider AI combined with robots.</p>
<p>Contrast with the 1990’s internet, which reduced some prices — say, buying things from Amazon or downloading an mp3 or movie. But a lot of the benefit from the internet was quantitative — meaning stuff got better. It didn't necessarily get cheaper.</p>
<p>After all, the 1990s internet couldn't run a factory. Or a chicken farm. It couldn't drive you to work, deliver your supply chain, or produce historical documentaries with a one-sentence prompt.</p>
<p>So, yes, we could conceivably get eggs for pennies.</p>
<h2><strong>The Fed and Deflation Phobia</strong></h2>
<p>Now, there is one caveat. Because our Federal Reserve has a giant money printer, and they fear deflation more, apparently than they fear World War 3.</p>
<p>Meaning that as soon as AI and robots start bringing down prices — which is a good thing — the Fed's immune response will kick in, and <a href="https://www.foxnews.com/us/regulators-should-keep-their-hands-off-ai-and-forget-musk-backed-pause-economist" rel="noopener noreferrer" target="_blank">they'll do everything they can</a> to print money. Potentially for years on end.</p>
<p>Aside from what easy money does to the economy, that will make assets boom.</p>
<p>So, eggs for pennies, houses for millions.</p>
<h2><strong>What’s Next</strong></h2>
<p>Putting it together, if we did the jobs thing right, AI is a utopia, up there with the mechanization of agriculture — or fire itself — as one of the most amazing things to happen to humanity's quality of life.</p>
<p>We might expect a ten-fold plus increase in standard of living — roughly the difference between Switzerland and Botswana.</p>
<p>But if we did the <a href="https://medium.com/@JoshuaDGlawson/how-the-government-ruined-the-detroit-auto-industry-f1f4a7dfeebe" rel="noopener noreferrer" target="_blank">Detroit thing on jobs</a>, making it hard to create jobs with regulation, licensing, and taxes, we become a continent-sized Detroit of former middle-managers warming their hands in steel drums made of rusted-out windmill turbines.</p>
<p>A tiny AI-enabled elite at the top. A huge underclass below.</p>
<p>Clamoring, no doubt, for Universal Basic Income.</p>
<p>AI’s impact will take a while, and the first decade might look closer to the internet — qualitatively better but similar prices.</p>
<p>But when it hits in full, I think we’re looking at something akin to the <a href="https://bernardmarr.com/ai-overhyped-fantasy-or-truly-the-next-industrial-revolution" rel="noopener noreferrer" target="_blank">industrial revolution</a>.</p>
