With about 68% of GDP dependent on consumer spending, a fall in income could cause significant damage to the economy.
Generative AI – the kind that generates text and images – offers benefits and problems. It saves time to have software that can perform almost creative tasks that previously required humans. Dangerous in his tendency to invent facts.
Well, a New paper from economists suggests a new problem. “Unlike previous technologies, AI can erode labor's share of national income, and technological innovations could, for the first time, permanently reduce the importance of work in the economy, even while maintaining full employment,” says Lukasz Drozd, economic advisor and economist at The Federal Reserve Bank of Philadelphia and Marina Tavares, an economist at the International Monetary Fund, wrote.
This could have a negative impact on the economy and people's ability to pay for goods and services, and indirectly reduce demand for many forms of commercial real estate.
As the authors said, there have been several industrial revolutions in the past due to General Purpose Technologies (GPTs). A GPT is characterized by four characteristics: a generic technology, widespread adoption across the economy, multiple different applications, and the “spillover” generation of new innovations. “According to one analysis, there were at least 24 GPTs in the mid-2000s, from language and the wheel to the steam engine and the computer,” they noted.
Many people counter predictions about technology eliminating jobs by saying that this has never happened before. But generative AI has some key differences from previous GPTs. “The worrying aspect of AI, in our view, is that it is an important GPT with the potential to broadly and permanently divert the incoming flow of new capital productivity-enhancing innovations towards those that automate tasks rather than increase productivity.” into previously automated tasks,” the researchers argued.
In the past, technological changes increased labor's share of national income. Products became cheaper, so workers had more money with constant purchasing power. “Simply put: in order to purchase goods, labor must effectively pay for its own production input and for capital (including profits),” they wrote. “Since capital costs less, labor can buy more goods for the income it generates, and so its share increases at the expense of capital.”
What prevented widespread workforce relocation is that previous technology implementations could not be easily swapped between industries and tasks. The economists note that things are different with generative AI. Although the technology does not think or understand in a human way, it could mimic the ability well enough to increase machine productivity in areas that have not previously been automated.
Even if workers' income were to rise, the falling share would increase income and wealth inequality. An example of this was the fixed provision of land. Those looking to buy could use their average ability to bid higher to exclude people with less money. And “even if labor income continues to rise, housing may become unaffordable for those who provide labor.” It is perhaps no coincidence that the labor unrest of the 19th century was accompanied by a sustained but ultimately temporary decline in labor's share of income .”
In general, consumer spending accounts for 68% of GDP. Laid-off workers can no longer spend as much, and wealthier people can't consume enough to make up the difference. Providers of goods and services would suffer losses in sales and profits. That would mean less need for commercial real estate.
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