At some point there has to be an “emperor has no clothes” moment. Why, when we are in the middle of a boom in Artificial Intelligence, which is supposed to transform the way we do nearly everything, is there no tangible increase in productivity across the economy? Surely, if the claims for AI were even nearly true it would by now be showing up in the statistics for Total Factor Productivity (TFP) published by the San Francisco Fed. TPF is a measure of output relative to input from labour and capital; a measure, in other words, of how efficiently workers are using the tools available to them. In theory, it should be increasing dramatically with AI as workers use it to speed up tasks and get more out of their day. Trouble is, that does not appear to be happening. Instead, TPF has fallen to zero. It is markedly different from the late 1990s and early 2000s, when computing technology was fast evolving, the internet was becoming available for all businesses – and TFP was rising by around 2 percent a year.
Clearly, there are ways in which AI could help workers increase output. But there also multiple ways in which it could reduce output
There has been a productivity conundrum ever since the financial crisis of 2008/09, throughout most of the developed world. Productivity never recovered from the plunge which accompanied the recession, which is why so many people in so many countries feel they are working harder but not getting richer. Why? There are several possibilities. Firstly, is there a problem with the way we are measuring productivity? Has capital investment encountered a law of diminishing returns; in other words are the tools of the information technology age failing to transform in the same way that the tools of the age of mass production? Or is there something fundamentally wrong with the workforce? There are some obvious possibilities on this last score: diversity hires, the feminization of the workplace, the reliance on high levels of migrant labour which might speak the language well, the rise of social factors in the workplace, such as “work life balance,” and the influence of DEI training.
All might play their part, but there is something else, too. Is the technology of the computer age failing to deliver productivity gains because it is too distracting? Clearly, there are many ways in which AI could help workers improve their output. But there also multiple ways in which it could reduce output. If workers are spending their time playing around with AI, getting it to produce videos of cats on bicycles, or whatever, it is going to damage their concentration and detract from their output. The same problem did not occur with, say, the machinery employed on production lines. A power saw, to take an example, is not much of a source of entertainment.
Whatever the cause of fading productivity gains, the TPF data is something of a corrective to the narrative of an economy about to take off as a result of AI. AI will find its place, and may well change some industries beyond all recognition. But it is not leading us a to a new golden age comparable with the industrial revolution. Take away the hype and we remain stuck in an era of low growth and, for many, stagnant living standards.
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