The Impending AI Revolution: Are US Leaders Ready? Impact on the Economy

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The majority of business leaders, analysts, and economists are in consensus - whether we like it or not, artificial intelligence is set to have a significant impact on the future of the US economy.

The AI revolution is at a crucial juncture, and economist Glenn Hubbard is concerned that the United States may not be prepared for the changes it will bring.

Before the Bell recently interviewed Hubbard to discuss the potential dangers of not being ready for the disruptions that AI could bring, which could hinder growth in the long term.

This interview has been edited for length and clarity.

Why is this the right time to refocus on AI and economic growth?

Growth is essential for progress in society. Whether it's addressing climate change, strengthening our military, or providing education and training, it all comes down to economic growth. Despite this, politicians seem to be avoiding the topic. It's like having a coin in hand - one side represents growth, which we all support, but the other side represents disruption. Economists argue that growth and disruption go hand in hand. However, our political leaders seem to struggle with handling disruption, leading them to shy away from discussions on growth.

Perhaps a better approach would be to embrace disruption by supporting individuals in gaining skills and education, as well as assisting communities. Unfortunately, this idea has seemingly vanished from the political agenda. While our interest in growth is evident, the lack of conversation surrounding it is perplexing. The main reason for this silence may be the difficulty politicians face in navigating through the complexities of growth and disruption.

When discussing disruption, are you referring to the potential job losses that may occur as artificial intelligence becomes more prevalent?

Think of it like two waves. In the last few decades, advancements in technology and globalization have slowly disrupted the job market and communities nationwide. Now, with the rise of AI, we are facing a similar disruption, but this time it is happening much quicker. Instead of taking 30 years, it could happen in just five. If we struggled to adapt to the slow changes over 30 years, how will we manage such rapid change in just five? It is crucial that we reconsider how we approach change. While we welcome the advancements brought by AI, the real question is: how can we support individuals through this transition?

Major CEOs are already discussing how they are using AI in their businesses. Do we really need government assistance and involvement? I believe some government help is necessary because companies will prioritize their own interests, such as increasing efficiency or implementing AI to transform operations. However, as a company, it is not my responsibility to train my employees for different types of jobs. That is not my focus.

We do need public policy. It's actually quite simple and we already have an idea of how to make it work. One way is by equipping community colleges and fostering partnerships between businesses and community colleges. We have the knowledge, now we just need to put it into action. Keep in mind that implementing these policies will require some financial investment from the government.

Many individuals believe that the CHIPS Act and Inflation Reduction Act under the Biden administration have played a significant role in boosting spending and driving growth.

The government should focus on providing massive support for basic research to develop the next generation of chips. It is essential to invest in research for the future rather than just focusing on the present. Currently, we are not allocating enough resources towards research and development, which is more beneficial than simply giving money to already wealthy companies.

It is crucial to prioritize areas that are vital for national defense and safeguard them. However, we cannot afford to fund everything, as this is not a sustainable path to recovery. Therefore, we need to either increase support for research or identify specific areas to subsidize. While initiatives like the CHIPS Act and the Inflation Reduction Act show promise at the surface level, there is still a significant amount of inefficiency and wastage that needs to be addressed.

Inflation is currently higher than the Federal Reserve’s target of 2%. Shouldn’t focusing on economic growth make the situation worse?

What I’m proposing is not mainly about boosting demand. It's more about improving productivity on the supply side, so it's not as big of a worry. However, it's still important not to keep increasing the deficit. Policymakers will have to make decisions: they could raise certain taxes or reduce other expenses.

A massive tax hike during an election year is unlikely to happen. I don't think any candidate would propose that at the moment. However, it all comes down to simple math. National debt payments, which used to be negligible a few years back, now equal the amount spent on defense. The next president will have to address this issue, even if it's not a major campaign focus. Whoever takes office will need to come up with a solution.

Slowing down productivity growth is one way that shifting focus away from growth can negatively impact Americans' economic prospects. In the next decade or two, Generative AI is expected to be a major factor in driving productivity growth. Instead of replacing jobs, this technology is enhancing the productivity of individuals. However, this also means that some businesses may fail, people may lose their jobs, and certain firms may become very large. The question arises - are we ready to accept these consequences? Personally, I am okay with it, but I am unsure if our political process is prepared to make such tough decisions.

If the current trend continues, what will be the long-term consequences?

Social support for our system has been slowly falling apart. There are numerous communities and groups of people who feel that modern capitalism is not benefiting them. If we allow this to persist, we could end up destroying the very thing that has been so successful for us.

I don’t understand why this idea is not popular. If I propose to provide block grants for communities and support community colleges, why is that a negative thing? As a governor or mayor, this would be beneficial. I don’t understand why we are having trouble getting this idea implemented.

Editor's P/S:

The article highlights the urgent need for the United States to prepare for the transformative impact of artificial intelligence (AI) on the economy. Economist Glenn Hubbard emphasizes the importance of addressing the potential disruptions and challenges posed by AI's rapid advancement, particularly in terms of job displacement and the need for workforce retraining. He argues that government support, such as investing in community colleges and fostering partnerships with businesses, is crucial to equip individuals with the necessary skills and support during this transition.

Hubbard also discusses the broader implications of AI on economic growth and societal well-being. He emphasizes the need for public policy that balances technological innovation with social support and equity. He warns that neglecting these issues could lead to a decline in social support for the economic system and exacerbate existing inequalities. The article underscores the importance of political leadership and public discourse that acknowledges the challenges and opportunities presented by AI, and promotes policies that ensure a fair and sustainable future for all.