If you’re a regular on platforms like X or LinkedIn, you’ve likely encountered those attention-grabbing posts proclaiming, “If you’re not using AI, you’re left behind” or “My boss thinks I’m an AI genius, but it’s because of this…” followed by a link to some Substack or website. Such posts, often cheap advertising, may overstate the productivity boost from Artificial Intelligence (AI).
Before diving deeper, let me clarify: I certainly acknowledge the value of AI. As a user of services including ChatGPT Plus, I find AI helps me work faster and more efficiently. However, this is different from expecting a significant rise in GDP growth over the coming decades due to AI integration.
The depicted graph illustrates the growth of US labour productivity - the output produced per unit of labour - since 1950, using a three-year moving average to smooth out quarterly data volatility.
Recent decline in productivity
Strikingly, over the past three years, US labour productivity has declined! If AI is to contribute to a productivity increase, it has a considerable gap to bridge.
This scenario resembles the late 1990s, when internet-driven “promised” productivity growth soared. Despite a few years of above-average growth - starting from a low base - this surge wasn’t sustained.
Historically, productivity growth follows long waves. Drawing a best-fit line through these trends indicates a downward trajectory. Therefore, expecting structurally higher productivity growth based solely on recent technological advancements seems overly optimistic.
The debt dilemma
This brings us to the issue of debt, another area of personal interest. The most effective methods to reduce growing debt ratios are either expenditure cuts (or tax increases) or rapid economic growth. The latter is challenging to achieve with an ageing population and historically low productivity growth, and the former isn’t very feasible either.
Hence, alternative approaches to debt sustainability must be explored. Could low interest rates and higher inflation be part of the solution? That’s a discussion for another time.
Jeroen Blokland, the founder of True Insights, offers independent research for diversified multi-asset portfolios. Previously heading multi-assets at Robeco, Blokland’s ‘Chart of the Week’ is a regular feature every Monday on Investment Officer Luxembourg.