| DON YOCHAM
The AI Productivity Paradox
Everyone’s talking about AI.
And rightly so. Its impact is now and the implications are massive.
How to use it? How to invest in it? How far reaching will AI’s disruptive capacity extend?
These are important questions and there is no single answer.
To help me put the pieces together, I think of AI as a new economic agent. One with a massive comparative advantage over humans in terms of “providing accurate, comprehensive responses across a broad domain of topics faster than any human can possibly hope.”
Ultimately, its reach will be governed by the fact that humans will always be the market. Just what that market consists of is anyone’s guess.
Despite such an uncertain trajectory, I can make one statement with confidence:
AI will move everyone’s cheese. Some will end up with more cheese. Some will end up with less.
And today I want to see if it’s possible for AI to help us all make more cheese…
Wheelbarrow to Assembly Line
When China opened up to the world in the late 70s and early 80s, 818 million Chinese were rural. That was roughly 80% of the population. And, when I say rural, I’m talking banjos and donkeys rural.
They were peasants by any measure, with most working with nothing more than a shovel and wheelbarrow – lest anyone forget where Marxism ultimately leads.
But take that shovel out of their hands and replace it with a button on an assembly line? Now that peasant can now produce goods for possibly thousands of people, whereas before he was lucky to produce enough for himself on the farm.
You can see the impact of China’s urbanization-to-fuel-globalization productivity boost in a metric called GDP per capita – or the value of a country’s economic output per person.
From 1980 to 2010 China’s GDP per capita soared from $194 in 1980 to $4,428.
That near 23-fold increase is what I would call a productivity miracle.
Alongside the wild growth in American debt to pay for it, that miracle did more than anything else to make “Crazy Rich Asians” a thing.
But what happens when you’ve already moved beyond wheelbarrows?
The Computer for the Rest of Us
When PCs became commonplace in the early 80s, economists expected a productivity miracle here in the U.S. Now, no one expected a similar magnitude leap in production. Putting such a powerful tool on everyone’s desk would surely turn one person into two, for instance. Or maybe at least 1.2 people.
Instead, what we got was something like an extra 4/100ths of a person. And this lackluster boost is what economists call the productivity paradox.
You Can Only Get So Fat and AI Can’t Change That
“Another paradox you say, Don?”
Yes. And since we’re talking about AI, I asked ChatGPT to summarize the productivity paradox for you.
The productivity paradox refers to the period of time during which the widespread adoption of information technology, including personal computers, was expected to lead to significant increases in productivity, but in reality, this increase was limited. The concept was first introduced in the late 1980s and continued to be a topic of discussion throughout the 1990s and early 2000s.
I know… Informative but dry, but let’s give him a break. He’s just a few months old.
Anywho, as support for Chatty’s claims, give the chart below a look and you’ll see just how little PCs have done to boost each individual’s contribution to economic growth. |
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