The benefits of AI productivity are still years away, but failure to deliver could worsen debt levels
Economists are waiting for data to show that AI has delivered on its promises of productivity gains, but that time may be years away, according to Jim Reid, global head of the Deutsche Bank Research Institute.
Reid predicted that AI will, indeed, create new jobs and increase workplace efficiency, but he said that people are too ambitious in their timelines for the technology to have a negative impact on the economy.
“In my career I’ve never seen anything like AI in terms of productivity,” Reid told Bloomberg Television on Tuesday. “But I would caution that it will take several years for us to embed it properly in businesses to get the benefits of that.”
Many economic indicators suggest that despite technology leaders touting AI’s ability to reshape the workforce, there is little evidence of its widespread impact so far. As of last month, the Yale Budget Lab did not note significant changes in the mix of work or the length of unemployment in roles of exposure to AI, which led the researchers to conclude that there is no evidence of disruption of the labor market related to AI. Apollo’s chief economist, Torsten Slok, noted in a recent blog post, citing Bloomberg and Macrobond data, that while the Magnificent Seven’s profits rose from about 15% to 25% between the first quarter of 2023 and 2026, the margins of the rest of the S&P 500 index in the same period were about 1. The data suggests that while technology companies can easily integrate new technologies into their operations, some industries have been slow to adopt the technology, let alone realize its benefits.
As investors continue to pour money into the Magnificent Seven, there is growing concern that AI may not provide a quick return on investment, leading to “painful repricing” in financial markets that threatens to further accelerate AI’s expansion, Slok warned.
“The bottom line is that the mismatch between the current expected benefits and the real time firms need to generate ROI on AI investments can have a significant impact on the valuation of many AI companies today,” Slok said.
Reid studied the future of AI
Reid shares this concern. He said that AI will reduce inflation in the short to medium term, and that if the technology fails to deliver on its promises despite massive investment, it could increase already fragile global debt levels. He pointed to data published last year by the Federal Reserve Bank of Dallas showing three outcomes for the future of AI: a modest increase in GDP due to productivity gains, increased productivity as AI gains superhuman power, or the extinction of humans due to the singularity of AI.
“Everybody knows that debt levels are unsustainable in many countries,” Reid said. “If you’re trying to get optimistic, you could say that AI is a miracle product that you can grow out of your debt, that would be a growing view. I think the bearish view is that if something raises interest rates or long-term interest rates above current levels, you start to get into a kind of debt sustainability levels that don’t make sense at all.”
The economist, however, was optimistic about AI’s eventual impact, saying that humans have been successfully working on new technologies for more than three centuries through a series of industrial revolutions. Tech CEOs like OpenAI’s Sam Altman and Anthropic’s Dario Amodei have recently scaled back their announcements of AI’s displacement of white-collar jobs, similarly saying the technology will transform, rather than disrupt, the nature of work.
“My view on AI and jobs is a little skewed by what economic history tells us,” Reid said. “Every time there’s a new development, we’re really afraid of jobs, of new technology destroying jobs, and it’s never happened together.”
