The stubborn inflationary pressure that has kept the Federal Reserve on edge until recently might be a thing of the past, but another risk could be on the horizon: artificial intelligence (AI). Prominent investor and macroeconomist Raoul Pal believes AI could act as a “deflationary nuclear bomb,” arguing that its increasing affordability could lead to a cascade of price drops across various sectors. He points to the plummeting cost of AI computing power, with OpenAI’s Dane Vahey reporting a 92% decrease in the cost per million tokens over the past 18 months.
This deflationary force, Pal believes, is further amplified by the decreasing cost of electricity, a critical component for AI operations. As AI becomes more powerful and less expensive, it will accelerate the adoption of cheaper energy and computing resources, creating a self-reinforcing cycle of deflation.
While some view AI as a potential threat to economic stability, others see it as a powerful engine for growth. Venture capitalist Vinod Khosla, an investor in OpenAI, believes traditional measures of GDP and the economy may become less relevant as AI and automation drive an abundance of goods and services. He argues that AI’s ability to boost productivity and efficiency will allow producers to meet consumer demand without driving up prices.
Elon Musk’s Tesla is leading the charge in this domain, developing a humanoid robot called Teslabot. Musk envisions these robots playing a significant role across various industries, potentially exceeding the economic impact of robotaxis. Cathy Wood, CEO of Ark Invest, shared a similar optimistic view, forecasting that a breakthrough in artificial general intelligence (AGI) could lead to a dramatic acceleration of GDP growth, potentially reaching 30-50% per year within the next six to twelve years.
However, concerns remain about the potential for AI to displace human workers and exacerbate inequality. While the technology’s impact on employment is still being debated, it’s clear that AI will bring significant changes to the job market.
Despite these uncertainties, the potential of AI to revolutionize the global economy is undeniable. As AI continues to evolve, its deflationary and growth-driving forces will shape the future of business, technology, and society. The question is, how will we manage these changes to ensure a future where everyone benefits from the power of AI?
