Artificial intelligence is swiftly reshaping reality before our very eyes. By 2030—as many as 800 million jobs worldwide could be impacted by automation and AI, according to a 2017 research by McKinsey & Company. While it’s true that AI and robotics have the potential to boost productivity and economic growth, their widespread adoption may also lead to significant job disruption and growing inequality. (in your writer’s language, that translates to more collective misery)
AI’s effects on the global economy may appear promising from a narrow point of view, but as you broaden your lens—they’re less than flattering.
AI & Economy: A Mixed Picture?
Countries left behind in the great AI race will suffer more. AI’s march is well underway, with machine learning and computer vision automating jobs once done by human hands. Self-driving trucks loom, ready to sideline millions of drivers on the road while chatbots now field most customer queries, virtual assistants like ChatGPT and Gemini eliminating service roles. Warehouse robots perform the pick, pack, and ship, reducing the labor force to machines.
Tasks previously core to human work are swiftly falling under AI’s purview as the technologies spread, integrating deeper into business operations and threatening further displacement of white and blue-collar positions.
As these technologies advance rapidly, they risk outpacing our ability to retrain workers and transition them to new jobs.
Also Read: Economic Growth, Wages, and Incomes in the High-Price Era
Future of Economics: A (Significant) Decline in Human Work
One of the most controversial effects of AI is its impact on the future of work. AI is not only automating routine and repetitive tasks but also performing complex and creative ones that were once considered the exclusive domain of humans.
The implications of this massive displacement of human labor are staggering. On the one hand, AI could create new opportunities for innovation, entrepreneurship, and leisure. On the other hand, AI could exacerbate inequality, unemployment, and social unrest. How will people earn a living and find meaning in a world where machines can do most of the work? How will the economy distribute the benefits and costs of AI among different groups and regions? How will the education system prepare the next generation of workers for the skills and competencies that AI will demand?
These are some of the questions that the future of economics will have to address.
Some possible solutions include:
Universal Basic Income (UBI)
A regular and unconditional payment to every citizen, regardless of their income or employment status, ensures a minimum standard of living and reduces poverty. UBI has been proposed as a way to compensate for the loss of income due to automation, as well as to encourage entrepreneurship, education, and social participation. However, UBI also faces many challenges, such as its feasibility, affordability, and desirability. Critics argue that UBI could reduce work incentives, increase dependency, and undermine social cohesion.
Reskilling and Lifelong Learning
A continuous process of acquiring new skills and knowledge to adapt to the changing demands of the labor market and society. Reskilling and lifelong learning have been advocated as a way to enhance human capital, employability, and productivity in the face of AI. Reskilling and lifelong learning also require significant investments, incentives, and infrastructure. Moreover, it may not be sufficient to keep up with the pace and scale of AI, especially for low-skilled and marginalized workers in developing countries.
Human-AI Collaboration
A synergistic and complementary relationship where humans and machines use their strengths and compensate for weaknesses. Human-AI collaboration has been suggested as a way to augment human capabilities, creativity, and decision-making in the era of AI. Will it happen? Will it be allowed? It’s unlikely in a world where greed drives everything. But here’s a suggestion nonetheless.
Trading Economics: The Rise of Algorithmic Markets?
Another major effect of AI is its impact on trading economics. Trading economics is the branch of economics that studies the exchange of goods and services among economic agents, such as individuals, firms, and countries. Trading economics encompasses various fields, such as international trade, financial markets, and e-commerce. AI is revolutionizing trading economics by enabling new forms of trade, enhancing market efficiency, and creating new challenges and risks.
One of the most prominent examples of AI in trading economics is algorithmic trading, also known as high-frequency trading (HFT). Algorithmic trading is the use of computer programs and algorithms to execute trades in financial markets, such as stocks, bonds, currencies, and commodities. Algorithmic trading relies on AI to analyze large amounts of data, generate trading signals, and execute orders at high speed and volume. According to some estimates, algorithmic trading accounts for more than 70% of the trading volume in US equity markets.
Algorithmic trading will profoundly impact financial markets. It questions how price discovery, asset allocation, and stability will function as machines dominate exchange. It will transform market participant behavior, performance, and needed oversight. It will distribute wealth and power unevenly among traders, investors, and intermediaries. Potential solutions include optimizing market rules and designs.
This enhances efficiency and fairness with AI. It includes closely monitoring transactions for manipulation and misconduct. However, complexity, uncertainty, and strategic human factors pose challenges. Market design, surveillance, and education may be insufficient. This fails to prevent failures, distortions or align behavior long-term, while our economic system is increasingly algorithm-driven.
Also Read: Economic Risks of the Ongoing Crisis in the Red Sea
Home Economics: The Decline of Human Well-Being?
A third and perhaps the most overlooked effect of AI is its impact on home economics. Home economics covers various topics, such as human development, personal and family finances, consumer issues, housing, and interior design, nutrition and food preparation, as well as textiles and apparel. AI is affecting home economics by changing the nature and quality of life at home and in the community.
One of the most evident examples of AI in home economics is a smart home, also known as a connected home or intelligent home. The smart home is the use of devices and systems that are connected to the internet and can be controlled remotely or automatically, such as smart speakers, thermostats, lights, cameras, and appliances. The smart home relies on AI to provide convenience, comfort, security, and entertainment to the residents. According to Statista, the global smart home market is expected to reach $231 billion by 2028, with more than 2 billion smart home devices installed worldwide.
This raises a few curious questions. How will smart homes affect the daily routines, habits, and preferences of residents? How will it affect relationships, interactions, and communication among residents and the outside world? How will it affect consumption, saving, and investment decisions?
Home economics must address these questions. Possible solutions include privacy protection. This safeguards personal information and data collected by smart devices. It prevents misuse and abuse of data due to AI. However, privacy protection challenges include trade-offs, consent, and enforcing data rights. It may not protect dignity, identity, and intimacy related to emotions, values, and beliefs.
The human agency also enables resident control and choice over smart devices and systems. This enhances satisfaction, empowerment, and creativity facing AI.
Social connection maintains and develops social ties and networks between residents, family, friends, and community. Communication, interaction, and support improve well-being, happiness, and resilience in the AI era. However, isolation, alienation, and polarization may occur in smart homes due to AI.
The Need for a New Economics of AI
AI promises to transform our economic landscape dramatically, though the precise contours of change remain unclear. While AI brings novel prospects for advancing economics as a discipline and profession, it likewise heralds new uncertainties and quandaries.
Trading dynamics, household financial management, and the very theoretical underpinnings of our market systems face reimagining in the age of intelligent automation. Opportunity and challenge go hand in hand as new technologies reshape supply and demand dynamics.
We must cultivate thoughtful, multifaceted economic analysis tailored to AI’s diversity and complexity. Policies and frameworks are needed to shepherd innovation responsibly and safeguard shared prosperity. Markets influenced by algorithms require prudent yet adaptive governance, while participants deserve education empowering informed participation.
All sides in this debate merit consideration. Progress will stem from open-minded, empirically-grounded debate inclusive of varied perspectives. As with all transformative forces, both promise and peril accompany AI’s integration into economic life.
