Even given labor replacement- AI substantially raises the rate and scope of improvements in living conditions.

In many ways, it is unfortunate that labor market policy has dominated our thinking about the AI economy. The main economic impact of AI is not about jobs or, at least, is about much more than just jobs. The main economic impact of these technologies will be how good they are. If the recent advances continue, AI has the potential to improve the quality of our products and our standard of living. If AI helps us diagnose medical problems better, improves our highway safety, gives us back hours of our day that were spent driving in traffic, or even just improves the 3 quality of our selfies, these are direct consumer benefits. These raise our real incomes and the economic studies valuing the improvements from quality and from new products tend to show their value is often extremely high (see the discussions in the volume of Bresnahan and Gordon, 1997 or the discussions over valuing “free” goods like Goolsbee and Klenow, 2006 and Varian, 2013). That’s a different way of saying that if AI succeeds, it will raise our productivity and higher productivity makes us rich. It is not a negative. Indeed, if AI succeeded in the way some fear, it would mean the exact reversal of the main problem facing growth in the last decade or more that productivity growth has been too slow. Indeed, it would decisively refute one of the central tenets of secular stagnationist thinkers like Gordon (2017) who argue that low productivity growth is a semi-permanent condition for the advanced economies because of the scarcity of path breaking ideas. Would that AI could change that equation. This paper will consider a few disparate thoughts about policy in an AIintensive economy (interpreting AI broadly to include a cluster of information technology based productivity improvements beyond just conventional Artificial Intelligence or Machine Learning). It will consider the speed of adoption of the technology—the impact on the job market and the implications for inequality across people and across places, discuss the challenges of enacting a Universal Basic Income as a response to widespread AI adoption, discuss pricing, privacy and competition policy and conclude with the question of whether AI will improve policy making itself. Taking the issue of job displacement first, the basic conclusion of the economists is that for the last hundred years, there have been massive amounts of job displacement yet the structural unemployment rate has not seemed to rise, much less trend toward 100%. Over time, people adjust. They move. They get skills. The long-run impact of labor saving technologies have overwhelming been positive for market economies. If the fear is that AI will replace low-skill jobs, it is a fact that tens or even hundreds of millions of low skill jobs were displaced by technology in previous years in a process very similar to the one we describe today. If the fear is that AI is different this time around because it will begin to replace types of jobs that have never been automated before like higher-skill or white-collar jobs the historical data indicate that those groups have been able to adjust to shocks and move to new sectors and new geographic areas easier than lower skill workers have. A critical issue is, of course, how fast the adjustment takes place/the speed of adoption of AI technology. The economy has proven quite capable of inventing new things for people to do over the long-run. Obviously, if change happens all at once, the adjustment problem is worst. Spread out over time, however, the adjustment can be manageable. Take the much discussed case of autonomous cars. There were about 3.5 million truck, bus, and taxi drivers in 2015 and suppose that every one of them were lost due to advances in self-driving car technology. If this loss takes place over 15 years, this would average a little over 19,000 per month and compare that to the fact that in 2017 the JOLTS data show that the economy generated about 5.3 million jobs per month (with 5.1 million separations per month). The complete elimination of every job in the sector would increase the increase the separation rate by less than four tenths of a percent. It would force drivers into new sectors and be disruptive to their livelihoods. But as a macroeconomic phenomenon, the impact would be small. If that loss happened in two years, the impact would be quite significant. So it’s worth considering what influences the speed of adoption and, certainly, a key determinant will be how good the AI actually is compared to people. But, many analysts seem to view that as the only thing that will determine adoption rates. It’s worth considering at least two other factors: prices and adjustment costs. First, many of these AI innovations involve significant capital outlays up front and that alone may slow their adoption for some time. Ride-share drivers, for example, by some measures can barely cover the cost of operating their cars (including depreciation, fuel, maintenance and insurance) at the price of cars now. AI enabled autonomous vehicles are likely to cost substantially more per car than conventional cars when they become available to the public. Will companies be willing to incur large up front to bypass paying drivers? It really depends on prices that we do not yet know. Second, ‘better’ doesn’t always mean faster adoption. Economists have shown automated stock picking through index funds superior to active management for decades yet people still hold trillions in inefficient, high-fee funds. Millions of people have mortgages with higher than market interest rates that they don’t refinance, cell phone data plans that do not match their usage, and so on. There are tens of millions of people that do not use the Internet. Inertia is a powerful force slowing the adoption of technology products and is certainly worth remembering if we want to predict something like how fast people will give up common behaviors like driving for themselves. Third, in an important sense, we know that AI can only be as good as its training sample and there are some very different types of customers in the country that may make the AI quality improvements much more fitting for certain types of customers than others. Microsoft created an AI program to learn from Twitter and see if it could create content that people would think was written by a human. They started it in the U.S. and had to shut it down almost immediately because it became so abusive and offensive. It mirrored what it saw online. Running the same program in China, where Twitter is heavily censored, it has performed well and not turned abusive. The attributes of the product and the ‘quality’ of the product depend on how relevant the training sample is to that customer. This is likely to influence the adoption rate of the AI technologies in different places. Again, think of the autonomous cars. Will we gather loads of information about driving in urban areas and on highways or in Silicon valley from the early adopters, tailor the product to their needs but then find that it doesn’t work as well for dirt roads or rural places or places without Bay area weather? Heterogeneous demand is the hobgoblin of the AI mind. Groups that differ most from the training sample will likely be the slowest to adopt the technology in part because it will be the least helpful to them. That may lead to another manifestation of the digital divide. In this sense, the rise of AI technologies is likely to make the problem of income and of geographic inequality even worse. To the extent that new AI technologies are expensive and tailored toward the training sample of adopters, it will be like having lower inflation and greater consumer surplus going to those groups (for discussions about differences in prices and innovation across income groups or for online buyers versus offline buyers, see Jaravel, 2017 or Goolsbee and Klenow, 2018). Government policy will face the potential of divisions along red state/blue state or high-education/low-education locations or high-income/low-income neighborhoods even more than it does today.