Bunge outlines AI's impact on economy and monetary policy
Riksbank Deputy Governor Aino Bunge discussed how artificial intelligence can influence the economy and monetary policy in the longer term. She drew on historical parallels and current observations, including effects already seen in Swedish companies.
History's lesson on job displacement
Artificial intelligence is described as a general-purpose technology (GPT), akin to the steam engine, electricity, and the internet, affecting society as a whole.
Historically, technological innovations have aimed to replace human labor, leading to concerns about rising unemployment, as articulated by John Maynard Keynes and Wassily Leontief.
However, historical experience consistently shows that total employment has not declined due to technological advances.
This is because while automation reduces labor demand, the resulting productivity gains increase prosperity, which in turn creates new jobs in new sectors.
For instance, 60 percent of US occupations today did not exist in 1940.
The transition can be difficult for individuals, as exemplified by switchboard operators who had to adapt to new roles in the office and service sectors, demonstrating that old jobs are replaced by new ones over time.
AI's dual impact on policy rates
Observations in the US and Sweden indicate a "no hire, no fire" principle for young people in AI-exposed professions, making labor market entry more challenging.
The overall impact of AI is influenced by technology use and policy choices.
Four mechanisms affect monetary policy: A productivity boost could lower costs and inflation, suggesting lower policy rates.
Conversely, increased productivity growth might elevate the neutral interest rate, arguing for higher policy rates, though rising income inequality could offset this.
Short-term, increased AI-related investment demand could drive up inflation and policy rates.
Finally, the risk of an AI-related bubble, reminiscent of the dot-com boom, could lead to equity price corrections, impacting financial stability.
Beyond the job displacement fears
The speech effectively broadens the AI discussion beyond immediate job displacement, highlighting its complex, multifaceted influence on macroeconomic fundamentals and monetary policy.
Bunge's historical perspective provides a crucial framework for understanding long-term shifts, rather than succumbing to short-term anxieties.
This nuanced view is essential for central banks navigating an evolving economic landscape, emphasizing adaptability over fatalism.