Cook optimistic on AI's long-term productivity, cautious on labor impact
Federal Reserve Governor Lisa D. Cook expressed optimism about artificial intelligence's long-term potential for innovation and productivity growth, while cautioning about its short-term impact on the labor market. Speaking at the NABE Economic Policy Conference, she highlighted implications for the Fed's dual mandate and the neutral rate of interest.
Democratizing innovation through AI
Federal Reserve Governor Lisa D. Cook highlighted artificial intelligence's profound potential to boost productivity growth by accelerating idea creation, a core tenet of Paul Romer's endogenous growth theory.
She emphasized that AI democratizes innovation by making powerful analytical tools accessible beyond experts, fostering a cycle where ideas generate more ideas.
Cook, who has researched the economics of innovation and used machine learning for two decades, expressed optimism about AI's ability to contribute to new products and processes that will improve lives.
The Federal Reserve itself is cautiously exploring AI for tasks like summarizing research and generating code, reflecting a strategic approach to its integration.
The creative destruction of labor
Governor Cook views AI's general adoption with caution, anticipating a significant reorganization of work akin to Joseph Schumpeter's creative destruction.
She warned that job displacement may precede job creation, potentially increasing unemployment and reducing labor force participation.
Early evidence includes declining demand for coders and rising unemployment among recent college graduates, as AI handles tasks previously performed by entry-level workers.
While the overall unemployment rate is still low at 4.3 percent, the exact evolution and intensity of this labor-market transition remain uncertain.
Navigating the neutral rate puzzle
The AI transition presents a complex challenge for monetary policy, particularly concerning the neutral rate of interest.
Cook's analysis suggests a potential for increased unemployment alongside strong growth, forcing difficult tradeoffs for the Federal Reserve.
Her call for non-monetary solutions for labor market shifts underscores the limits of central bank tools in addressing such structural changes.