Productivity increase due to AI has yet to materialize. Systems like
ChatGPT are not all that useful for the economy as a whole, because if
you are a manager or programmer and you earn $300,000 per year and you
can now do more work per hour, you are not going to work less hours and
take a pay cut for working less. You are just going to do more things,
so the costs of having you employed stays the same. Productivity
measured by the rate of production of goods will not go up, because
ChatGPT s not replacing people at the factory floor, at least not yet.
For ChatGPT to boost productivity would require that the managers take a
pay cut and work less. They could then perhaps supplement their income
by doing hands-on work that's difficult to automatize on the factor
floor. But that's obviously not going to happen.
The reason why there has been no recession so far is because the Biden
Administration has been spending massive amounts of money to stimulate
the economy:
https://www.bloomberg.com/news/articles/2023-08-06/bidenomics-boosts-the-us-economy-fanning-soft-landing-hopes-inflation-fears#xj4y7vzkg
And this in combination with the fact that many companies used the
opportunity to refinance their debts and home owners refinanced their
mortgages at low rates before the FED started to raise rates. This has
increased the lag effect of the FED hikes. But the hammer will still
come down, it will only take a bit longer. There will be companies that
get into difficulties who previously could ahve been easily saved by a a
cheap loan who now cannot get a cheap loan. So, even if refinancing is
not an issue right now, the higher rates can still bite.
The refinancing wall is, however, still going to hit hard next year and
in 2025. The FED will not have cut rates all that much unless the
economy would already have tanked. The situation looks quite bad:
https://www.youtube.com/watch?v=0vkGjSybTLg&t=728s
And with bond yields having increased recently, this situation has only
gotten worse.
Saibal
On 02-10-2023 13:46, John Clark wrote:
Events of the last year have not turned out as economists thought they
would, they thought the US was heading for a recession but that hasn't
happened, and they all thought inflation would remain stubbornly high
but for the last 3 months it is only been at 2.2 %, and the Federal
Reserve considers 2% to be the perfect amount of inflation. But
there's something that has surprised economists even more, they
expected interest rates to remain low but instead they are higher than
they've been in over 20 years, even higher than they were during the
2008 global financial meltdown. What's really unprecedented is that by
analyzing the spread between the price of ordinary bonds and bonds
indexed to changes in the Consumer Price Index the market is telling
us that for the last six months investors believed inflation is under
control; in the past this has always led to long term interest rates
going down, but that is not happening. So what is different this time?
I think the difference is AI. I think the market, that is to say the
collective wisdom of investors, is telling us that in 10 years it will
take far fewer dollars to remain alive or even to achieve a
middle-class lifestyle than it takes today to do the same thing, and
perhaps it won't take any dollars at all. So a dollar today will be
far more valuable to you than it will be 10 years from now. So if I'm
gonna loan you a dollar today I will demand a very high interest rate
to make it worth my while, and if you're not willing to pay it I'll
just spend that dollar on myself today.
John K Clark See what's on my new list at Extropolis [1]
icp
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