The big bet on AI—the near-trillion dollars that hyperscalers are spending to build out the technology’s infrastructure—is predicated on the belief that productivity will skyrocket.
The study finds that moderate AI adoption could drive annual labor productivity growth of 2.5%—the median expectation among surveyed economists for 2025 to 2030—enough to slow, and eventually shrink, the debt-to-GDP ratio. However, increased federal spending to support displaced workers could hamper those plans. In a more-generous scenario, equivalent to the U.S.’s $42,400 retiree spending, and a less-generous one that matches the $5,500 spent per unemployed worker, productivity gains reduce the debt more than in a world where AI gains fail to materialize. But neither scenario is sufficient to keep the debt at its current level. That would require holding federal spending steady
“It seems unlikely that AI will be some kind of free, infinite money tree,” Martha Gimbel, executive director and co-founder of the Yale Budget Lab, told Fortune. “One, it depends on how big the productivity shock is and, two, how much you need to spend in response.”
While AI productivity gains may offer a simpler solution to the issue, the spending required to support the workers the technology threatens to displace—with spending proposals floated by everyone from Sen. Bernie Sanders (I-VT) to Sam Altman—is an added cost which Gimbel said policymakers must take into consideration when discussing AI productivity.
The report considers other revenue factors associated with an AI-induced productivity shock, mainly the consequences of shifting the burden of tax from labor to capital, as many business leaders and politicians have pointed out is a critical consideration given the threat of job displacement. Because capital is generally taxed more lightly than labor, the report warns AI productivity gains could inadvertently reduce federal revenues.
What’s more, another counterintuitive hurdle to debt reduction is the pressure on interest rates caused by rapid growth. Historically, faster productivity growth leads to higher rates, which will then increase the cost for the government to service its debt. The higher interest payments would partially offset the fiscal gains generated by AI.
But the researchers emphasize that even if these productivity gains do materialize, they will not occur in a vacuum.
“I think it’s important to look at the industrial revolution — that obviously was a major productivity shock, but in that case there were substantial costs that the government didn’t manage,” Gimbel said. “It’s really important to keep in mind that productivity is not the only impact of AI.”
