Economists aren’t necessarily worried by the level of national debt—nations actually need it to underpin the bond market and keep the global economy moving—but they are worried about the interest payments on the debt and how this impacts the all-important debt-to-GDP ratio. This ratio indicates how fast a country’s economy is growing and, as a result, its ability to be able to repay the debt or keep up with interest payments on the borrowing.
To rebalance the debt-to-GDP ratio and avoid even higher borrowing rates, a nation can either reduce its spending or stimulate its economy to rebalance the books. Musk seems to think that the latter is the best option, via a new age of growth unlocked by AI.
He added: “Currently the U.S. debt is insanely high, and the interest payments on the debt exceed the entire military budget of the United States, just the interest payments, and that’s—at least in the short term—going to continue to increase.”
“I think actually the only thing that can solve the debt situation is AI and robotics,” Musk continued, before making a caveat that the increased output in goods and services as a result of the transformative technology would likely lead to “significant deflation.”
He explained: “If you have AI and robotics, and a dramatic increase in the output of goods and services, probably you will have deflation. That seems likely because you simply won’t be able to increase the money supply as fast as you increase the output of goods and services.”
That said, the takes are generally of the opinion that AI may be disinflationary (a slowing of price rises) as opposed to deflationary (an outright decrease in the price levels).
Musk added the productivity gains needed to offset the current inflation rate of 3% are not there yet, but they’re not far off either. He added: “If you say, ‘How long would it take us to get there?,’ I think it’s three years. In three years or less, my guess is goods and services output will exceed the rate of inflation…like money supply growth. Maybe after those three years, you have deflation and then interest rates go to zero, and then the debt is a smaller problem than it is.”
