AI is a General-Purpose Technology, Will Tend to Create Abundance in Place of Scarcity

The recently-settled strike of Hollywood writers, in substantial part related to the anticipated impact of artificial intelligence on writer employment and participation in residuals, is likely to be replicated--in concern about AI impact on employment and market value--in many other industries. 

Any examination of key technology developments over the past 30 years would suggest such an outcome, based on the impact lower marginal costs of personal computer, internet, mobile, and cloud computing industries have had on economic growth, productivity, the rise or fall of segments of the economy, jobs, value and income of workers in industries affected by the lower marginal cost of those technologies. 

Marginal cost declines have led to lower prices for products and services, which has increased consumer spending and boosted economic growth. But since one participant’s cost is another participant’s revenue, for every winner there is a loser. 

This has made these products and services more affordable for consumers, but reduced revenue and profits for suppliers. On the other hand, falling prices have the expected effect of higher usage. Lower costs of AI will encourage its wider use. And it would be hard to find examples of widespread new technology usage that did not affect supplier (and workers are suppliers of labor) prices. 

For example, the price of personal computers has fallen by more than 90 percent since the 1980s, and the price of internet access has fallen by more than 95 percent since the 1990s (price per unit), even using conservative assumptions about “average” or “typical” speed. Cost per Mbps of performance is therefore somewhat overstated by 50 percent or so in 2023, for example. 

Year	Typical speed (Mbps)	Absolute cost ($ per month)	Cost per Mbps ($ per Mbps)	Assumptions about median or average speed
1990	0.1	400	4000	Assumed that the typical speed in 1990 was 0.1 Mbps, based on the fact that the first commercial dial-up internet service was launched in 1990 and had a maximum speed of 0.144 Mbps.
1995	0.5	200	400	Assumed that the typical speed in 1995 was 0.5 Mbps, based on the fact that the first commercial DSL service was launched in 1995 and had a maximum speed of 1.5 Mbps.
2000	1	100	100	Assumed that the typical speed in 2000 was 1 Mbps, based on the fact that cable internet was widely available in 2000 and had a typical speed of 1 Mbps.
2005	5	60	12	Assumed that the typical speed in 2005 was 5 Mbps, based on the fact that broadband internet was widely available in 2005 and had a typical speed of 5 Mbps.
2010	10	50	5	Assumed that the typical speed in 2010 was 10 Mbps, based on the fact that fiber internet was beginning to be deployed in 2010 and had a typical speed of 10 Mbps.
2015	25	40	1.6	Assumed that the typical speed in 2015 was 25 Mbps, based on the fact that cable internet was widely available in 2015 and had a typical speed of 25 Mbps.
2020	50	60	1.2	Assumed that the typical speed in 2020 was 50 Mbps, based on the fact that fiber internet was more widely available in 2020 and had a typical speed of 50 Mbps.
2023	100	60	0.6	Assumed that the typical speed in 2023 is 100 Mbps, based on the fact that fiber internet is becoming more widely available and has a typical speed of 100 Mbps.

Marginal cost declines have also led to increased productivity, to the extent one believes the productivity of an office or knowledge worker actually can be measured. 

Disintermediation has been a hallmark of the internet era, spawning any number of “direct to consumer” distribution models” e-commerce; video and audio streaming being examples. 

Additionally, the rise of cloud computing has led to the substitution of remote computing “as a service” for ownership and operation of computing hardware and software. This has drastically reduced startup costs for software firms, for example. 

The point is that AI is going to affect the economy, assuming it is a general-purpose technology such as roads, electricity, computers, cloud computing, the internet or home broadband. 

And all those prior technologies have led to new industries being formed, work processes and demand being altered, value created or lessened in different parts of the value chain. Hollywood writers fear AI will replace some of what they do, leading to lower wages and residuals. 

Whatever the immediate perceived results of the settlement, the long-term impact is not likely eliminated. Work, life, the economy all are likely to be reshaped by AI, and not always in ways people might prefer.