The stubborn inflationary pressure that kept the Federal Reserve in abeyance until earlier this month could be a thing of the past but another risk could supersede it, an economist said on Monday.
What Happened: The artificial intelligence technology is a “deflationary nuclear bomb,” said prominent investor and macroeconomist Raoul Pal. “The cheaper it gets, the cheaper everything gets… electricity is the other one,” he said.
He also said, “We are reaching the deflationary tipping point there too, which accelerates AI…which accelerates cheaper energy and compute…,” he said.
Pal’s comments came in response to a post by a social-media user in which he quoted comments from Dane Vahey, Head of Strategic Marketing at OpenAI. The executive said in a presentation that the cost per million tokens fell from $36 to 25 cents in the past 18 months. “AI has been the greatest cost-depreciating technology ever invented,” he said.
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Why It’s Important: A similar view was expressed by Ark Invest founder Cathie Wood at a Forbes conference late last year. The fund manager mentioned AI as a source of deflation. Sun Microsystems co-founder Vinod Khosla said in a December tweet, “AI should be hugely deflationary over twenty-five years.”
Khosla, who is also a venture capitalist, having invested in OpenAI, said the current measures of GDP and economy will be less relevant but goods and services in great abundance.
AI and automation can perk up productivity and efficiency, thereby enabling producers to meet consumer demand without a concomitant increase in prices.
Robots are now being manufactured on a large scale and have various use cases across the manufacturing industries. Elon Musk’s Tesla is developing a humanoid robot called Teslabot. On the second-quarter earnings call, Musk said the potential that general-purpose humanoid robots offer is several times that of the $5 trillion opportunity for robotaxis.
Apart from keeping prices, artificial general intelligence will also boost GDP, Ark Invest’s Wood said back in early 2022 – a time when the AI revolution was yet to kickstart. A breakthrough in AGI will lead to the acceleration of GDP within the next six to 12 years, she said, adding that GDP growth will increase from the 3-5% year-over-year rate currently to 30-50% per year.
On the flip side, there are worries that the benefits of AI would come at the expense of humans and could lead to large-scale job losses.
In premarket trading on Tuesday, the Global X Artificial Intelligence & Technology ETF AIQ edged up 0.11% at $36.16, according to Benzinga Pro data. The Global X Robotics & Artificial Intelligence ETF BOTZ was up a more modest 0.04% at $31.15.
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