Michael S Barr: Will artificial intelligence broadly raise living standards or drive income and wealth inequality?

I am grateful for the opportunity to speak to you. Our focus in this conference is financial inclusion, and something that will likely have great consequences for financial inclusion and our economy more broadly in the years ahead is artificial intelligence (AI). As I have explored in a number of speeches over the past several years, AI has the potential to transform lives and the U.S. economy, possibly empowering workers to be more productive, with lower- and middle-income workers benefiting the most. But it is also the case that AI may instead exacerbate inequality, eliminating some lower- and middle-income jobs while boosting the income and wealth of higher-income individuals. Since we don't know which of these futures will come about, it is useful to use potential scenarios, as I've done previously with respect to AI and the economy.

Every major technological advance has had profound effects on labor markets and the economy. Many workers have suffered from these technological changes, while many other workers have seen new opportunities emerge. In the long run, technological advances tend to broadly raise living standards by creating more jobs than they destroy and increasing productivity. But transitions and outcomes can vary, and in the period following the mass adoption of a general-purpose technology-such as electricity, the telephone, and internet-enabled personal computers-the number of people dislocated and the extent of the harm they may suffer can be large and persistent.

Balancing those scales of costs and benefits involves examining whether the benefits are broadly shared or concentrated. Past experience has shown that technological leaps forward can raise living standards. But when the benefits are concentrated among relatively few people, technology can widen inequalities of income and wealth, especially during the transition period. Widespread adoption of the internet raised the productive capacity of our economy and broadly raised living standards, but it also likely exacerbated inequality because it benefited information-intensive jobs (such as accountants) more than other jobs (say, construction workers).