Ip highlights advancements in other technologies that at first glance would have been thought to lower the demand for human labor, but in fact raised it.
He calls this the Jevons Paradox, after the British economist William Stanley Jevons, who studied such phenomena. Ip writes:
Yet AI is too amorphous a label to actually convey anything useful about what, precisely, it’s supposed to displace. Instead, think of it as a technology that does one thing particularly well: predictions. Such as, will that mark on the X-ray prove to be a tumor? Is the object in the road a paper bag or a child? Which headline will get the most readers to click on an article?
Treating prediction as an input into an economic process makes it much easier to map AI’s impact. History and economics show that when an input such as energy, communication or calculation becomes cheaper, we find many more uses for it. Some jobs become superfluous, but others more valuable, and brand new ones spring into existence. Why should AI be different?
Back in the 1860s, the British economist William Stanley Jevons noticed that when more-efficient steam engines reduced the coal needed to generate power, steam power became more widespread and coal consumption rose. More recently, a Massachusetts Institute of Technology-led study found that as semiconductor manufacturers squeezed more computing power out of each unit of silicon, the demand for computing power shot up, and silicon consumption rose.
The “Jevons paradox” is true of information-based inputs, not just materials like coal and silicon. Until the 1980s, manipulating large quantities of data—for example, calculating how higher interest rates changed a company’s future profits—was time-consuming and error-prone. Then along came personal computers and spreadsheet programs VisiCalc in 1979, Lotus 1-2-3 in 1983 and Microsoft Excel a few years later. Suddenly, you could change one number—say, this year’s rent—and instantly recalculate costs, revenues and profits years into the future. This simplified routine bookkeeping while making many tasks possible, such as modeling alternate scenarios.
“You could play the what-if game. You know, what if I did this instead of that?” accountant Allen Sneider, the first registered buyer of VisiCalc, told NPR’s “Planet Money” in 2015 for a retrospective on spreadsheets.
Read more here.
Jeremy Jones, CFA
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