Artificial general intelligence may not lead to the deflationary future some investors expect, according to Harvard professor and former IMF Chief Economist Ken Rogoff.
What Happened: Appearing on the Dwarkesh Patel Podcast earlier in the month, Rogoff warned that AGI could actually push inflation up, keeping pressure on interest rates to stay higher for longer, amid growing demand for energy and infrastructure capital expenditures.
“AGI and AI are upward pressures on interest rates,” he says, adding that with “the huge energy needs [and] the capital investment, you’re going to see even more spending, not less.”
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This is in sharp contrast to other economists and experts, who have since commented on AI and artificial general intelligence being broadly deflationary. Rogoff, however, cautions that this is a misreading of how capital-intensive technological revolutions unfold.
“Traditionally, when you did a lot of investment, it raised wages,” he said, while citing research by MIT economist Daron Acemoglu, who has shown that automation doesn't always lead to falling wages or lower investment, but it can shift the economy toward capital-intensive growth paths instead.
Rogoff concludes that this isn’t going to be a deflationary story like it’s being projected, while adding that “this could actually make life harder for central banks, not easier.”
Why It Matters: Rogoff offers a contrarian take on the predictions made by several experts and economists on the matter in recent months.
The CEO of OpenAI, Sam Altman, recently said that AI would have a deflationary effect on the global economy, something he says is underappreciated and misunderstood by investors.
Investor and macroeconomist Raoul Pal, too, has echoed similar claims, having referred to artificial intelligence technology as a “deflationary nuclear bomb.”
He said that “The cheaper it [AI] gets, the cheaper everything gets… electricity is the other one,” in a post on X, late last year.
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