Why History Won't be Kind to AI

Why History Won’t be Kind to AI

I’ve long talked about AI’s limitations on a technical basis; it’s not the magical technology some make it to be. Huge potential, still mostly unmet.

But it’s hard to deny it’s a transformational technology. The question is more like: when? When will it change the world?

We’ll go back in history to answer that question. And you might not like the answer I have for you. And at the end, I’ll give you my two cents on what I think will happen.

You might not like that either.

Let’s dive in.

A PC, a container, and a steam engine walk into a bar

We, humans, love to ignore history. But as Mark Twain (allegedly) once said: “History doesn’t repeat, but it rhymes.” So, what does history tell us about AI’s chances to change the world?

And the short answer is that it will, but it will take time, maybe too much time.

The Solow Paradox and Shadow AI

Nobel Laureate Robert Solow had a great quote back in 1987: “You can see the computer age everywhere but in the statistics.”

At that time, it had been almost two decades since a group of engineers at Intel created the microprocessor in 1971, a development that eventually led to the personal computer.

But in 1990, three years after saying those famous words, just 20 million personal computers were sold. But PCs are hardly the only example; electricity is another great one. While the first commercial power station was built in 1882, it was not until 1920, four decades later, that electricity surpassed steam as the dominant form of horsepower in the US economy.

We can go even further back to another great example: steam engines. In their case, the diffusion took even longer. James Watt patented his steam engine in 1769.

By 1830, its penetration into the economy, measured by productivity, was still trivial, and we didn’t see its real impact until the third quarter of the nineteenth century, almost a century after Watt’s patent.

Circling back to PCs, it wasn’t until the mid 1990s that the PC revolution really took off, and it took an outrageous 3 decades to reach 50% PC adoption.

It was particularly slow in its contribution to the most important metric of them all: productivity. For the first two decades since its conception, the Internet revolution had very little impact on macro numbers, if any.

And it might be the case that it happens to AI, too.

AI’s downsizing problem

What if a technology is just too good at its job? Several months ago (maybe more than a year, actually), I argued that AI could actually decrease the size of the economy.

The rationale was based on two ideas:

I believed that, over time, AI would be extremely deflationary and shrink the output of those industries it affected.

With enough sophistication (not the case today), AI lowers barriers to competition in its areas of impact, commoditizing those industries and leading…

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