MOST COUNTRIES WILL SUFFER MISERY FROM GOVERNMENT FISCAL MELTDOWN
Elon Musk sees a future where no one works other than doing work as a hobby, and artificial intelligence and robots do all of the work, which would require universally high incomes. People could choose to work for reasons of personal esteem or just because they are interested in some activity. Already there are tens of millions of people around the globe who have sufficient net wealth where they can live well whether they choose to work or not. Are the ones who choose to work happier and more fulfilled than the ones who choose not to work?
Unfortunately, rather than getting closer to this alleged utopia, most people are getting further from it because of the growth in government debt. If you are asked to prepare a balance sheet of your assets and liabilities, you are unlikely to include your share of government debt. As of May 1, each U.S. citizen’s federal government per capita debt was $102,984. This debt is rising rapidly, increasing 7.66% in the last year and an astounding increase of 2.38% in the last month. These figures do not include the unfunded liabilities of Social Security, Medicare, etc., which run into many added trillions of dollars.
Last month, I participated in conferences in several European cities dealing with the global debt crisis (most major economies have debt-to-gross domestic product ratios exceeding 100% and growing — which is not sustainable). Among knowledgeable people, the fact that we are at the edge of the debt cliff is widely accepted — which means there will be a large drop in living standards or, at best, very little improvement (shades of Argentina and Greece).
The correct policy solution is to cut government spending so that the debt-to-GDP ratio is falling at a meaningful rate. The other alternatives are to engage in and tolerate episodes of higher inflation (which reduce disposable income) or find ways to jack up income growth to swamp inflation.
Inflation tends to be a political loser, and as a result, the incumbent party most often gets thrown out during sustained inflation. Governments have sometimes been successful in increasing economic growth rates by abolishing destructive regulations, reducing trade barriers, and eliminating tax impediments where the tax rate or regulation is a net negative on growth.
Some optimists argue that the oncoming rush in AI and robots will be sufficiently rapid to enhance productivity and thus create enough new wealth to enable the debt problem to fade away. But how likely is this?
In the long run, it is almost certain that the new technologies will make future generations much wealthier. But history also teaches us there are often many glitches and technological and political delays on the journey. The electric car is a great success — but for the slowness in battery improvement and the lack of charging stations. New-generation nuclear power will be a major energy source because it is more efficient, safer, and cheaper — but it is just now getting off the starting block. Supersonic air travel is the future — but new prototype aircraft are just now being built, three decades after the end of the Concorde. Space travel will be a reality — but it has taken mankind more than half a century since the original moon landings to start building the new moon and Mars rockets.
AI and new technologies will drive productivity growth by doing such things as automating routine tasks, augmenting human capabilities, optimizing processes and fostering innovation. But again, how quickly?
AI has already shown its ability to automate routine and repetitive tasks, such as data entry, scheduling, and basic customer service interactions, reducing the time spent on mundane tasks while minimizing errors. AI and new technologies are significantly augmenting human capabilities. For example, AI can assist doctors by providing diagnostic suggestions based on a patient’s medical history and current symptoms. This augmentation allows professionals to make more informed decisions and improves the overall efficiency of their work.
AI-driven robots perform precise and strenuous tasks that are dangerous for humans. Autonomous vehicles and drones are beginning to revolutionize transportation and delivery services by making them faster and more efficient. AI accelerates drug discovery by analyzing biological data to identify potential drug candidates faster than traditional methods.
AI and robots are already increasing productivity and economic growth, but this is offset by nonproductive government spending, taxation and regulation, which show no sign of slowing. States like California are imposing huge increases in the minimum wage and other labor restrictions. These attacks on productive labor are causing businesses, such as fast-food operations, to more rapidly substitute robots for workers. Fewer workers mean lower tax collections and more welfare payments, adding to the debt problem rather than reducing it.
Despite AI’s ability to increase productivity and economic growth, the political class is unlikely to enact the necessary policies to take advantage of the promise of debt reduction from productivity increases. Given the historical evidence, it is more likely that most countries will suffer misery from a government debt meltdown (big inflation) rather than taking the relatively painless way out that AI can provide.
• Richard W. Rahn is chairman of the Institute for Global Economic Growth and MCon LLC.
https://www.washingtontimes.com/news/2024/jun/3/is-there-any-way-out-of-global-debt-crisis/
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