Column: The Free Market and Artificial Intelligence
In recent years, prominent figures like Elon Musk have been very vocal in opposition against artificial intelligence (AI). Overall, it seems that there is a widespread fear of AI. While many fear that there AI is going to be weaponized and “take over,” others are worried about the economic implications. Is this fear justified, or is it a modern version of Luddism, an irrational fear of technological progress? The free market has been the greatest gift of the modern world. Data shows that it raises the standard of living for everyone and it has provided us with many of the comforts and advanced capabilities of the modern world. AI threatens free markets.
The first law of economics is that incentives matter. Businesses act as individual agents and act almost always in a self-interested manner. The main incentive pushing most corporations and businesses is profit. This means that their ultimate practical aim is to minimize costs. Artificial intelligence is very tempting and profitable to businesses because they have the potential to drastically reduce marginal costs. We have already seen a shift in this direction through the automation of manufacturing, but we have yet to see it in service industries, and that’s when AI threatens the free market and our economic stability.
Consider the investment banking industry. As it currently stands, most investment vehicles are funds. These funds, at the cost of an annual fee, are managed by fund managers and decisions are made as a result of the fundamental analysis which security analysts do. Recently, however, there have been more and more algorithmic funds. These funds don’t rely on traditional analysis, they use computerized algorithms to make investment decisions. Many of these funds have outperformed traditional mutual funds by significant margins. With time, there will likely be a further push towards automation in finance, and there has already been with computerization in other industries like law. Imagine that one huge investment bank decides to automate. This immediately reduces their marginal costs to near zero and they can severely undercut their competitor’s fees. The other firms then have a decision, they can do likewise or go bankrupt. Mass layoffs then occur because the employees are no longer needed. This hypothetical reflects the danger of AI. AI will enable us to have greater production capabilities than at any point in human history, but if no one is employed, no one will have money to purchase what is being produced. Artificial intelligence has the potential to destroy our economy, and in turn, our civilization.
Technology was made for man, not man for technology. If left unchecked, the free market will enslave itself. If technology ever gets so advanced to the point where artificial intelligence can outperform and replace service jobs, our policymakers must treat this threat with the utmost seriousness. While the economy might equilibrate after AI naturally, the consequences are so severe, that we must not run that risk. The time to prepare is now. When AI is finally here, it will be too late to sufficiently handle it. We must prepare how to restructure society’s economic structure now before AI is a real problem or face economic collapse.
Kristian Fors is a student at Utah State University majoring in Economics and Philosophy and is an opinion columnist for the Utah Statesman. He can be reached at krfors@gmail.com.