Why AI's economic impact is still invisible – for now
A look at history shows that new inventions need time to develop economic impact. And sometimes, we don't even recognise it fully.
On this day nineteen months ago, OpenAI published a blog post: "Introducing ChatGPT".
The article doesn't read like a launch post; it reads more like an announcement at the blackboard of the Department of Computer Science. But ChatGPT went trough the roof and acquired new users at a speed like no other software product before. The rest is history.
Attention is not all you need
Still, not only tech pundits like Ben Evans wonder what the use case of AI is. As it turns out, attention is not all you need.
But that's ok. There also wasn't an obvious use case when Gutenberg invented the printing press at a time when almost no one could read. And Thomas Watson, President of IBM, famously said that he expected the world market for computers to be “five". Still, today I own at least four computers and have access to vast amounts of computing power provided through the cloud.
Welcome to AI's "floppy disk" era
In his insightful book "Co-Intelligence"1, Ethan Mollick asserts that today's AI will likely be the least advanced we'll ever see. We are, in essence, in the "floppy disk" era of AI
We may soon be using more than one model or AI system, each of which will be designed for specific tasks or grounded in your own data such as in Anthropic’s “Projects” feature. When we don't have to rely on one system but can pick and choose the system best suited for the task at hand, the usefulness of AI will increase significantly.
Understanding AI’s “Engel’s Pause”
Innovation rarely occurs in a single "Eureka moment." It unfolds when technological advancements align with changes in our economy and in society. The true value of the printing press is not the machine itself but that it enables authors to write, publishers to publish and book stores to sell. Institutions like universities couldn't exist if the printing press was never invented.
Carl Benedikt Frey, in "The Technology Trap”2, notes that it took a generation for the steam engine's impact to reflect in growth statistics. This lag, where a new technology exists but its economic value isn't immediately realized, is termed "Engel’s Pause," named after Karl Marx' collaborator Friedrich Engels.
That does not mean we have to wait for another thirty years until we see our economy growing through AI: In a recent edition of his newsletter, Ethan Mollick shared that researchers asked the public to solve problems with the help of large language models that even the most advanced models could not solve yet (or so they thought). Still, smart users were able to use the models in ways that allowed them to solve the challenge within a day.
In other words: In the case of AI, the Engel's Pause may be shorter than ever before in the history of mankind.
Hidden use cases of AI
We tend to recognize only use cases that are immediately apparent: It is obvious that a smart phone is superior compared to a Windows phone or a Blackberry. However, when the iPhone was launched, nobody predicted that a GPS connected handheld device would lead to the employment of hundreds of thousands of people driving cars for Uber. That is the type of innovation that general purpose technologies enable.
AI is likely to follow a similar trajectory. Today, almost every CEO touts their company's "AI strategy." But in six to ten years, AI might be so embedded in daily life that we take it for granted, much like hailing an Uber has become second nature. Life doesn't need a use case.
Mollick, Ethan (2024): Co-Intelligence: Living and Working with AI (New York: Penguin Random House LLC).
Frey, Carl Benedikt (2019): The Technology Trap: Capital, Labor, and Power in the Age of Automation (Princeton: Princeton University Press).