The generally slow pace of economic growth, together with the outsized profits of tech companies, has resulted in skepticism about the benefits of digital technologies for the broad economy. There are many reasons for America’s recent economic struggles, but slow TFP growth is a key cause, slowly eating away at the country’s prosperity, making it harder to fight inflation, eroding workers’ wages and worsening budget deficits.
POWER LOOM DRIVER
The figure illustrates that the key driver of changes in labor productivity is changes total factor productivity (TFP).
It decomposes the overall growth in labor productivity into two components: total factor productivity (which is a measure of the impact of technology) and the contribution of the labor composition and capital intensity. In the early 1970s productivity growth slowed dramatically, rebounding in the 1990s, only to slow again since the early 2000s.įigure 1 illustrates the story. From World War II until the early 1970s, labor productivity grew at over 3% a year, more than doubling over the period, ushering in an era of prosperity for most Americans.
This holds even though changes in productivity are not immediately felt by everyone and, in the short run, workers’ perceptions of the economy are dominated by the business cycle. The primary determinant of our long-term prosperity and welfare is the rate of productivity growth: the amount of output created per hour worked. Because information and knowledge work dominates the US economy, these machines of the mind will dramatically boost overall productivity. These technologies are foundation models, which are vast systems based on deep neural networks that have been trained on massive amounts of data and can then be adapted to perform a wide range of different tasks. But generative AI is not limited to text: in recent years, we have also seen generative AI systems that can create images, such as Midjourney, Stable Diffusion or DALL-E, and more recently multi-modal systems that combine text, images, video, audio and even robotic functions. Other LLMs that were recently rolled out publicly include Google’s Bard and Anthropic’s Claude. Its capabilities have already captivated hundreds of millions of users. This is not an innovation that is languishing in the basement.
The potential of the most recent generation of AI systems is illustrated vividly by the viral uptake of ChatGPT, a large language model (LLM) that captured public attention by its ability to generate coherent and contextually appropriate text. We expect millions of knowledge workers, ranging from doctors and lawyers to managers and salespeople to experience similar ground-breaking shifts in their productivity within a few years, if not sooner. By the end of the morning, he had achieved a week’s worth of progress on his research.
POWER LOOM CODE
After entering a few plain-English prompts, the system was able to provide a suitable economic model, draft code to run the model, and produce potential titles for the work. To begin, he pulled up ChatGPT, a generative AI tool. On a recent Friday morning, one of us sat down in his favorite coffee shop to work on a new research paper regarding how AI will affect the labor market.
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