While AI will also generate new wealth through productivity gains (which this model captures through increased TFP growth), the reallocation of existing labor income creates immediate incentives for strategic capital accumulation.
I’m worried that some of the most important results of this model hinge critically on the fact that you’re modeling new wealth via AI’s impact on TFP, rather than modeling AI as a technology that increases the labor supply or the capital stock (in addition to increasing TFP through direct R&D).
In particular, I find your claim that AI creates a “prisoner’s dilemma” scenario—where households aggressively save in order to secure a larger relative share of future wealth but, in doing so, reduce overall consumption—potentially misleading. In my view, household savings will likely play a crucial role in funding the investments necessary to build AI infrastructure, such as data centers. These investments accelerate the development of transformative AI, which in turn hastens the economic benefits of AI.
From this perspective, high savings rates are not collectively irrational or self-defeating in the way suggested by a “prisoner’s dilemma” framing. On the contrary, increased savings directly affects how soon transformative AI arrives, enabling higher consumption earlier in time, which increases time-discounted social welfare.
Thank you for your comment. I think this is a reasonable criticism! There is definitely an endogenous link between investment and AI timelines that this model misses. I think that this might be hard to model in a realistic way, but I encourage people to try!
On the other hand, I think the strategic motivation is important as well. For example, here is Satya Nadella on the Dwarkesh Podcast:
And by the way, one of the things is that there will be overbuild. To your point about what happened in the dotcom era, the memo has gone out that, hey, you know, you need more energy, and you need more compute. Thank God for it. So, everybody’s going to race.
In reality, both mechanisms are probably in play. My paper is intended to focus on the race mechanism.
Two more notes: higher savings imply lower consumption in the short term. However, even if TAI isn’t invented, consumption will rise higher than in the stationary equilibrium purely from capital accumulation.
Lastly, the main thrust of the paper is on the implications for interest rates, I do not intend to make strong claims about social welfare.
I’m worried that some of the most important results of this model hinge critically on the fact that you’re modeling new wealth via AI’s impact on TFP, rather than modeling AI as a technology that increases the labor supply or the capital stock (in addition to increasing TFP through direct R&D).
In particular, I find your claim that AI creates a “prisoner’s dilemma” scenario—where households aggressively save in order to secure a larger relative share of future wealth but, in doing so, reduce overall consumption—potentially misleading. In my view, household savings will likely play a crucial role in funding the investments necessary to build AI infrastructure, such as data centers. These investments accelerate the development of transformative AI, which in turn hastens the economic benefits of AI.
From this perspective, high savings rates are not collectively irrational or self-defeating in the way suggested by a “prisoner’s dilemma” framing. On the contrary, increased savings directly affects how soon transformative AI arrives, enabling higher consumption earlier in time, which increases time-discounted social welfare.
Hi Matthew,
Thank you for your comment. I think this is a reasonable criticism! There is definitely an endogenous link between investment and AI timelines that this model misses. I think that this might be hard to model in a realistic way, but I encourage people to try!
On the other hand, I think the strategic motivation is important as well. For example, here is Satya Nadella on the Dwarkesh Podcast:
In reality, both mechanisms are probably in play. My paper is intended to focus on the race mechanism.
Two more notes: higher savings imply lower consumption in the short term. However, even if TAI isn’t invented, consumption will rise higher than in the stationary equilibrium purely from capital accumulation.
Lastly, the main thrust of the paper is on the implications for interest rates, I do not intend to make strong claims about social welfare.