By Phillip Molnar
The San Diego Union-Tribune
(TNS)
Artificial intelligence has been a big hit on Wall Street with the five largest spenders shelling out $800 billion this year in capital spending, but some worry it is distorting the economy.
Morgan Stanley estimates AI spending at $1.1 trillion next year, which would be 3.3% of gross domestic product—that’s more than what’s spent on national defense.
The Wall Street Journal writes that AI spending has masked what would be “Category 5 storms” for the economy: Tariffs and the war with Iran. “Beneath the surface, though, are two economies: AI and everything else,” the newspaper wrote.
Average Americans may not be seeing benefits of the AI bonanza. Personal consumption has been muted, wage growth below workers’ expectations and rising gasoline prices are hitting Americans’ wallets. However, AI may be making businesses and workers more productive and spending filters down to non-tech jobs, such as construction of data centers.
Question: Is artificial intelligence distorting the economy?
Economists
Norm Miller, University of San Diego
YES: AI investment is currently adding about 50 basis points—or 0.5%—to our GDP, while transforming our world. We continually find new uses for AI, such as medical diagnosis and efficiently managing networks. This technological shift means there’s no turning back to old methods. With each advancement, new jobs emerge, creating winners and losers in the job market. The real question is how quickly these changes will take place and reshape our lives and industries.
David Ely, San Diego State University
NO: Enormous AI investments have altered the relative importance of GDP components and their contribution to economic growth. Common economic metrics of growth and trade need to be interpreted with these structural changes in mind. And, it is critical to examine the sector-level details of economic reports and not just focus on headline statistics. These developments do not rise to a level where AI can be said to be distorting the economy.
Caroline Freund, UC San Diego School of Global Policy and Strategy
YES: AI is distorting the economy. Because it is viewed as a winner-take-all technology, firms are investing at extraordinary levels to avoid falling behind, crowding out investment in housing, manufacturing and other infrastructure. The AI boom is also masking weakness elsewhere in the economy by offsetting shocks that would normally slow growth, such as tariffs and oil price spikes. AI may eventually deliver large productivity gains, but the scale and concentration of investment resemble past tech bubbles.
Kelly Cunningham, San Diego Institute for Economic Research
YES: Dynamic technology changes disrupt established conventional ways of doing things. Technology advancement, therefore, reshapes previous economic activity, especially as computers and machines perform repetitive tasks more efficiently than humans. “Luddite” resistance to job displacement should not block the process of “creative destruction” advancing economic development and innovation. Accompanying risks in such disruption are an inherent part of progress, which current economic activity attempts to absorb and integrate. The result should be a better outcome than before.
Ray Major, economist
YES: AI is distorting the economy and revolutionizing it at the same time. Massive investment in tech infrastructure and chips inflates GDP data, making the economy look stronger than it is by masking stagnation in traditional sectors like manufacturing. AI investments are forcing companies to cut back employees to fund these investments, distorting the labor market. AI will not only continue to distort the traditional way we look at the economy, but it will fundamentally rewrite how we look at it.
James Hamilton, UC San Diego
NO: AI is one of the most important technological advances of my lifetime. It will change how we do everything. Some of the investments people are making will pay off, and some will not, but that is a necessary part of learning how to use the new capabilities. Strong AI investment is helping to offset negative effects of tariffs and high oil prices. That’s not a distortion. Getting good news along with bad is how life—and the economy—goes.
Executives
Bob Rauch, R.A. Rauch & Associates
YES: AI is distorting parts of the economy, but not in a bad way. The gains are flowing to a small group of large companies that can afford the infrastructure, while most businesses are still figuring out how to use the technology productively. This is what happens with every major platform shift. The benefits will spread, the labor market will adjust, and the economy will absorb the change. This is a transition, not a bubble.
Austin Neudecker, Weave Growth
YES: Investments in AI firms and the resulting broader efficiency gains have become a substantial component of the economy. When a few firms drive outsized capital spending, it can mask weakness elsewhere. We are seeing strong headline growth alongside muted wages and softer consumption. Over time, productivity gains may justify the spending, but for now, it is creating an economy where capital is abundant, but gains are concentrated.
Chris Van Gorder, Scripps Health
YES: Artificial intelligence companies and the Magnificent Seven have significantly driven the performance of the S&P 500 index. These companies have accounted for over half of the index’s gains recently. From a total market perspective, I’d certainly say it has created a distortion.
Jamie Moraga, Franklin Revere
YES: The Magnificent Seven are comprised of tech companies heavily invested in AI, with a current estimated capital expenditure of $725 billion. The Magnificent Seven dominate market returns and are among the most influential companies in the stock market. The increasing gap between the growing AI market and the rest of the economy fuels bubble risk, labor market disruption, and increased market volatility, all of which could severely impact the economy.
Mark Kersey, San Diego County Taxpayers Assoc.
YES: There is no question that AI is having a massively disruptive impact on our economy. The trillions of dollars being invested will make people more productive but could also result in significant job losses. Recent stock market gains are disproportionately due to a run-up in AI-related stocks, making the market overly reliant on a handful of large companies for growth and also quite vulnerable if there were an AI downturn.
Phil Blair, Manpower
NO: Not yet, but it sure will soon. Many layoffs now are occurring under the guise of AI when really they are excuses for right-sizing. But serious change is on the horizon as we all start to integrate AI productivity functions into our normal workflow. If your job can be replaced using AI then start getting training into your new career path. Make AI your friend, not your enemy.
Gary London, London Moeder Advisors
YES: However, I see this moment as more of an inflection point than a distortion. Corporate investment in AI has greatly increased the stock value of its sponsors, which could backfire. It is also a labor market disruptor. There will be both winners and losers when the dust settles. But new technologies have historically served our economy and our nation well. And I expect that after an adjustment period that will be the case again.
Photo credit: jcomp/Freepik
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