The OECD working paper Miracle or Myth? Assessing the macroeconomic productivity gains from Artificial Intelligence, published quite recently (Nov 2024), is strange to skim-read: its authors estimate just 0.24-0.62 percentage points annual aggregate TFP growth (0.36-0.93 pp. for labour productivity) over a 10-year horizon, depending on scenario, using a “novel micro-to-macro framework” that combines “existing estimates of micro-level performance gains with evidence on the exposure of activities to AI and likely future adoption rates, relying on a multi-sector general equilibrium model with input-output linkages to aggregate the effects”.
I checked it out both to get a more gears-y sense of how AI might transform the economy soon and to get an outside-my-bubble data-grounded sense of what domain experts think, but 0.24-0.62 pp TFP growth and 0.36-0.93 pp labor seem so low (relative to say L Rudolf L’s history of the future, let alone AI 2027) that I’m tempted to just dismiss them as not really internalising what AGI means. A few things prevent me from dismissing them: it seems epistemically unvirtuous to do so, they do predicate their forecasts on a lot of empirical data, anecdotes like lc’s recent AI progress feeling mostly like bullshit (although my own experience is closer to this), and (boring technical loophole) they may end up being right in the sense that real GDP would still look smooth even after a massive jump in AI, due to GDP growth being calculated based on post-jump prices deflating the impact of the most-revolutionised goods & services.
Why so low? They have 3 main scenarios (low adoption, high adoption and expanded capabilities, and latter plus adjustment frictions and uneven gains across sectors, which I take to be their best guess), plus 2 additional scenarios with “more extreme assumptions” (large and concentrated gains in most exposed sectors, which they think are ICT services, finance, professional services and publishing and media, and AI + robots, which is my own best guess); all scenarios assume just +30% micro-level gains from AI, except the concentrated gains one which assumes 100% gains in the 4 most-exposed sectors. From this low starting point they effectively discount further by factors like Acemoglu (2024)’s estimate that 20% of US labor tasks are exposed to AI (ranging from 11% in agriculture to ~50% in IT and finance), exposure to robots (which seems inversely related to AI exposure, e.g. ~85% in agriculture vs < 10% in IT and finance), 23-40% AI adoption rates, restricted factor allocation across sectors, inelastic demand, Baumol effect kicking in for scenarios with uneven cross-sectoral gains, etc.
Why just +30% micro-level gain from AI? They explain in section 2.2.1; to my surprise they’re already being more generous than the authors they quote, but as I’d guessed they just didn’t bother to predict whether micro-level gains would improve over time at all:
Briggs and Kodnani (2023) rely on firm-level studies which estimate an average gain of about 2.6% additional annual growth in workers’ productivity, leading to about a 30% productivity boost over 10 years. Acemoglu (2024) uses a different approach and start from worker-level performance gains in specific tasks, restricted to recent Generative AI applications. Nevertheless, these imply a similar magnitude, roughly 30% increase in performance, which they assume to materialise over the span of 10 years.
However, they interpret these gains as pertaining only to reducing labour costs, hence when computing aggregate productivity gains, they downscale the micro gains by the labour share. In contrast, we take the micro studies as measuring increases in total factor productivity since we interpret their documented time savings to apply to the combined use of labour and capital. For example, we argue that studies showing that coders complete coding tasks faster with the help of AI are more easily interpretable as an increase in the joint productivity of labour and capital (computers, office space, etc.) rather than as cost savings achieved only through the replacement of labour.
To obtain micro-level gains for workers performing specific tasks with the help of AI, this paper relies on the literature review conducted by Filippucci et al. (2024). … The point estimates indicate that the effect of AI tools on worker performance in specific tasks range from 14% (in customer service assistance) to 56% (in coding), estimated with varying degrees of precision (captured by different sizes of confidence intervals). We will assume a baseline effect of 30%, which is around the average level of gains in tasks where estimates have high precision.
Why not at least try to forecast micro-level gains improvement over the next 10 years?
Finally, our strategy aims at studying the possible future impact of current AI capabilities, considering also a few additional capabilities that can be integrated into our framework by relying on existing estimates (AI integration with additional software based on Eloundou et al, 2024; integration with robotics technologies). In addition, it is clearly possible that new types of AI architectures will eliminate some of the current important shortcomings of Generative AI – inaccuracies or invented responses, “hallucinations” – or improve further on the capabilities, perhaps in combination with other existing or emerging technologies, enabling larger gains (or more spread-out gains outside these knowledge intensive services tasks; see next subsection). However, it is still too early to assess whether and to what extent these emerging real world applications can be expected.
Ah, okay then.
What about that 23-40% AI adoption rate forecast over the next 10 years, isn’t that too conservative?
To choose realistic AI adoption rates over our horizon, we consider the speed at which previous major GPTs (electricity, personal computers, internet) were adopted by firms. Based on the historical evidence, we consider two possible adoption rates over the next decade: 23% and 40% (Figure 6). The lower adoption scenario is in line with the adoption path of electricity and with assumptions used in the previous literature about the degree of cost-effective adoption of a specific AI technology – computer vision or image recognition – in 10 years (Svanberg et al., 2024; also adopted by Acemoglu, 2024). The higher adoption scenario is in line with the adoption path of digital technologies in the workplace such as computers and internet. It is also compatible with a more optimistic adoption scenario based on a faster improvement in the cost-effectiveness of computer vision in the paper by Svanberg et al. (2024).
On the one hand, the assumption of a 40% adoption rate in 10 years can still be seen as somewhat conservative, since AI might have a quicker adoption rate than previous digital technologies, due its user-friendly nature. For example, when looking at the speed of another, also relatively user-friendly technology, the internet, its adoption by households after 10 years surpassed 50% (Figure A2 in the Annex). On the other hand, a systemic adoption of AI in the core business functions – instead of using it only in isolated, specific tasks – would still require substantial complementary investments by firms in a range of intangible assets, including data, managerial practices, and organisation (Agrawal, A., J. Gans and A. Goldfarb, 2022). These investments are costly and involve a learning-by-doing, experimental phase, which may slow down or limit adoption. Moreover, while declining production costs were a key driver of rising adoption for past technologies, there are indications that current AI services are already provided at discount prices to capture market shares, which might not be sustainable for long (see Andre et al, 2024). Finally, the pessimistic scenario might also be relevant in the case where limited reliability of AI or lack of social acceptability prevents AI adoption for specific occupations. To reflect this uncertainty, our main scenarios explore the implications of assuming either a relatively low 23% or a higher 40% future adoption rate.
I feel like they’re failing to internalise the lesson from this chart that adoption rates are accelerating over time:
The OECD working paper Miracle or Myth? Assessing the macroeconomic productivity gains from Artificial Intelligence, published quite recently (Nov 2024), is strange to skim-read: its authors estimate just 0.24-0.62 percentage points annual aggregate TFP growth (0.36-0.93 pp. for labour productivity) over a 10-year horizon, depending on scenario, using a “novel micro-to-macro framework” that combines “existing estimates of micro-level performance gains with evidence on the exposure of activities to AI and likely future adoption rates, relying on a multi-sector general equilibrium model with input-output linkages to aggregate the effects”.
I checked it out both to get a more gears-y sense of how AI might transform the economy soon and to get an outside-my-bubble data-grounded sense of what domain experts think, but 0.24-0.62 pp TFP growth and 0.36-0.93 pp labor seem so low (relative to say L Rudolf L’s history of the future, let alone AI 2027) that I’m tempted to just dismiss them as not really internalising what AGI means. A few things prevent me from dismissing them: it seems epistemically unvirtuous to do so, they do predicate their forecasts on a lot of empirical data, anecdotes like lc’s recent AI progress feeling mostly like bullshit (although my own experience is closer to this), and (boring technical loophole) they may end up being right in the sense that real GDP would still look smooth even after a massive jump in AI, due to GDP growth being calculated based on post-jump prices deflating the impact of the most-revolutionised goods & services.
Why so low? They have 3 main scenarios (low adoption, high adoption and expanded capabilities, and latter plus adjustment frictions and uneven gains across sectors, which I take to be their best guess), plus 2 additional scenarios with “more extreme assumptions” (large and concentrated gains in most exposed sectors, which they think are ICT services, finance, professional services and publishing and media, and AI + robots, which is my own best guess); all scenarios assume just +30% micro-level gains from AI, except the concentrated gains one which assumes 100% gains in the 4 most-exposed sectors. From this low starting point they effectively discount further by factors like Acemoglu (2024)’s estimate that 20% of US labor tasks are exposed to AI (ranging from 11% in agriculture to ~50% in IT and finance), exposure to robots (which seems inversely related to AI exposure, e.g. ~85% in agriculture vs < 10% in IT and finance), 23-40% AI adoption rates, restricted factor allocation across sectors, inelastic demand, Baumol effect kicking in for scenarios with uneven cross-sectoral gains, etc.
Why just +30% micro-level gain from AI? They explain in section 2.2.1; to my surprise they’re already being more generous than the authors they quote, but as I’d guessed they just didn’t bother to predict whether micro-level gains would improve over time at all:
Why not at least try to forecast micro-level gains improvement over the next 10 years?
Ah, okay then.
What about that 23-40% AI adoption rate forecast over the next 10 years, isn’t that too conservative?
I feel like they’re failing to internalise the lesson from this chart that adoption rates are accelerating over time: