Will AI help the Fed conquer inflation? With Austan Goolsbee

**Soumaya Keynes** (0:00)
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The Federal Reserve gets a new chairman this month, and he will have one hell of an intray. Inflation is up, jobs numbers are mixed, and the specter of stagflation is looming. There is one reason to be optimistic though, artificial intelligence. What if AI turbocharges productivity, allowing interest rates to fall? This week I am asking, will AI help the Fed conquer inflation?
This is The Economics Show with Soumaya Keynes. This week, I am delighted to be joined by Austan Goolsbee, President of the Federal Reserve Bank of Chicago, and speaking to me from California. Austan, hello.

**Austan Goolsbee** (1:12)
Hi Soumaya, great to see you again.

**Soumaya Keynes** (1:14)
Great to have you on. Okay, well, on this show, we always start with a silly question. So on a scale of one to 10, how excited are you about AI and the effects on the US economy?

**Austan Goolsbee** (1:31)
In the short run, the long run, what are we talking about?

**Soumaya Keynes** (1:34)
However, why not both?

**Austan Goolsbee** (1:36)
However, you want to answer.
I gave a talk here at Stanford a year and a half ago, in which I highlighted that we had a string of faster than expected productivity growth, and there was a debate among economists, as you know, some saying this is just a one-off increase coming out of COVID, and I highlighted it at least looked like maybe it was concentrated in industries that were users of AI, if you interpret it broadly. So it's not probably big enough yet in terms of its adoption to explain the majority of that. But if that has added, let's call it eight-tenths of a point to growth, maybe two-tenths of it came from AI, so I'm gonna give it a point too. We can measure it in basis points if you want. I might give it 20 basis points.

**Soumaya Keynes** (2:34)
I'm sorry, I'm gonna need a number from you on that scale of one to 10

**Austan Goolsbee** (2:38)
So I guess that's a two. So in the short run, not that excited.
If its biggest advocates are correct and it's going to deliver massive productivity growth, that's tremendous. It'll make us rich and we'll have to deal with disruption problems. But overall, it'll be great. Technological improvements is the thing that made us the richest major country in the world.

**Soumaya Keynes** (3:04)
OK, but you just said if in the long run is your number higher than a two out of 10?

**Austan Goolsbee** (3:10)
Could be. Could be way higher than two out of 10
But I want us to just be a little careful over hyping what the even in the medium run, technological improvements do to the economy. And I'm old enough that back in the internet, what turned out to be bubble, I was doing research about the internet at that time. And we had a similar dynamic of massive stock market valuations on a very speculative basis. And I remember saying at the time, I think the internet is going to change the world. I don't think that means that we're going to have the NASDAQ going up 30% a year, every year, forever. But it's still going to be a tremendously important technological change, could raise productivity and could form the basis of a bunch of jobs of the future. And all of that proved to be right. It's just a technology adoption is not instant. This isn't the first time we're doing this. New technologies that are disruptive of major industries and lead to shifting, that's not new at all. That's been going on for a long, long time. And I do think there are some lessons from the past that is worth our applying.

**Soumaya Keynes** (4:29)
So you're at the Chicago Fed and you're speaking to folks in your district. So in terms of the kind of qualitative impressions you're getting of how AI is transforming life or not, what kind of thing are you hearing?

**Austan Goolsbee** (4:44)
People are all over the map and it varies a lot by industry. So software, the popular impression that it's fundamentally changing the labor market for coding and for tech people, I don't think that's wrong. I hear a lot in that space that it's both changing the nature of work for software engineers, but also changing the balance of, do they want entry level people? Do they want just high level people, etc. As you move into the deep into traditional manufacturing, and the Chicago district is kind of the heart of the Midwest, it has the most manufacturing of all the districts. They're still looking for what's the right use case. The prospects that it is massively disruptive of the labor market in the short run, feels a little less applicable in heavy manufacturing so far, in agriculture so far.