Will A. I. Investment Eventually Impede Consumption, the Main Driver of Economic Growth?

The surge in A. I. Investments continue to progress rapidly. Over the last year, business spending on technology equipment and software has risen by over $250 billion. This accounts for an astounding 40% of the total growth in real GDP. Despite the strength of the A. I. Investment surge, it has not yet led to a significant increase in the overall economic growth rate. The real GDP growth of 2.7% over the past year, while respectable, falls well short of the higher growth rates many A. I. enthusiasts expected.

It's premature to determine a positive or negative long-run growth scenario for the A. I. Investment surge due to the uncertainty surrounding its eventual impact on job creation and the resulting direct and indirect effects on consumer spending, which is the primary driver of economic growth.

Over the last year, real consumer spending rose by 2.4%, which falls short of the overall growth rate. The introduction of tariffs, leading to higher prices for many consumer goods, has hindered consumer spending. Additionally, slow job growth has been an equally significant factor. The private sector has created approximately 500,000 jobs, averaging around 40,000 per month. This represents a significant decline in job creation during times of moderate economic growth.

It's far too early to assess A.I.'s effect on job creation, but there are already several notable developments. For the year ending in March 2026, private payroll data indicates a decline of over 100,000 jobs across all technology sectors, including computer manufacturing, software, telecommunications, data processing, and computer design. It is rare, if not unprecedented, for companies enjoying a business boom to reduce their workforce at the same time. However, that is what both A. I. optimists and pessimists foresee.

Zero job creation is bad, and negative job creation has widespread and

significant economic consequences, as observed during economic recessions that cause substantial job losses. A. I. is not only about creating a 'permanent underclass' of workers, but also about creating a 'permanent class of unemployed workers'.

Historically, employment growth has been a key aspect of US exceptionalism, driving consumer spending, increased demand for new housing (further boosting consumer spending), and population growth. What kind of economy will develop if A. I. leads to a prolonged and significant drop in employment?

Deindustrialization affected a large segment of the US workforce, leading to the emergence of a new underclass of workers, while hollowing out communities. A. I. has the potential to have an even greater and more extensive effect.

Technology innovation has been a major driver of economic prosperity in the US. Many US companies engaged in A. I. Technology is investing billions to drive the economy forward and achieve the benefits (i.e., profits) its shareholders expect.

As this new technology becomes more widespread, more companies will enhance their bottom line by reducing labor costs. This implies, at the macro level, A. I. will increase the corporate share of income and lower labor's share.

In the near term, A. I. is an undeniably positive factor for the economy and wealth creation. However, a tipping point is reached where A. I. and the resulting job losses cause revenue growth to stagnate for numerous companies, as consumer spending adjusts to a much lower level.

The long-term growth of real consumer spending has been around 3%.

What are the economic and financial impacts of A. I .and the resulting job losses reduce the trend growth in real consumer spending to 2? If that occurs, A. I. will not only create a "permanent class of unemployed workers," but it will also result in a "permanently reduced number of businesses."

Quote of the day

"A. I. is less regulated in America than sandwiches", Max Tegmark, founder of

Future of Life Institute