In today’s rapidly evolving technological landscape, AI has emerged as a transformative force, revolutionising various industries. One of these industries in which AI holds tremendous potential is economics, which I will be exploring in this article.
According to a recent study by McKinsey, AI has the potential to contribute an additional £13 trillion to the global economy by 2030. As the world is becoming increasingly automated, harnessing the potential of AI, there have been groundbreaking advancements within the power of economic analysis and policy-making. It is necessary to highlight the opportunities and challenges AI presents in shaping the future of our economy. What will come of the convergence of economics and AI?
Embracing AI: A paradigm shift in economics:
The implementation of AI marks a paradigm shift in the fundamentals of economics. The power of automation enables economists to analyse vast amounts of data with unprecedented speed and accuracy. Machine learning algorithms can identify patterns, detect correlations, and make predictions, empowering economists to generate valuable insights and enhance decision-making processes. A survey conducted by Deloitte found that 63% of firms have already implemented AI to improve their decision-making processes, and this figure is expected to rise.
In the last 6 months, Amazon has recently demonstrated the transformative impact of AI in economics through its AI-powered inventory management system. By leveraging AI algorithms and machine learning models, Amazon can accurately forecast demand, optimise stocking levels, and streamline operations. Analysing vast amounts of data including historical sales data, customer behaviour patterns, and external factors, AI enables Amazon to make informed decisions in real-time. This approach minimises instances of stock-outs and overstocking, maximising operational efficiency and customer satisfaction. Through AI, Amazon has revolutionised inventory management, showcasing the significant potential of AI in the world of economics.
Not only does this improve the speed, but also the accuracy of economic decision making, with less and less human intervention. This poses the question, might humans one day become purposeless?
It may seem it is heading this way, with AI constantly developing and improving. Automating repetitive tasks, handling complex computations and making economic forecasts are just some of the many things AI can take over, more productively and efficiently than humans. However, can AI really do it all?
Thinking deeper, humans may always be needed behind AI, to guide it. Although AI algorithms excel at processing large volumes of data and identifying patterns, they often lack the ability to comprehend complex economic and social contexts to make an informed decision in real-world contexts. Humans may forever be needed to interpret the insights given by AI and respond in the most allocative manner. Economists will still have to form normative decision-making in response to AI-generated data, at least for now.
‘AI is a game-changer in economics, empowering us to uncover insights that were previously unimaginable. However, it is crucial to strike a balance between automation and human expertise to ensure responsible and equitable outcomes.’
According to Dr Sarah Collins, renowned economist and AI expert
Harnessing the Power of AI: Transforming Economic Policy for the Future:
Economic Policy and decision are one area where AI perhaps cannot do it all. AI, in its current form, faces several limitations that make it unsuitable for sole decision-making in economic policy, and some believe that it always will. Economic policies often involve trade-offs and value judgements which require ethical consideration and decision-making that require human deliberation. AI is lacking inherent values, ethical judgement, and the ability to consider diverse societal perspectives.
One recent example of a value judgement and trade-off in economic policy that cannot be effectively handled by AI is the decision-making surrounding COVID-19 lockdown measures. Governments around the world have had to make difficult social and economic restrictions to curb the spread of the virus. AI algorithms can provide data-driven insights on the transmission rates, infection rates, and potential economic impacts of lockdowns. However, the decision to implement and lift lockdown measures requires value judgements and trade-offs that go beyond purely data-driven considerations. Therefore, AI falls short in this scenario.
However, in the future, the integration of AI in economic policy-making holds immense potential for governments and institutions. AI-powered predictive models can and will improve at assessing the impact of various policy interventions, in the past, present, and future, providing policymakers with valuable insights into the potential consequences and trade-offs. Moreover, AI can and will only become better at aiding in identifying economic risks, optimising fiscal strategies, and designing targeted interventions to foster inclusive growth, and will eventually be able to decision make without human intervention, transforming economic policy for the future.
The convergence of economics and AI represents a transformative era, with the potential to revolutionise economic analysis and policy-making. By embracing AI, economists can harness its power to derive valuable insights, optimise decision-making processes, and unlock economic growth. However, as AI continues to evolve and improve, concerns about job displacement arise. The possibility of AI gradually assuming more tasks and roles currently performed by humans raises questions about the future of work and the potential loss of jobs. According to a report by the World Economic Forum, AI is projected to displace 85 million jobs by 2025 while also creating 97 million new jobs in different industries. However, whether AI will ultimately dominate and replace human involvement entirely remains uncertain.
By recognising AI as a powerful tool and harnessing its potential alongside human expertise, we can navigate the evolving landscape of technology, shaping a future that optimises both efficiency and the well-being of individuals and society at large.
Responsible AI adoption, guided by ethical considerations, is essential to mitigate risks and ensure equitable outcomes. While AI has undoubtedly made significant strides, it has not yet taken over the role of humans entirely. The complexity of human judgement, contextual understanding, ethical considerations, and adaptability in decision-making remains indispensable for now.
Written and Produced by Madhav Bhimjiyani
A captivating, topical article Mr Bhimjiyani! I really enjoyed reading this one.
A very thought provoking article! A good read.
A very interesting perspective! A lovely read.