Economic thought in the era of artificial intelligence

Economic thought in the era of artificial intelligence (AI) is increasingly being recognised for its ability to reshape various aspects of the economy. AI technologies have the potential to enhance productivity by automating tasks, reducing errors and improving efficiency. This, in turn, can contribute to economic growth and improved living standards. However, concerns arise regarding job displacement and the need for acquiring new skills to adapt to changing labour market demands.

AI can disrupt labour markets by automating certain job functions, leading to shifts in employment patterns. This presents both challenges and opportunities, as some jobs may become obsolete while new ones emerge in the development, implementation and maintenance of AI systems. Policymakers and economists need to understand these dynamics and address potential disparities that may result from job polarisation.

AI facilitates the analysis of large datasets and provides valuable insights for decision-making processes. This can enhance economic forecasting, market analysis, risk assessment and resource allocation. Economic models are being adapted to incorporate the use of AI and big data, aiming to improve accuracy and effectiveness.

AI algorithms can also improve market efficiency by processing vast amounts of information, identifying patterns and optimising resource allocation. For instance, AI-powered trading algorithms can execute transactions quickly, potentially enhancing liquidity and reducing transaction costs. Nevertheless, concerns exist regarding market manipulation and the potential for AI-driven systems to amplify financial volatility.

Furthermore, AI can impact income distribution and exacerbate economic inequality. While AI-driven innovations create opportunities and generate wealth, they may also concentrate economic gains in the hands of a few individuals or organisations. Addressing these disparities and ensuring inclusive growth are vital considerations within economic thought.

All of these factors require policymakers and economists to adapt regulatory frameworks and policies to accommodate the growth of AI. Questions pertaining to privacy, data management, intellectual property rights, and liability are increasingly important. Some argue that economic thought should evolve to encompass the challenges and opportunities presented by AI, including areas such as competition policy, labour market regulation, and ethical considerations. This prompts the question: Is classical economic thought still effective in today's world?

The direct answer to this question is: Yes. For example, Adam Smith's ideas continue to hold relevance even in the age of AI. Although AI technology has advanced significantly since Smith's time, many of his concepts remain applicable in understanding economic and societal dynamics. Smith's concept of the division of labour, wherein individuals specialise in specific tasks, continues to explain the efficiency gains resulting from specialisation and technological advancements, including those in AI. Additionally, Smith's notion of the "invisible hand", where self-interest in a free market can lead to overall societal benefit, remains a topic of debate in economics. This concept explores how market forces, including those influenced by AI-driven systems, shape economic outcomes.

Regarding market competition, Smith emphasised its importance in driving innovation and economic growth. In the age of AI, competition among companies utilising AI technologies can stimulate progress, improve products and services, and benefit consumers.

Smith's understanding of economics was deeply rooted in moral philosophy and the significance of moral sentiments and social responsibility. His book "The Theory of Moral Sentiments", published in 1759 before his renowned work "The Wealth of Nations" in 1776, focused on the moral aspects of human behaviour. These principles remain relevant in discussions about the ethical implications of AI, such as algorithmic bias and the impact of automation on workers.

While AI introduces new challenges and opportunities, Adam Smith's foundational ideas provide a framework for analysing and comprehending economic phenomena, including the social and ethical dimensions accompanying technological progress.