Goldman Sachs: Why AI Spending Is Not Boosting GDP 21
Goldman Sachs, in a research note Thursday (the note isn't publicly posted): Annualized revenue for public companies exposed to the build-out of AI infrastructure increased by over $340 billion from 2022 through 2024Q4 (and is projected to increase by almost $580 billion by end-2025). In contrast, annualized real investment in AI-related categories in the US GDP accounts has only risen by $42 billion over the same period. This sharp divergence has prompted questions from investors about why US GDP is not receiving a larger boost from AI.
A large share of the nominal revenue increase reported by public companies reflects cost inflation (particularly for semiconductors) and foreign revenue, neither of which should boost real US GDP. Indeed, we find that margin expansion ($30 billion) and increased revenue from other countries ($130 billion) account for around half of the publicly reported AI spending surge.
That said, the BEA's (Bureau of Economic Analysis) methodology potentially understates the impact of AI-related investment on real GDP by around $100 billion. Manufacturing shipments and net imports imply that US semiconductor supply has increased by over $35 billion since 2022, but the BEA records semiconductor purchases as intermediate inputs rather than investment (since semiconductors have historically been embedded in products that are later resold) and therefore excludes them from GDP. Cloud services used to train and support AI models are similarly mostly recorded as intermediate inputs.
Combined, we find that these explanations can explain most of the AI investment discrepancy, with only $50 billion unexplained. Looking ahead, we see more scope for AI-related investment to provide a moderate boost to real US GDP in 2025 since AI investment should broaden to categories like data centers, servers and networking hardware, and utilities that will likely be captured as real investment. However, we expect the bulk of investment in semiconductors and cloud computing will remain unmeasured barring changes to US national account methodology.
A large share of the nominal revenue increase reported by public companies reflects cost inflation (particularly for semiconductors) and foreign revenue, neither of which should boost real US GDP. Indeed, we find that margin expansion ($30 billion) and increased revenue from other countries ($130 billion) account for around half of the publicly reported AI spending surge.
That said, the BEA's (Bureau of Economic Analysis) methodology potentially understates the impact of AI-related investment on real GDP by around $100 billion. Manufacturing shipments and net imports imply that US semiconductor supply has increased by over $35 billion since 2022, but the BEA records semiconductor purchases as intermediate inputs rather than investment (since semiconductors have historically been embedded in products that are later resold) and therefore excludes them from GDP. Cloud services used to train and support AI models are similarly mostly recorded as intermediate inputs.
Combined, we find that these explanations can explain most of the AI investment discrepancy, with only $50 billion unexplained. Looking ahead, we see more scope for AI-related investment to provide a moderate boost to real US GDP in 2025 since AI investment should broaden to categories like data centers, servers and networking hardware, and utilities that will likely be captured as real investment. However, we expect the bulk of investment in semiconductors and cloud computing will remain unmeasured barring changes to US national account methodology.
Can you understate AI investment? (Score:2)
Because it isn't increasing productivity (Score:3)
AI investment isn't magical new money being created just for AI. If AI didn't exist, that money would still be invested, it would just be invested in other things. So investing money in AI won't raise the GDP unless AI itself manages to raise the GDP. Of the three factors of production, AI effects only labor. By either replacing people or making people more productive it would reduce labor cost allowing people to do more work. Thus far, it isn't achieving this on a large scale (there are probably individual cases where it has, but they're minor). Until AI actually makes people do more, it won't increase the GDP. Which may or may not ever occur, but it definitely isn't there yet.
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Indeed, by definition AI takes away human labor, leading to less human economic activity. Unless AI starts earning adn spending money for itself, GDP is on a downward course.
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What about the stock market returns produced by AI which is not counted in GDP but actually buys stuff (like cloud computing which isn't included in final output according to GS)?
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Indeed, by definition AI takes away human labor, leading to less human economic activity.
That is not true, and certainly not "by definition".
Most of what AI does is not displacing humans but assisting humans.
Even where AI does replace humans, those humans are mostly reassigned, not going to the unemployment line.
It is a very commonly believed fallacy that there is a fixed amount of work to do in an economy, so any labor-saving technique necessarily leads to unemployment.
Lump of labor fallacy [wikipedia.org]
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Why ignore that banks expand their balance sheets to create money, and if AI companies give them good pitches, they can in fact magicalky create money just for AI that they mighg not have created otherwise?
In short why ignore finance in your zero-sum story of investment?
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Well, they create money by giving loans ("inside money creation"). That money is destroyed when it's paid back, so I think in terms of GDP it's neutral?
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It would be if there was no interest on the loans.
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Can the AI companies pay off loan interest with stock market gains from the hype they've created around AI?
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Can the AI companies pay off loan interest with stock market gains from the hype they've created around AI?
Sure, but smart CEOs do the opposite: Borrow money to buy back stock and push up the price.
When the stock price goes up, the CEO gets a big bonus.
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Post-scarcity economy. (Score:2)
The ultimate end-game of capitalism: Its own decommission.
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Because it's another tech investment bubble (Score:1)
Like crypto, metaverse, its all promise and little or no practical value. Scams enabled by Social Media, a great tool for marketing, fakes and lies, creating value where there is little, like a Trump
Where's the end user? (Score:2)
AI is not adding wealth... for now (Score:3)
With a few exceptions, AI is just being used to boost or replace human labor.
Human labor is not the bottleneck of the current economic model. A lot of countries have an excess of human labor. Of course, they are always open to CHEAPER human labor. That's good for the business owner no doubt.
And that could be shown as an slightly progress. After all, human labor is like any other cost. If you reduce it, you can allocate more resources in other place.
BUT... that's the thing. PEOPLE is different, from macroeconomics perspective. People is gonna eat, drink, live in a house, etc. He's gonna consume, though salary or through social welfare.
So saving salaries doesn't change that the economy needs to invest on people one way or another.
If human labor were the economy bottleneck, then after reduce the labor through optimizations, the economy would expand and would get richer.
But, what if there is bottlenecks as energy and raw materials?
Then you only have a wealth redistribution. The owner of the business that got an advantage implementing AI will get richer. The people that work in the replaced/optimized job is poorer. Maybe through government intervention, like taxes, another wealth redistribution occurs and everything ending remain more or less the same.
But that's temporary. As AI gets smarter and smarter, they will start to add real wealth in form of advancements that could allows us to break the real economy bottlenecks. Or at least, we can hope that could happen.
If nor, AI won't benefit most of us. It will just destroy the labor market, with no guaranties that a wealth redistribution will at least compensate that.
But if AI can unlock the solutions for the problems, everything can change.
It's just, AI is still not smart enough. We don't need a million of computer monkeys that replace humans we have in excess. We need a thousand of new Einsteins that give us the right answers for our problems.
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> We need a thousand of new Einsteins that give us the right answers for our problems.
You also need someone to formulate the questions.
42.
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We have working solutions for our problems. The wealthy don't want to implement them because they would be less wealthy, and The People don't rise up together and demand them because they have been brainwashed to think that regulations are keeping them from becoming billionaires.
Short term idiots (Score:2)
That anyone would think effects of AI would be showing up this early in the game shows how out of touch these people are. This is not the industrial revolution where changing from horse driven plows to motorized plows produced sudden, verifiable gains in productivity. AI is incremental. As we've all seen there is still a ton of work which needs done to get AI to produce even basic outcomes (put glue on your pizza to hold your cheese in place).
AI, like the early days of computes, is a long term project.
We are extracting enormous value from LLMs (Score:2)
can you build another couple nuclear reactors, please? We need this tech
Not difficult to calculate (Score:2)
Really? How many times has the news been "Investors question GDP?" The technical answer is simple: Investing in something has nothing to do with GDP. GDP is a measure of consumer spending, so when the bosses give the jobs to an AI, there will be fewer people spending money.
It's not difficult to calculate why US GDP/GNP is dropping. When the US's largest employer (counting permanent, short-term and contractor) stops paying wages/welfare, there will be less spending. When the US government stops buyin