Re: Economic Growth Assuming Machine Intelligence

Doug Bailey (
Mon, 5 Oct 1998 17:09:19 -0400

(btw, this is Doug from my home-based address)

Robin wrote:

>It is easier to get more variation in growth rates with endogenous
>growth models, and there is also less consensus on how to model
>endogenous growth. So to avoid the accusation that I cooked my big
>growth speedup implications, I choose to use exogenous growth.
>This may provide a conservative estimate of growth implications.
>But yes, it would be interesting to try the simplest endogenous
>growth model, which I think is the AK model.

That seems like a good reason to use exogenous growth. Thanks for the clarification.

>>What impact might a drastically increased
>>efficiency in capital utilization have on growth models? How would this
>>potential effect of AI-development be factored in to growth models?
>Unless you forsee particular reasons to expect a change in the *rate*
>at which such utilization becomes more efficient, this effect is already
>included in the standard models of exogenous growth.

I suspect machine intelligence would radically alter capital utilization on a variety of fronts. Machine intelligence with human-level cognitive abilities would allow corporations to replace human MBAs with intelligent agents capable of assessing scenarios faster and more thoroughly. Finance agents might develop extremely complicated but effective capital asset pricing models. Additionally, agents could constantly evaluate capital allocation strategies on division by division, region by region, product by product bases. The overall corporate capital allocation strategies could be tweaked as quickly as new real-time data could be acquired. Manufacturing would benefit from the increased diagnostic abilities of MI to tirelessly evaluate raw materials availability, price, and related costs; manufacturing capacity; marketing data; etc. resulting in optimized allocations of manufacturing assets. MI might enable more protean manufacturing processes to enable greater flexibility to respond to the new capabilities of market analysis. Similar processes could be applied to all areas of corporate capital (human, intellectual, information, etc.) to reap some increased utilization. I admit, attempting to determine the extent of efficiency increase is difficult, but I believe it is obvious that such increases would occur.

I'm just wanting to your pick your brain as to how such increased capital efficiency might be integrated into exogenous growth models and how this efficiency might ameliorate the effects of diminishing returns without using endogenous growth models. This effect seems the most palatable and obvious of the effects produced by the development of MI. Additionally, it might be savory enough to the finance gods of the corporate world to overlook whatever skepticism they might have of the feasibility of MI.

Doug Bailey