OPINION:
A new economy is emerging as COVID recedes. Gross domestic product and job growth are slowing as pandemic-era savings run down.
Consumers were cautious over the holiday season — purchases increased by 3.7% against inflation of 3.2% for a modest improvement over 2022. Paying more for necessities and restaurant meals, they scaled back gifts to stay within budgets.
Credit card debt and car loan delinquencies are rising. Banks are coping with maturing loans to troubled companies and commercial real estate with high vacancy rates.
As households and banks consolidate their finances, a few quarters of near 1% growth will be followed by GDP advancing at a steadier 2%.
U.S. and European governments face tough choices to control deficits by trimming spending or raising taxes, which are already at historically high shares of GDP.
We won’t be going back to pre-COVID low inflation and interest rates.
De-risking trade with China, the transition to green energy, tougher building codes, shortages of land, skilled workers and materials for home construction, and financial indiscipline at publicly supported institutions such as universities are costly and combine to make 2% inflation an awfully tough target.
U.S. and European central bankers will be tempted to enable spendthrift politicians by monetizing new debt. But at the Federal Reserve, at least, history indicates the institution will be jealous of its credibility and reputation.
Central bankers, mindful of their legacies, will let long-term interest rates rise if politicians fail to grapple with spending reform. Guns vs. butter and work incentives/productivity vs, welfare/entitlements are real trade-offs with disconcerting national security and electoral consequences, but in the present political climate, appreciably higher taxes are not likely.
Over the last 40 years, the 10-year Treasury rate averaged about 5%, but since the 2008 financial crisis, only 2.5%.
Large government deficits and capital requirements will pressure supplies of new savings to build out artificial intelligence and green energy, and fortify infrastructure to withstand more severe weather from climate change. More retirees will draw down their stock and fixed income investments.
Importantly, building out new technology costs a lot more these days. Google was launched with initial funding of $25 million. Microsoft helped establish OpenAI with an initial investment of $1 billion in 2019.
To train and host large learning models on its Azure cloud service, Microsoft built supercomputing capabilities with tens of thousands of pricy Nvidia A100 graphics chips. Those go for about $10,000 a pop, and with Sam Altman’s position as CEO consolidated, Microsoft has invested substantially more in the company.
In 2024, the Treasury benchmark will settle around 4% and face upward pressure from there.
Innovations that help us do our jobs better, make things more cheaply and improve the quality of lives, not just the quantity of goods and leisure we enjoy, are always disruptive. That’s why we have Luddites in all ages — and studies show automation and job displacements will be greatly accelerated by AI.
The New York Times is suing OpenAI for training its large learning models on the newspaper’s publicly available archive of news stories. As this column has argued, that is akin to telling aspiring writers they may not read Nora Roberts (aka J.D. Robb) without paying her royalties if they pen successful romance and suspense novels.
It’s the old story of the weavers trying to block automated looms — or, as is more fashionable in our times, taxing innovators and winning contracts that permit the United Auto Workers to strike if a plant closure is required.
Neither New York Times Publisher A.G. Sulzberger nor UAW President Shawn Fain should be accused of visionary thinking.
The Associated Press and the publisher of Politico and Business Insider have reached content access agreements with OpenAI.
In contrast to Mr. Sulzburger’s pen-and-quill approach to journalism, AP is using AI to broaden its quarterly financial reporting from 400 to 4,000 companies. That enhances the value of its products and better secures the livelihoods of its journalists. In turn, that has increased trading activity and enhanced the liquidity of smaller firms.
AP is using AI to do good in addition to doing well.
Large language models offer journalists the opportunity to greatly expand the number of events and observations they assimilate in writing their stories — beyond what they can glean by manually searching for sources on the internet and interviewing people on their own — and increase the quality and quantity of the analytical side of their work.
Consider how similar applications can assist reinsurance companies in assessing the fairness of claims and auditors to detect fraud.
It’s the old story of good use vs. darker intentions, but AI opens a tumultuous age.
The government can’t see what’s coming next, but neither can the private sector. Scaling back the government to accommodate fiscal restraint could be a blessing.
Free markets sort chaos and optimize change much better than government agencies.
• Peter Morici is an economist and emeritus business professor at the University of Maryland, and a national columnist.
For more information, visit The Washington Times COVID-19 resource page.
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