The ambiguous effect of full automation + new goods on GDP growth

Abstract

This is one of two posts I’m putting up today on how little economic theory alone has to say about the effects full automation would have on familiar economic variables.The other is “The ambiguous effect of full automation on wages”.For a more interesting but more mathematically complex illustration of the dynamic I’m trying to illustrate in this post, see Hyperbolic goods, exponential GDP.IntroductionA lot of us are wondering what impact AI will have on global GDP growth (or would have if fully aligned and minimally regulated, in a world not destroyed by conflict). People have occasionally asked for my opinion on the question ever since I first wrote a literature review on the question five years ago—in fact before that, which is one of the reasons I wrote it! My answer has changed over time in many ways, but the outline remains similar.It seems much more likely than not to me that advanced enough AI would eventually result in GWP growth above the fastest rates of sustained “catch-up growth” we have ever seen, namely the long stretches of \textasciitilde10% growth seen over the last century in several East Asian countries, in which growth was essentially bottlenecked by capital accumulation rather than technological progress.I think that radically faster growth rates are also plausible. Most growth models predict that if capital could substitute well enough for labor, the growth rate would rise \textasciitildeindefinitely, and none of the arguments (that I’ve come across to date) for ruling this out seem strong. But I also don’t think it makes sense to be confident that this will happen (given the work on this that I’ve come across to date), since there are some reasons why the extrapolation of ever faster GDP growth might break down.The example below is an attempt to succinctly communicate one of those reasons: namely that GDP is, on inspection, a bizarrely constructed object with no necessary connection to any intuitive notion of technological capacity. Many people are already aware of this on some level, but the disconnect seems much bigger to me than typically appreciated. I intuitively don’t think this is a very strong reason to expect slow GDP growth given full automation, to be clear, but I do think it’s real and underappreciated.[1]ExampleAssume for simplicity that everything produced is consumed immediately.We produce different kinds of goods. A good’s share at a given time is the fraction of all spending that is spent on that good. The growth rate of GDP at a given time is the weighted average of the growth rates of the good-quantities at that time, with each good’s weight given by its share. (We are talking about real GDP growth, using chain-weighting. To understand why it is standard to define GDP growth this way, Whelan (2001) offers a good summary.)Here is a simple illustration of how, even if our productive capacity greatly accelerates on a common-sense definition, GDP growth can slow.Suppose there are two goods, the population is fixed and its size is normalized to 1, and everyone has the