Will Artificial Intelligence Cause Deflation In The United States?

This article is a written version of the video that you can find on our YouTube channel LIFE180.

There's considerable discussion circulating around the capabilities of artificial intelligence, or AI, nowadays. While some jest about the notion of AI reaching a hypothetical singularity where it surpasses human intelligence, the reality is that we're not quite there yet. Nonetheless, the current advancements suggest that AI possesses significant potential, prompting intriguing possibilities for the future.

I'm not certain if that's likely to occur. However, that's not the primary focus of this article. Lately, I've been delving into a lot of that material. As with my previous articles, my aim is to center on the financial aspect and the influence artificial intelligence could exert on your earning potential.

Here's a reality check about AI in 2024: it’s evolution is surpassing the expectations of many, progressing at a rate that was once deemed improbable. Its potential is truly staggering. While it will undoubtedly contribute to the wealth of certain individuals, it also carries the potential for significant deflationary effects within our economy. In a landscape where the Federal Reserve and the government are actively striving to promote inflation, the emergence of such deflationary pressures could pose significant challenges.

Adapt to AI or see your business die

You've likely encountered numerous mentions of artificial intelligence in the news lately. As a business owner, you may have even explored the idea of integrating artificial intelligence into your operations to generate leads, develop scripts, streamline processes, and undertake various other tasks.

I've personally devoted a significant amount of time to AI, and I genuinely believe it offers an incredible opportunity for my businesses. In fact, I'm restructuring roles within my team so that one individual can focus almost entirely on learning how artificial intelligence can be leveraged within our company to foster growth and enhance our effectiveness and efficiency. The potential of AI is so substantial that I believe assigning one person solely to this task is absolutely worthwhile, wouldn't you agree?

Absolutely, you're not alone in this pursuit. There are countless other business owners, millions in fact, who share your vision and are actively seeking to utilize artificial intelligence to streamline tasks and enhance productivity. The widespread interest in AI among business owners underscores its potential to revolutionize various industries and drive unprecedented levels of efficiency and innovation.

There are indeed challenges associated with artificial intelligence that could potentially have negative consequences for our economy. It's crucial to seriously consider how the impacts of AI will affect your career and life well in advance of its widespread adoption. Planning and preparation are key because by the time the effects become tangible, it may already be too late to adapt. Anticipating and proactively addressing these changes is essential to staying ahead of the curve.

What Is Deflation & Why AI Will Cause It

Before delving deeper, let's clarify what deflation means for those who might not be familiar with the term. Put simply, deflation occurs when prices decrease, resulting in goods and services becoming cheaper.

At first glance, deflation might appear beneficial solely based on the aspect of prices decreasing. However, upon closer examination of the underlying causes of deflation, the picture can become more complex. While I may have used the term "gloomy," it's important to note that deflation has been a recurring feature in global economic cycles throughout history. It's not necessarily inherently negative.

In fact, historically, deflation has often been viewed as a positive phenomenon for the majority of people. It's only been in the past roughly 50 years that deflation has been portrayed as the "boogeyman" of the economy. This shift in perception is largely due to the Federal Reserve and the U.S. government advocating for a society built on debt and excessive leverage.

In such a society, deflation can indeed have catastrophic consequences. Ultimately, there are two primary factors that can lead to deflation.

The first factor is a decrease in demand, which typically occurs during recessions or depressions, although it's relatively rare. In such times, people are primarily concerned with survival, leading to reduced spending on non-essential items. This decrease in demand results in lower prices as businesses struggle to attract customers. Consequently, the trickle-down effect affects prices as those who do spend money influence businesses' pricing strategies.

The second reason is an increase in supply, which ties into the fundamental supply-demand dynamics. This is where artificial intelligence plays a role. An increase in supply can stem from various factors, such as discoveries or technological advancements. For instance, the value of gold is partly attributed to its limited supply and the costs associated with extracting it from the earth. These factors contribute to the supply-demand dynamics that influence the value of commodities like gold.

Did you know, and this statistic might surprise you as it did me the first time I heard it, that all the gold ever mined and refined could fit inside a single Olympic-sized swimming pool? That's right, every single piece of gold throughout history could fit into just one pool. Now, imagine if a massive deposit of gold were discovered and extracted. The influx of supply would inevitably lead to a drop in the price of gold.

However, consider this scenario: What if a significant gold deposit were discovered deep in the ocean, beyond the reach of current extraction technology? In such a case, the deposit's existence wouldn't significantly impact the supply of gold because it couldn't be extracted. Therefore, it wouldn't exert any downward pressure on the price of gold.

Indeed, if someone were to invest in developing submarine gold mining technology and successfully extract the gold from deep-sea deposits, it would increase the supply of gold in the market. As a result, the increased supply would likely cause the price of gold to decrease due to the shift in the supply-demand balance. Essentially, flooding the market with an additional supply of gold would lead to a decrease in its price, provided it equals or exceeds the current supply.

AI Might Eliminate 300 Million Jobs World Wide

Using these analogies to contextualize the deflationary impact of artificial intelligence, consider this: Goldman Sachs has stated that AI has the potential to reduce the global demand for labor by up to 300 million jobs. While this number may be startling to many, it's important to recognize that this phenomenon is not unprecedented. In fact, throughout history, every major technological innovation has resulted in deflationary pressures.

Consider this perspective: Technology consistently amplifies efficiency in productive output. This heightened productivity fosters innovation, which often leads to lower prices for goods and services. This cyclical process is characteristic of the technology cycle that humanity has perpetually experienced throughout history.

Throughout history, this has indeed been true. We've witnessed it time and time again. Every technological advancement throughout history has not only contributed to a higher standard of living but has also been a factor in deflation. Let's examine a couple of examples from history.

Technology Advances Always Lead To Deflation

In 1876, Alexander Graham Bell invented the telephone. As telephone technology and the infrastructure surrounding it advanced, it made communication for businesses cheaper and more efficient. While this increased efficiency resulted in lower prices, it also led to a reduction in jobs.

The advent of automobiles and mechanical farm equipment also contributed to deflation. These innovations were faster, stronger, and more efficient than relying on horses and other cattle for transportation and agricultural work. Consequently, businesses could operate more efficiently, which, in turn, led to lower prices. However, this efficiency also resulted in the elimination of thousands of jobs.

At the end of the day, people had to adapt. In more modern times, the outsourcing of manufacturing to developing nations has contributed to deflation. While this has translated to lower prices for everyday consumer goods such as clothing and home goods, it has also come at the cost of millions of jobs in America.

Furthermore, let's consider more recent times and examine the development of the internet from 2000 to the present. This period has been notably deflationary. While inflation has occurred, it's worth noting that one of the reasons for the historically low levels of inflation over the past two decades is the innovation of the internet and the technology developed alongside it.

When you delve deeper into it, while the convenience of shopping on Amazon and similar platforms is undeniable, it also comes with its costs. The progress of internet and smartphone technology has led a significant portion of the U.S. population to increasingly rely on online purchases due to their cost-effectiveness and convenience. The consequence? A phenomenon dubbed the "retail apocalypse."

The Retail Apocalypse 

A staggering 154 retail box stores have shuttered or filed for bankruptcy, including household names that once seemed immune to failure. Companies like Bed Bath & Beyond, Tuesday Morning, Revlon, Olympia Sports, Steinmark, and 149 others have succumbed to these challenging times. These were businesses that had thrived across multiple generations. While the internet has undoubtedly brought about numerous benefits, its impact on many of these traditional brick-and-mortar establishments has been nothing short of dire.

Hundreds of thousands of jobs are at risk of being lost, and unfortunately, these are often the jobs that many people rely on the most. Adding to the challenge, the strain this will place on the commercial real estate sector will be significant. However, as with any adversity, there will also be opportunities for creativity and innovation. Finding new, creative uses for these vacant box store locations will be crucial. Those who are quick to identify and implement these solutions will likely emerge as the most successful in navigating this transition.

AI Will Be More Deflationary Than All Other Technology Advancements Combined

But let's refocus on the key point here: Artificial intelligence is advancing at a pace that has surpassed the expectations of many. If this trend continues unabated, the deflationary impact of AI could potentially surpass that of all other innovations in history combined.

That prospect would indeed be favorable for individuals like myself who are dedicated to innovation and continual growth. It's also promising for consumers, as the widespread adoption of AI across various sectors of the economy will likely drive prices down. With companies worldwide leveraging AI to enhance efficiency and productivity, consumers can anticipate lower prices in the long run. However, this transformation will inevitably come at a significant cost, potentially resulting in the loss of not just thousands, but millions of jobs.

While much attention is currently focused on concerns about runaway inflation, I would argue that artificial intelligence has placed us squarely in a potentially deflationary environment over the next five to ten years. In fact, despite the United States government's daunting $32 trillion debt and $187 trillion of unfunded liabilities, one could make a compelling case that the deflationary effects brought about by AI could actually serve as a saving grace for the U.S. dollar.

Unfortunately, the YouTube AI algorithm hasn't quite mastered the skill of reading minds yet. However, since I have a good sense that you've found this article immensely valuable and engaging, now would be an opportune moment to hit that link. And why not also click on the subscribe button and the bell icon to ensure you receive notifications whenever I release a new video? After all, I upload personal finance videos daily, and you wouldn't want to miss out on any of them!

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