AI Will Not Help The U.S. Avoid Recession
I would remind those who believe that the deployment of AI will help the U.S. avoid recession to recall March 2023. In Q1 2023 the U.S. was knocking on Hard Landing’s door.
Banks mismanaged their book of business as short-term liabilities were mismatched with short-term assets. A full blown banking crisis was avoided by the massive BTFP bailout deployed by the Fed and FDIC, which was funded by U.S. Taxpayers (Yes, even if the money is printed, taxpayers absorb a cost in the form of Dollar dilution / reduced purchasing power).
2023’s banking crisis occurred despite the enormous amount of fiscal stimulus that was deployed into the U.S. economy from fiscal 2020 - present day, much of it related to the CARES Act and the Inflation Reduction Act, (both of which weaken the Dollar’s purchasing power and therefore create price inflation).
How do I know that AI will not help the U.S. avoid recession? Let’s start with the fact that various permutations of artificial intelligence (ML, NLP, DL), have been widely deployed for over a decade. The latest AI permutation - Gen AI - does not have enough economic firepower to get the economy over the recession hump. The only companies making real money from Gen AI are NVIDIA (NVDA) and OpenAI. Gen AI did nothing to help mitigate the risk of 2023’s banking crisis.
The record fiscal spending that has led to multi-trillion Dollar deficits over the past 4 years is unsustainable. Credit Markets will not be able to function over the long-term if the Interest Expense on the U.S. debt remains elevated (25% of Federal Tax Receipts). The way to get interest expense down is to both reduce fiscal spending and lower interest rates.
It is likely that 2025 will: 1.) usher in higher taxes (regardless of who wins November’s General Election) and, 2.) lower deficit spending. 1 + 2 = lower economic growth.
The real answer as to how to solve America’s debt crisis of course is to radically reduce the size of the Federal Government and to radically reduce fiscal spending. A $2-3 Trillion fiscal budget is far more sensible than pissing through $7 Trillion in fiscal spending. In addition, all income taxes ought to be eliminated and replaced with a consumption tax. A 10% consumption tax would generate approximately $2.7 Trillion of Federal Tax Receipts ($27 Trillion GDP x 10%).
Social Security and Medicare are insolvent. Both programs will go away. The math does not work.
So no, Gen AI - (i.e. NVIDIA and OpenAI) - will not help the U.S. to avoid recession.