AI programs are part of innovation that benefits our economy, productivity | Peter Crabb
There’s something new every morning. My students and I are “adapting” to generative artificial intelligence, a new technology that can help my students write papers, or help me write lectures and this article (I didn’t use it).
Such innovations benefit everyone. New technologies and innovations produce economic growth and our standard of living. As the statesman Edmund Burke once said: “America demands invention and innovation to succeed.”
Economics has from its start been a study of how innovation leads to economic growth. Adam Smith’s famous book on economics is titled “An Inquiry into the Nature and Causes of the Wealth of Nations.” Smith was asking what makes us better off, what creates wealth.
What Smith learned, and later economists have since verified, is that innovation is the source of wealth. For Smith, it was the division of labor duties that gave rise to more specialized workers with better skills — that is, more innovative ways of doing things or being productive.
Today, productivity gains come from advances in all areas of life: chatbots, communication, faster computer chips and maybe even pitch clocks. Higher productivity makes workers more efficient and helps companies find more ways to use workers and improve service.
To make all this happen will need a good investment environment. Alexander Field summarizes what economists have learned about productivity in the “Concise Encyclopedia of Economics.” He writes, “The bottom line: If a country wants its standard of living to rise over the long run, its labor productivity has to go up. And for that to happen, it either has to save more or innovate.”
Economists have suggested ways the government can promote the needed savings and innovation. First, policies that promote saving by households (think IRA accounts) and innovation by businesses (think research tax credits) raise the level of investment and give rise to new technologies.
A second, and perhaps a more surprising policy, is immigration. I was recently reminded of this fact by Boise State University economics professor Rafael Ribas, who emigrated from Brazil. Economic growth theory and historical evidence support an increase in work visas for foreigners.
For example, Giovanni Peri at University of California-Davis has demonstrated that immigrants expand the economy’s productive capacity, stimulate new investment and boost productivity. In one study, Peri found that states with higher immigrant worker populations have higher rates of output per worker.
To keep the economy growing, we have to be open to new technologies. We need to also consider more open borders.
