In a new research report, Goldman Sachs opines that generative artificial intelligence has the potential to rapidly accelerate task automation that would drive cost savings and raise productivity. A corollary of cost savings and higher productivity is lower inflation.

AI can generate content that is not distinguishable from human output and can break down barriers between humans and machines. AI reflects a major advancement with large macroeconomic effects. Data on occupations in the United States indicates that around 80% of the U.S. workforce could have at least 10% of their work tasks affected by the introduction of generative AI, while approximately 19% of workers could see 50% or more of their tasks automated.

Many on the political Left and some new age conservatives say that AI should be tightly regulated so that current jobs are protected. These skeptics of AI are modern-day Luddites who fight creative destruction and economic progress. Economic history teaches us that when technology displaces some forms of labor, the creative displacement from technology always leads to the emergence of new occupations. Creative destruction is essential to long-run economic prosperity, and these new occupations from technological disruption and new business formation make up the vast majority of long-run employment growth.

In 1900, for example, the U.S. was an agricultural nation. Industrialization was in its infancy. But with the mechanization of agriculture, food productivity surged and employment in agriculture fell. Workers displaced by mechanization found jobs in the assembly line factories made famous by Henry Ford. Technological innovation creates more jobs than it destroys. At the same time, generative AI could raise the annual productivity growth rate of the nation from the current 1.5% to around 3% over the next 10 years. Such an increase in national productivity would be transformative. The U.S. could experience a golden economic age similar to the rollout of the internet, which led to annual GDP growth rates of 4% and a fall in the federal deficit as a percentage of GDP.

Currently, secular GDP growth is projected at just under 2%. When inflation falls to 2%, secular nominal GDP growth will trend around 4%. The Congressional Budget Office projects that without any changes to federal spending, the deficit over the next decade will average between 5% and 6% of GDP. If generative AI raises annual productivity growth to 3% and the U.S. population growth rate continues at around 0.4%, real GDP growth would average 3.4%. Projections are that the Federal Reserve will achieve its goal of 2% inflation sometime in 2025. By 2025, generative AI should be widely embedded in the economy. Combining a 2% inflation rate with a trend GDP growth rate of 3.4% leads to nominal GDP growth of 5.4%. With a nominal GDP growth rate of 5.4%, Congress, with no further action, could stabilize the net deficit ratio which currently stands at around 100% of GDP.

Equally important, the widespread utilization of AI would lower secular inflation. Lower inflation would result in lower long-term interest rates. The cost of capital would fall and capital investment would rise.

The widespread utilization of generative AI could lead to an economic period of strong growth, low inflation, and low interest rates. That combination would solve a lot of problems: economic, political, and social.

Progressives and so-called new age conservatives are wrong. Don’t regulate generative AI. Strong economic growth generated by AI can meaningfully improve the well-being of all American households.

A rising tide lifts all boats.

James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes  a daily note  on finance and the economy, politics, sociology, and criminal justice.