AI in Keynes’s theory
It has been 80 years since the economist John Maynard Keynes passed away, but his ideas, preserved in his works, are still relevant today.
In his 1930 essay, *Economic Possibilities for our Grandchildren* (Keynes, 2010), Keynes makes an interesting prediction: the increase in productivity linked to technological progress would mean that, within 100 years (and therefore by 2030), the economic problem – understood as the struggle to meet basic needs – would no longer exist.
In particular, according to Keynes, workers would have worked very little – around 15 hours a week – to meet their needs; consequently, the problem would no longer have been work, but rather how to spend their free time.
We are now approaching 2030; Keynes’s prediction has not come to pass – in fact, working hours have not been significantly reduced, but the issue he raised remains highly relevant today, as Artificial Intelligence (AI) is the subject of debate due to its potential negative effects on the labour market, leading to the much-feared notion of ‘technological unemployment’.
Indeed, the debate in the literature regarding the impact of innovation on the labour market is quite lively (Vivarelli, 1995): on the one hand, innovation can make it possible to achieve the same level of output with less labour, leading to the negative effect known as the displacement effect; on the other hand, reducing the labour input means incurring lower labour costs (measured by wages), and this reduction could allow for a reduction in the selling price of the final good in a competitive market, which might stimulate demand, thereby having a positive effect on the labour factor – the ‘compensation effect’. Even in a non-competitive market, we might observe the compensation effect: in fact, in this case, the entrepreneur does not pass on the cost reduction to prices, but the higher profits could be invested in further innovation in the future. However, the ultimate effect of innovation on employment is unclear, as it depends on various factors such as the degree of competition in the market and the elasticity of demand.
