Why is AI changing everything?

When we drill down into the basic essence of what is taking place, we see a new paradigm emerging. From an economic perspective, this completely alters the entire landscape.

Are we heading towards a post-monetary society as some surmise? That could be the case. Before we reach that level, however, we are apt to see a fair bit of chaos. Disruption always causes periods of turbulence. The difference is we are going to see this across the entire economy, not just specific industry.

But what is at the core of this? Many dispute the potential disruption, calling it hype. Certainly, the expectations are off the charts, often exceeding the capabilities.

My answer to this is to just wait a bit. With the pace of AI, we are seeing massive changes in short periods of time. In fact, by the end of this year, we will see the entry into real world AI. This will move us far past the LLM world we are presently experiencing.

So let us look at what is taking place and how this can impact things.

Image generated by Ideogram

AI: The Transfer of Intelligence Through Time

I often write about the basic components of the economy. When we strip it all down, we get capital and labor. Throughout history, there was a balance between the two.

Over the couple centuries, due to technological advancements, we saw a shift. Capital started to eat into labor, something that accelerated in recent decades.

But why is this?

The answer lies in the fact that capital transfers labor through time. It becomes a force multiplier that increases economic productivity on an increasing scale. Hence, technological development causes an increase in the standard of living.

With AI, we see something even more powerful. Instead of labor being transferred through time, we get intelligence. Again, if we extrapolate the productivity based upon the curves over the last few decades (or centuries) we can see how AI will disrupt everything.

One thing that tends to derail the conversation is the word "intelligence". The experts cannot even agree on a definition or gain consensus on what this means.

Therefore, let's replace that with units of cognition. That is the output of these AI systems.

Here is the global GDP according to Our World in Data:

Intelligence in all Operations

The next phase of the AI evolution is "Embedded" or "Real World" AI.

As we can see from the chart above, as capital started to transfer labor through time, we saw a major shift, upwards, in economic output. If we look closely, the chart elbows not long after the start of the Industrial Revolution. The flat line started to move up around 1820.

We can naturally break the chart down to get a different reading. From this perspective, the last 100+ years look like a straight line up. If we took a period from 1970 through today, we would see a fractal of that.

Which means the economic output over the last half century will likely be dwarfed compared to what we have coming over the next few decades.

AI is isolated in the minds of many people. We see the impact of LLMs yet they are still restricted.

The major economic benefit will come when intelligence is in all operations. For example, a manufacturing company will use AI in the design of the product, the establishment of the line, and the distribution system. Here is where the force multiplier enters.

Ultimately, we experience a contraction.

It is something that many have already experience. With the ability to "reason", some have spent time doing some research using a Chatbot. By doing this, one can garner a month's worth of research in an afternoon simply by prompting the bot and getting answers in a few seconds.

Again, we are looking at units of cognitive output.

On a larger scale, this might be moving us towards the noosphere, a concept developed by Teilhard de Chardin.

It is why we will see disruption throughout most industries. In a decade, a great deal will be changed.