In an era where the hype surrounding Artificial Intelligence (AI) echoes the early days of the Industrial Revolution, Nobel laureate economist Christopher Pissarides is injecting a dose of realism into the conversation. Through an analysis that merges historical perspective with modern economic constraints, Pissarides argues that despite its immense potential, AI will not be the vehicle to return Western economies to the "golden eras" of high growth witnessed in the mid-20th century.
The End of the "Great Leaps"
Pissarides' core thesis is rooted in the fact that modern Western economies are now "mature" and dominated by the service sector. In the 1950s and 1960s, explosive growth was fueled by the massive shift of labor from agriculture to manufacturing—a transition that yielded enormous productivity gains. Today, the shift is from manufacturing to personal services, such as healthcare, education, and social care—sectors where human contact remains indispensable.
According to the Nobelist, AI will automate many tasks, but it cannot eliminate the need for human presence in critical sectors. This creates what is known as "Baumol's cost disease": while productivity increases in technology, the cost of human-centric services continues to rise, keeping overall GDP growth rates at modest levels, typically between 1% and 2%.
The Demographic Ceiling and the Workforce
Another critical factor cited by Pissarides is the demographic aging of the West. As the population ages, the share of the active workforce shrinks. AI may help fill some gaps, but the demand for elderly care services will likely absorb a significant portion of the productivity gains that technology offers in other sectors.
- AI will improve efficiency in bureaucratic and technical tasks.
- The service sector will remain the "anchor" preventing explosive growth.
- Reskilling is imperative but not a panacea for GDP expansion.
- Europe faces a greater challenge due to an investment gap compared to the US.
Pissarides emphasizes that AI will change the nature of work, making it more creative and less repetitive, but this does not automatically translate into growth rates of 4% or 5%. Historical experience shows that technological revolutions take decades to fully integrate into the economic system, and when they do, their impact is often offset by other structural weaknesses.
The Need for Realistic Policy
The message to policymakers and stakeholders is clear: AI should not be used as an excuse to avoid difficult structural reforms. The focus must shift toward quality of life and the equitable distribution of automation gains, rather than chasing unattainable growth targets.
"Artificial Intelligence is a tool that will make our lives easier, but it cannot defeat the laws of economic maturity," Pissarides notes.
In conclusion, the West must adapt to a "new normal" of low growth, where technology acts as a stabilizer rather than an accelerator. Excessive optimism about an "AI miracle" risks leading to poor investment decisions and social disappointment if citizens expect a return to post-war prosperity levels solely through algorithms.
