Artificial Intelligence: To Infinity & Beyond!

Before the Age of AI, economists were taught that there are only three factors of production, namely, Land, Labor, and Capital. The job of economists is to optimize the allocation of these scarce resources to maximize output (i.e., real GDP). Now, economists should recognize that there is a fourth factor of production, namely, Data. This resource is unlimited. But until AI, it wasn't very useful because it was very expensive to collect, process, and analyze.

The Data Revolution that started in the mid-1960s was all about processing as much data as quickly and as cheaply as possible. A great deal of progress has been made in doing so since the IBM mainframe computer was introduced on April 7, 1964 until now, after OpenAI introduced ChatGPT on November 30, 2023. As a result of this progress, the share of nominal capital spending in high-tech has increased from around 20% to a record 55% over this period (chart).