The AI productivity delusion

Is AI a bubble? It all depends, we are told, on whether massive investments in the technology will massively boost productivity. Optimists are convinced that future productivity gains will be colossal, even if a market correction is necessary to draw some hot air out of the current boom.

Pessimists, from Goldman Sachs’ Jim Covello to MIT’s Daron Acemoglu, have their doubts. But optimists and pessimists alike are in the grip of what I call the AI productivity delusion.

What both sides miss is that AI will devastate capitalism even if it boosts productivity beyond our imaginations—and regardless of whether it delivers the promised economy-wide automation of everyday corporate workflows.

The reason why we tend to miss this point is that we look at today’s world through the lens of another world that cloud capital, especially now that it is AI-enhanced, has rendered obsolete.

Until recently, it was a foregone conclusion that every technological revolution represents a moment of creative destruction. Whole sectors, professions, and skill sets were destroyed by innovations which ushered in new sectors, new professions, and new skill sets.

Automobiles ruined saddlers, farriers, and knackers but begat auto workers, road builders, mechanics, and service-station personnel. The transition from coal to oil condemned whole mining communities, not to mention trade unions, to oblivion. In net terms, however, more was created than was destroyed. Creative destruction became synonymous with economic growth.

Faced with the AI juggernaut, it is natural to focus on the technology’s net effects. Will it create more than it destroys? But the real question is, “More of what?” To avoid the AI productivity delusion, we must rethink how we define productivity.

If by productivity we mean tasks accomplished per unit of human labour, there is no doubt that AI will prove an immense success—in fact, it already has. But, if we continue to measure productivity in terms of monetary value produced per unit of labour, the chances are that AI will prove to be an unmitigated disaster.

Earlier technological revolutions, from the steam engine and the automobile to the personal computer and the smartphone, expanded the domain of capitalist markets.

Despite the wreckage of whole professions and communities they left in their wake, they resulted in simultaneously more material output and a higher aggregate monetary value of that output.

Will AI do likewise? Maybe in China, where AI is coupled with robotics, material production will rise and, at least in the short run, so will net revenues.

But in the West, AI agents are deployed in the service sector—from amazon.com to back offices, law firms, hospitals, and more. In those domains, AI-enhanced cloud capital could shrink markets in two distinct ways.

The first way, the one everyone worries about, is that AI will kill off entire professions: paralegals, coders, translators, accountants, even architects, mathematicians, and school teachers, while creating far fewer new jobs filled by the prompters, overseers, engineers, and operators of the new machinery. The second way is far less visible but perhaps even more worrying: the conversion of markets into cloud fiefs and of profits into rents.

As I argued long ago, Amazon may look like a market, with countless buyers and sellers within its digital walls, but it lacks the central feature of a market: decentralisation.

In fact, it is more centralised than the Soviet planned economy ever was, with an inscrutable algorithm deciding which consumer is matched to which vendor on the basis of a probabilistic model optimised to maximise the likelihood that Jeff Bezos, its owner, collects 40% of the maximum price every customer is willing to pay.

As AI becomes more deeply embedded in Bezos’s algorithm, interfaces like Alexa will communicate with us not as mere shopping assistants but as an all-knowing friend, companion, and even therapist.

Soon, capitalist vendors’ profits will end up in some tech lord’s account in the form of cloud rent, which he will most certainly invest in more AI-enhanced cloud capital that produces more power to extract more cloud rents.

So, as Apple’s Siri, Google’s Gemini, and an army of such agentic assistants develop the same capacities for their tech lords as Amazon has for Bezos, the capitalist market domain will continue to shrink.

While AI will have proven exceedingly productive in terms of economic activities performed per unit of human labour, the profit rates of capitalist enterprises will collapse, following society’s aggregate wages to the bottom.

At that point, none of the tools of the liberal state—no amount of quantitative easing, no politically feasible levels of universal basic income, no wealth tax that the tech lords will find hard to evade—will be able to prevent a systemic collapse.

The question of whether AI will generate massive productivity gains is easy to answer: Yes. AI is already proving capable of exponentially increasing the amount of work that is being done per human worker.

But as long as it is used to eliminate wage labour while syphoning off profits from actual markets into our tech lords’ cloud rents, the economic value produced per worker will tank.

Unless this distinction is made, the AI productivity delusion will persist. And as long as it does, we will be unable to hope for a post-capitalist future of abundance where we, along with our AI helpers, produce according to ability and distribute according to need.

Yanis Varoufakis, a former finance minister of Greece, is leader of the MeRA25 party, professor of economics at the University of Athens, and a senior research fellow at Fudan University.

The views expressed are those of the writer and do not necessarily reflect those of FMT.

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