Can AI Really Spark Sustainable Growth, or Is it Just Another Flash in the Pan?

investing.com:

So, we are back to the argument about whether we have reached a new era of permanently higher growth and earnings, and because of productivity also a permanent state of steady disinflationary pressures.

Live long enough, and you’ll see this argument come around a couple of times. In the late 60s with the “Nifty Fifty” stocks, in the 1990s with the Internet, and now with AI. As a first pass, it’s worth noting as an equity investor that the first two of those eras were followed by long periods of flat to negative real returns in equities. But my purpose here is simply to revisit the important fact that productivity is always improving, so something which improves productivity is normal and not exciting. The question which arises periodically when we see some really golly-gee-whiz innovation is whether that innovation can meaningfully accelerate the rate of productivity growth over time.

Total real growth over time is simply the growth in the labor force, plus the growth in output per hour (productivity). Assuming that the labor force grows at roughly the same rate as the overall population,[1] real GDP per capita should grow at roughly the rate of productivity. The chart below extends a chart which first appeared in an article by Brad Cornell and Rob Arnott in 2008 (“The ‘Basic Speed Law’ for Capital Markets Returns“), updated to the end of 2023Q3. Note that real earnings and real GDP grow at almost the same rate over time – the log regression slope is 2.09% for real per capita GDP and 2.17% for real earnings.

(By the way, although it isn’t part of my discussion here note that the middle line, real stock prices, isn’t parallel. It was, back when this chart first appeared in 2008; the fact that it isn’t anymore is obviously