Fed’s Mary Daly discusses AI and its impact on US Productivity

Mary Daly was a young economist at the Federal Reserve Bank of San Francisco in the late 1990s, helping then-chair Alan Greenspan realize the previous big rise in US productivity. But now, she says she feels there’s another similar upswing, this time fueled by artificial intelligence.

In an interview on Bloomberg’s Odd Lots podcast, Daly, now president of the San Francisco Fed, said, “We’re seeing it everywhere,” referring to the productivity pushed by AI.

Measured productivity has risen in the US over the past few years, but economists are not in agreement on the cause or whether it will continue rising. However, sustained productivity growth could be a great benefit.

She said it is “really about machine learning. It’s about robotic processing, automation, just people and businesses doing things”. Furthermore, she added that it’s not going to show up in measured productivity immediately. However, there’s still a drive for change.

Productivity is how much labor (labor + capital) it costs to produce a product or service. Higher productivity means more production without additional work. Productivity also plays an important role in enhancing overall living standards. Despite this, it’s also difficult to measure.

In 1987, economist Robert Solow wrote, “You can see the computer age everywhere but in the productivity statistics.”

Daly says that history is repeating itself, this time with AI

Alan Greenspan believed it was happening in the late 1990s while witnessing the start of the information technology revolution, which was changing businesses. Economists were asked to find examples of how companies were using technology in practice. The findings at least helped convince the Fed chair that productivity really was increasing, and that influenced monetary policy.

“He turned out to be right,” Daly said. She shared that productivity was in a disorganized state, and eventually, when the data was updated, they had a better understanding of the computer revolution. “We realized we were living in a computer revolution.”

Daly says the San Francisco Fed’s Emerging Tech Economic Research Network is trying to reproduce the research done by Greenspan a generation ago.

“We’re spending a lot of time with researchers, but we’re also spending a lot of time with CEOs and CIOs, and we’re asking them, what are you doing?” She added that although the focus is on the US first, a large number of companies all over the globe are using AI, just like in the United States.

Sounding optimistic about AI, Daly said it’s about how businesses use the technology to strengthen and enhance their teams. This also means getting the job done with less tiring work. “And I think that’s potentially a huge benefit. It could take a decade, but it is happening,” she concluded.