In a conversational interview, economist Tyler Cowen challenges the optimistic forecasts that artificial intelligence will soon drive double‑digit percentages of economic growth. He argues that while AI can achieve superhuman performance in narrow, self‑contained domains such as chess and programming, the broader economy is constrained by human imperfections in institutions, regulatory frameworks, energy and data‑center capacity, and entrenched incentives. Cowen emphasizes that as one part of the economy improves, the remaining frictions become more salient, especially in sectors like healthcare, education, government, and nonprofits where adoption is historically slow. He predicts a roughly 20‑year horizon for AI to reshape major institutions, noting that past technological revolutions (electricity, the internet) took decades to translate into productivity gains. The discussion also touches on the impact of federalism and regulatory inertia in the United States versus the United Kingdom, the role of de‑globalization, and the potential but limited tailwinds from capital markets and demand for new energy infrastructure. Overall, Cowen adopts a measured, cautious stance, acknowledging AI’s transformative potential but warning that systemic and institutional bottlenecks will temper short‑term growth impacts.
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people who have real money at stake, they don't see the world being radically overturned anytime soon. And I think they're correct.
I'm just back from a trip to Silicon Valley, and I heard a lot of people there talking about the prospect of AI driving 10, 20, 25% of economic growth. There would be this bounty that AI would bring us, and I don't really agree with that. I think you don't agree with it either, but what are those projections getting wrong?
They're ignoring the all-critical role of human imperfections in systems and institutions. So the more powerful AI becomes, and I'm not a pessimist on that, the more it bumps against people who don't want to adopt it, or institutional systems where that does not get incorporated into the workflows. It also hits higher energy prices, constraints from data centers, possible regulatory constraints. The general economic point is that as one thing in your economy gets better, the remaining imperfections become all the more important. So they're not thinking about this like economists, but used to working in one sector of the economy where yes, a lot has changed very rapidly. But when you look at healthcare, education, government, the nonprofit sector, as you work in these, as I have, you'll see the rate of improvement is going to be pretty slow.
In my first book, I talked about the idea of the exponential gap, which is the technologies can go exponentially, but human institutions are linear. They drag us down. As you say, people are to have different incentives and there are places where there's just a lot of people that you have to shift and move around. But we have seen the economic regime fundamentally shift. I mean, at least once, perhaps twice, right? Well, perhaps the first time was when we moved from into cities and the second time perhaps is that period in England in the 1620s. Why might we not have the conditions to do that again?
Now you can look at particular self-contained systems. One of the first we had was chess. AI in chess is virtually godlike. AI in programming is getting there. It will take a little while, but it becomes a kind of self-contained system, maybe parts of graphic design. But all that put together is well below 10% of the economy. And once you have to interact with more complex processes, we need to invent whole new ways of doing things. We may need an entire generation of institutions and firms to die off and have new ones born again that are built around AI at its center. And don't get me wrong, all of this I think is going to happen, but it's much more like a 20-year time horizon. And in the meantime, there are all sorts of, you know, tailwinds against economic growth. Well, we're aging, right? We have low fertility rates. Our governments are doing many stupid things. All that tends to lower the growth rate. You know, we've had the internet now for quite a while, and maybe measured growth rates are somewhat higher because of it. But even that you can debate. There are people who'd say, well, productivity still hasn't gone up from the internet. It just takes much longer than people think. Electricity took 40 to 50 years. I do not think this will be that slow for some obvious reasons. It's much quicker. It's just on tap on your phone, on your desktop, wherever, but slow it will be.
Could it be the case that a generation of managers who grew up in the shadow of Clayton Christensen's book, The Innovator's Dilemma, for whom the word disruption has been part of their career, capital markets that move more freely, the scale of the demand pull from consumers for this. The fact that governments may be doing many stupid things, but also seem to be resigned in some cases and excited in other cases to build out the infrastructure as quickly as we can. Does that provide a tailwind that might see this moving quicker than that 20-year period?
When was the last time the US built a new nuclear power plant? What are the prospects for that in Britain? In both countries, it's looking up, right? That's good. Probably at the moment, if we start one today, it takes us 10 years if we're lucky. That's just a simple way of showing how much time things take. That's a self-imposed burden. I would call it an unforced error. South Korea, China can do it much more quickly and it still seems safe, but I just don't think we're gonna completely get our act together all at once. I see no signs of that happening.
Globalization's contribution to economic growth has been so enormous over the last 70 years, it probably dwarfs that of technological innovation. Deglobalization is a really big deal, right? It's a really, really big and distracting deal for companies and governments to have to deal with. What about the notion that what we've actually seen in the last year or so has been an unlocking of desire to make those types of investments? We've got a demand signal and that demand signal is driving innovation on the one hand from, you know, SMRs and solar and batteries and and even fusion. And on the other hand, it is pushing the states and federal government to say, we need to build this, we're gonna take regulations out. Could that create a storm that, that drives things a bit quicker?
In this regard, our two countries have very different problems. We have extreme federalism. To build things out the grid, you need approval from so many state and local governments. From the feds, from various environmental review boards. Again, it just takes years and years. Cleaning up that process takes years and years. I've heard it estimated that to get rid of a single federal regulation can take 2 to 3 years. Again, I'm all for doing that, and I think we're gonna do a lot of it, but it will be slow going. Now, in the UK, you have far less federalism. You have a bigger fiscal crisis. You have a talent crisis. For some set of reasons I can't explain, You just don't seem to be able to get your act together to do a bunch of things. I don't know why. The very best estimate we have is that which is embedded in market prices, and there are plenty of market prices that indirectly give signals about what will happen. I would say if you look at currencies, equity prices, real interest rates, levels of volatility, really anywhere you care to look, uh, the world looks pretty normal, at least for our two economies.
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