ABC, ABC’s, ABCs

I have been meaning to write about AI for some time now, but after listening to Vice President JD Vance deliver a speech in France on the future of artificial intelligence, I feel compelled—and slightly responsible—to address one of the key aspects of his remarks: AI's impact on the economy, particularly job creation.

In particular, and I'm paraphrasing, he said something along the lines of:

"We refuse to view AI as a purely disruptive technology that will inevitably automate away our labor force. We believe AI will make our workers more productive, and we expect that they will reap the rewards of higher wages, better benefits, and safer, more prosperous communities."

There is a lot of noise in this domain, especially regarding how disruptive AI will be, and it remains a divisive issue. To that end, I want to provide a simple yet effective framework for taking a long-term view of how developed economies, such as the U.S., will absorb the "AI shock" and what I believe will be one of the most significant disruptions to the labor force in recent history. We benefit from a long-term perspective on AI and its consequences rather than being myopic. Much like past groundbreaking innovations, AI will create short-term volatility. However, we can avoid unnecessary confusion and anxiety by analyzing it through the lens of first principles.

One of the most fundamental ways to enhance productivity—and consequently, GDP growth—is through leverage. Historically, leverage has primarily taken two forms:

One straightforward way to boost productivity is through extended work hours, higher workforce participation, or improved efficiency via better tools and training. This has been a key driver of economic growth, particularly in countries like China, where the credit system is less developed, and growth has resulted from sheer labor expansion. Hence, all else being equal, simply increasing the number of work hours can increase productivity in the long run. This seems straightforward and intuitive. As individuals, we heavily rely on it to improve our productivity and, thus, throughput.

The second, more sophisticated approach is through credit, where borrowing amplifies productivity. Suppose every dollar of capital can be leveraged with additional borrowing; productive capacity effectively multiplies. This principle underlies modern economies, where credit fuels investment in infrastructure, businesses, and technological advancements, accelerating growth beyond what labor alone can achieve.  It’s that simple.

I believe AI will emerge as a third, transformative form of leverage—cognitive leverage—that enhances productivity in ways fundamentally different from labor and financial leverage. This form of leverage scales exponentially, is not constrained by debt and risk, excels at automating cognitive work, and provides a solid basis for enhanced decision-making and democratizing expertise. It will be the first choice for economies seeking consistent and low-risk modalities for growth.

The key point is that AI offers a better risk-adjusted return than traditional labor and financial leverage. As a result, it will likely become the default choice for institutions and corporations aiming for consistent growth. However, this shift will also lead to significant workforce displacement in the long run.

*Note that this thesis is based on my understanding of economic productivity and growth and, in many ways, speculative.

*As you’re reading this, please make sure to look up risk-adjusted returns. There are plenty of articles that do a better job than I would.