Bessent’s comments align with the Trump administration’s enthusiasm to develop AI, as chief executives and workers alike grapple with incorporating the burgeoning technology into their business models and workflows. AI adoption is simultaneously taking place alongside a rapid $700 billion buildout that’s driven up demand for chips and other equipment needed to power data centers, chatbots, and more.
In the short-run, AI has been more inflationary with Americans paying more for electricity bills and laptops among other products. But AI proponents such as Bessent argue that AI adoption increases the efficiency of employees to produce more with the same amount of work hours. In turn, that boosts corporate profits and worker paychecks without igniting inflation, since a business presumably doesn’t need to raise prices to hit their revenue targets — all thanks to AI, in theory.
“The bottom line is that there’s an AI productivity boom, which is feeding through to an earnings boom,” White House National Economic Council Director Kevin Hassett told Fox Business in May.
What’s behind the AI productivity debate?
Economic observers and policymakers are debating the effect of AI adoption in the U.S. economy. A big piece of it revolves around whether AI is already affecting employees’ productivity, or the measure of output divided by work hours. Federal Reserve Chair Kevin Warsh has already displayed a strong belief that the AI boom will produce significant improvements to worker productivity — sometime in the future.
“The AI shock is leading to a boom in capital expenditures,” Warsh said at a European Central Bank forum in June. “We see that first and foremost in demand, but I’m confident we’re going to see it in supply at some point.”
Before taking over at the Fed earlier this summer, he also argued that improved productivity gains can pave the way for interest rate cuts. He held up AI as “the most productivity-enhancing wave of our lifetimes — past, present, and future” in December. Most of his Fed colleagues, though, are more concerned about AI’s inflationary impact for the near-future.
Observers, though, say that AI adoption still hasn’t affected the labor market in a meaningful way in either direction, nor has it affected productivity. At least, not yet.
“Churn across occupations, AI exposure among the unemployed, and usage data all remain flat, lie within historical ranges, or continue along pre-AI trends,” the Yale Budget Lab’s AI Labor Market Tracker posted.
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The current state of U.S. productivity
Unlocking productivity gains is key to improving the standard of living. Workers can get paid better for being more efficient in their jobs. Companies might also produce more with fewer workers, as was the case with manufacturers shedding jobs in the 20th century while the U.S. economy pivoted towards high-tech service industries.
U.S. labor productivity has grown at a healthy two percent clip since late 2019, outpacing identical European economies.
AI adoption varies widely by sector. Professional and financial services industries are leading the pack, while manufacturing, retail, and construction experience slower take-up rates. About 20% to 40% of U.S. firms are employing some form of AI in their operations, according to Federal Reserve research.
Joseph Zeballos-Roig is a policy and politics journalist based in Washington D.C with a focus on economics. He is experienced in connecting the significance of events in the capital to the lives of everyday Americans whether its taxes, tariffs, interest rates or federal programs.
