Cash is King

The onset of the Artificial Intelligence (AI) era brings with it a myriad of theories about its impact on the global economy. While the benefits of AI in enhancing productivity and innovation are widely acknowledged, there’s an emerging concern about its potential to precipitate a recession. What are the implications of widespread AI adoption on economic structures, particularly the value of traditionally valuable assets, the role of cash, and the future of business-to-business (B2B) and business-to-consumer (B2C) interactions.

AI and the Economy: A Double-Edged Sword

AI’s ability to automate tasks, when viewed through a short-term lens, appears beneficial for businesses seeking cost savings. However, this efficiency comes with a significant caveat: the potential displacement of a substantial segment of the workforce. This scenario raises the question of consumer purchasing power. If a large fraction of the populace faces unemployment, who will buy the products and services these AI-enhanced businesses offer? The ripple effect won’t save the B2B sector either, which, although one step removed, ultimately depends on the end consumer’s spending power.

Will Software Decline in Value in the AI Age?

As AI evolves, particularly with advancements in on-the-fly software writing capabilities, we might witness a depreciation in the intrinsic value of ‘packaged’ off-the-shelf software as a standalone asset. The future could see software becoming increasingly commoditized with even custom software being only a prompt away, leading to a shift in what constitutes a valuable asset in the tech industry.

The Rise of Cloud, AI Consultancy and Adult Reskilling

In contrast to the potential devaluation of software, I see massive potential for a cloud computing provider that is first to market on being able to do a handshake with an AI model and allow for cloud software deployment on the fly. As businesses seek to integrate AI into their operations, the demand for specialized cloud services that can seamlessly interface with AI systems is likely to skyrocket, not to mention it is a hard asset grounded in hardware. Another effect of this paradigm shift might be a future where bespoke, AI-integrated cloud solutions replace off-the-shelf software entirely.

Another area that might emerge could be AI consultancy efforts as slow adopters might require handholding to be able to utilize the power of AI, even though the better AI becomes the more it democratizes and breaks down barriers to usage. Even as it is today, all one needs to do is ask in regular human language for an AI model to produce useful output.

As skilled humans are replaced with AI agents, the demand for adult education programs is likely to increase as people struggle to grapple with the new reality of the job market. Whether or not a large quantity of humans is required anymore in the workforce is unclear: In the old days there might have been a place for a local bard, the local singer, and the entertaining jester in every town. We don’t see so much of that today since technology has made it possible to store and transmit the very best and most catchy output being produced in the world to each and everyone of us. It has become a winner-take-all market.

Still I imagine anyone laid off and with access to some capital will give themselves a chance, even if the market only rewards and has use for a fraction of the people getting trained on a skill or job.

Cash is King in an upside down Economy

The upheaval brought by AI might reassert the importance of cash and liquid assets. In a scenario where traditional assets are subject to massive swings in their value, and as automated systems dominate, the tangibility and convertibility of cash and currency to the new winners could make it a lot more appealing than holding other asset forms even if cash is subject to a downward pressure in value due to inflation and the time value of money. Will we see a massive deflation cycle that is beyond the capability of fiscal policy to check? Time will tell. It would be interesting to see regulatory responses to a potential AI-induced recession. Would Keynesian economics live to see another day, or will there be so much value to go around that large dollops of taxation and Universal Basic Income (UBI) type redistribution sees us through rough patches?

The Changing Face of Real Estate and Investment

Sam Altman in his essay ‘Moore’s Law for Everything’ underscores how real estate and land might end up being the only finite assets as AI increases by orders of magnitude the supply of every abstract asset out there. So real estate, and particularly land might end up being somewhat safer stores of value. Particularly agricultural land as opposed to residential and commercial property might gain prominence as a solid stable asset in this new era. I don’t see this necessarily extending to office spaces, as the changing nature of work, fueled by AI, could diminish their importance. The investment landscape is likely to undergo a significant transformation, with a focus on sectors directly or indirectly linked to AI and its ancillary services, but also traditional hard limit assets like land that have an actual fixed supply.

Conclusion: Navigating this quagmire

While the integration of AI into various sectors presents an exciting frontier, it also poses significant challenges to our current economic model. The potential shift in value from traditional assets like software to more AI-centric resources such as cloud services and AI consultancy, the resurgence of cash, and the changing investment landscape in real estate and education are all possible outcomes of this transition.

The role of regulatory bodies in managing these changes and ensuring economic stability cannot be overstated and will definitely be something to watch out for.

Things are changing fast so keeping a finger on the pulse of it all, and a cautious yet open-minded approach is essential to benefit from the growth due to AI while mitigating its potential risks to traditional investments.