Generative AI at the Crossroads: Light Bulb, Dynamo, or Microscope?

Martin Neil Baily (), David Byrne, Aidan T. Kane () and Paul E. Soto
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Paul E. Soto: https://www.federalreserve.gov/econres/paul-e-soto.htm

No 2025-053, Finance and Economics Discussion Series from Board of Governors of the Federal Reserve System (U.S.)

Abstract: With the advent of generative AI (genAI), the potential scope of artificial intelligence has increased dramatically, but the future effect of genAI on productivity remains uncertain. The effect of the technology on the innovation process is a crucial open question. Some inventions, such as the light bulb, temporarily raise productivity growth as adoption spreads, but the effect fades when the market is saturated; that is, the level of output per hour is permanently higher but the growth rate is not. In contrast, two types of technologies stand out as having longer-lived effects on productivity growth. First, there are technologies known as general-purpose technologies (GPTs). GPTs (1) are widely adopted, (2) spur abundant knock-on innovations (new goods and services, process efficiencies, and business reorganization), and (3) show continual improvement, refreshing this innovation cycle; the electric dynamo is an example. Second, there are inventions of methods of invention (IMIs). IMIs increase the efficiency of the research and development process via improvements to observation, analysis, communication, or organization; the compound microscope is an example. We show that GenAI has the characteristics of both a GPT and an IMI—an encouraging sign that genAI will raise the level of productivity. Even so, genAI’s contribution to productivity growth will depend on the speed with which that level is attained and, historically, the process for integrating revolutionary technologies into the economy is a protracted one.

Keywords: Artificial Intelligence; Machine Learning; Productivity; Technological Growth (search for similar items in EconPapers)
JEL-codes: C45 O31 O33 O40 (search for similar items in EconPapers)
Pages: 83 p.
Date: 2025-07-17
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Persistent link: https://EconPapers.repec.org/RePEc:fip:fedgfe:2025-53

DOI: 10.17016/FEDS.2025.053

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