Ben Harris of Brookings notes that think tanks' influence has waned due to more competition, accelerated news cycles, and funders preferring "do tanks" over pure research. Moreover, some political administrations, like Trump's, increasingly turn to alternative sources of knowledge, diminishing the role of nonpartisan expertise.
Typically, government borrowing crowds out private investment. However, economist Ben Harris suggests immense optimism around AI is reversing this. The private sector's demand for capital for AI projects is so high it may be forcing US Treasury yields up, as the government must compete for a finite pool of investment capital.
The CBO, the US government's nonpartisan budget forecaster, projects long-term productivity growth of only 1% annually. This baseline, which informs official deficit projections, is lower than the post-1995 average and assumes AI will not create an extraordinary productivity surge, positioning the CBO as pessimistic compared to tech optimists.
To illustrate the "unjustified euphoria" around AI's immediate impact, economist Ben Harris shares an anecdote of a tech CEO who, in mid-2023, predicted the US unemployment rate would hit 18% within six months. This wildly inaccurate forecast highlights the disconnect between some tech leaders' predictions and the more gradual pace of technological adoption.
While an AI productivity boom could significantly reduce the US primary deficit, economist Ben Harris argues this optimism must be tempered. His model shows that five factors—longer life spans, lower labor participation, a shift to lower-taxed capital income, an AI arms race, and higher interest rates—will erase roughly half the fiscal gains from growth.
A significant, non-obvious downside of AI's impact is its potential to radically improve healthcare and extend lifespans. While great for humanity, this directly burdens the federal budget. Longer lives mean more years of drawing Social Security and Medicare benefits, significantly increasing the long-term unfunded liabilities of these entitlement programs.
Economist Ben Harris warns that AI-driven growth may disproportionately benefit owners of capital rather than labor. Because capital income is taxed at a much lower marginal rate than labor income, this shift in the composition of national income would lead to lower-than-expected tax revenues, even amidst strong overall economic growth.
Among the five factors eroding AI's positive fiscal impact, a projected 35% rise in interest rates is mathematically the most significant. With US debt already at 100% of GDP, even small changes in borrowing costs have an enormous effect on the deficit, overwhelming other factors like defense spending or labor force changes.
To achieve a zero primary deficit, former Treasury economist Ben Harris outlines four key actions: boosting corporate tax revenue by half a percent of GDP, closing loopholes in non-corporate capital taxation, gradually increasing the Social Security retirement age to reflect longer lifespans, and strengthening IRS tax compliance and enforcement.