Washington, D.C. — Amid a growing debate over both the nation’s fiscal outlook and the economic potential of artificial intelligence (AI), a new analysis from the Center for American Progress finds that the country’s ever-rising debt could raise borrowing costs, reduce wage growth, worsen housing affordability, and leave average worker wages roughly $4,200 lower than they otherwise would have been by 2055.
While AI-driven productivity gains have the potential to improve our fiscal outlook, the likelihood that they do so is based on a number of assumptions that may or may not come true. The authors warn policymakers that it would be a risky mistake to assume future technological advances will eliminate the need for fiscal action.
“The fiscal outlook has deteriorated significantly over the past decade, and even debt doves like me should at the very least be willing to reexamine their priors a little bit, as the underlying situation has changed,” said Bobby Kogan, senior director of federal budget policy at CAP and co-author of the analysis. “A decade ago, lower structural primary deficits and still-uncertain interest rate increases made potential fiscal consolidation more manageable. That is no longer the case. Primary deficits are higher and interest rates have finally rebounded. Course correction is significantly more difficult than it was even a decade ago.”
CAP’s analysis highlights how:
- Debt matters more today than it did a decade ago. Rising debt is now occurring alongside higher interest rates, making the economic consequences of an unsustainable fiscal path more significant.
- AI is unlikely to be a fiscal cure-all. While AI could increase productivity growth in the medium term, it would need to permanently increase productivity growth to fundamentally alter the nation’s long-term fiscal outlook.
- Rising debt could lower wages. An ever-rising debt path could leave average worker wages roughly $4,200 lower in 2055 than they would be if the debt ratio were stabilized.
- The fiscal challenge has grown. Course correction is now significantly more difficult than it was a decade ago, with the country facing significantly higher structural primary deficits.
- Housing affordability could worsen. Research cited in the analysis finds that a sustained increase in mortgage rates could reduce housing starts by roughly 400,000 homes over three years, worsening the nation’s housing shortage.
Read the report: “Why the National Debt Matters More Than It Used To and Why We Should Not Count on AI To Fix the Problem” by Bobby Kogan and Jared Bernstein
For more information or to speak with an expert, please contact Christian Unkenholz at [email protected].