Many economists see an AI-driven productivity boom, especially in tech, as a key reason for the current U.S. economic paradox of strong GDP growth (like Q3's 4.3%) alongside a weaker labor market, where AI investment boosts output but job creation lags, though some caution it's cyclical or early stage, with AI's full impact on jobs yet to unfold.
Why AI & Productivity Fit the Paradox:
AI Investment Boom: Massive spending on AI hardware (chips, data centers) and software significantly contributes to GDP, creating growth without proportional job creation in these areas, say Econofact.
Sector-Specific Productivity: Early gains are seen in tech sectors (ICT services) where AI boosts output per worker, notes Investing.com.
"Great Decoupling": The economy can grow robustly (4.3% in Q3) with minimal new jobs (around 51,000 monthly), a trend some see as a new normal driven by technology, according to Newsweek.
Other Factors & Nuances:
"K-Shaped" Economy: The AI boom benefits the wealthy and investors (driving the stock market), while lower earners see stagnant wage growth, creating inequality, notes Yahoo Finance.
Cyclical vs. Structural: Some economists argue these productivity gains are a temporary rebound from pandemic tightness, not a lasting AI transformation, says Barron's.
Job Impact Unclear: While some link AI to job losses (like Jamie Dimon), data is mixed; new analysis suggests large language models haven't yet reduced cognitive labor demand, according to Equitable Growth.
In essence, the surge in AI investment is powering high GDP and stock markets, but the impact on broad employment just started and might have bigger effect in politics, than MAGA rise after stress of globalization and movement of jobs to China.
Potential for Political Volatility: The current consensus among some experts is that the political consequences of AI-driven job market changes could be severe. Even relatively small increases in unemployment or underemployment have an outsized political impact.
Comparison to Globalization: While globalization led to the off-shoring of manufacturing jobs and significant political stress (contributing to movements like MAGA), AI has the potential to impact a broader range of the workforce, including skilled, white-collar jobs. This widespread potential for disruption across different social strata could create a different, and perhaps larger, political challenge.
Inequality and Backlash: AI is likely to worsen overall inequality if not managed with proactive policy measures (e.g., retraining programs, social safety nets), which could further stoke social tensions and political polarization. Public opinion toward AI is already showing partisan divides.
In short, the economic benefits of AI are clear in investment and market performance, but the human capital challenges and their resulting political fallout are only just beginning to unfold and are a major concern for policymakers and economists alike.
“The U.S. economy has been marked this year by the paradox of a rising stock market but a slowing labor market.
Could the explanation be a productivity boom, led in part by artificial intelligence?
That seems possible given Wednesday's report that the economy grew a robust 4.3% in the third quarter.
The report, delayed by the government shutdown, came in well above most forecasts. Consumer confidence is down in surveys, but you wouldn't know it from the healthy 2.4 percentage-point contribution to third quarter GDP. Healthcare, prescription drugs and international travel were leading contributors, with healthcare accounting for a third of the increase. Is this an Ozempic boom?
Airlines have reported that wealthier customers are traveling abroad more, and a buoyant stock market lifted by AI may make them feel richer. If your stock portfolio is up 20% over the year, why not holiday in Rome?
One concern is that spending is uneven, with many companies reporting a pullback by lower- and middle-income consumers. General Mills said last week that consumers earning less than $100,000 a year are buying more food at price promotions.
Chipotle in October reported a slowdown in spending among younger and less affluent customers.
Another concern is inflation. The core personal consumption expenditure price index (less food and energy) rose 2.9% in the third quarter, versus 2.6% in the second. Yet disposable personal income increased only 2.8% and the savings rate fell to 4.2%. People aren't going to feel better about the economy until their incomes keep up with rising prices.
An increase in net exports supplied 1.6 percentage points to growth. Much of this owes to a decline in imports, following the import boom early in the year as businesses tried to front-run tariffs. A decline in imports isn't healthy if it means higher prices for consumers or U.S. businesses that become less competitive because they pay more for components. Business investment in equipment continued its healthy growth (AI?), though overall private investment was down owing to declines in residential housing and business structures.
Trumponomics boils down to a bet that the pro-growth impact of deregulation and tax reduction can offset the damage from tariffs, which are tax increases. Imagine how well the economy would be doing without tariffs.” [1]
1. Are We in a Productivity Boom? Wall Street Journal, Eastern edition; New York, N.Y.. 24 Dec 2025: A14
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