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The Effects of Artificial Intelligence on the Financial System Essay

Updated August 11, 2022

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The Effects of Artificial Intelligence on the Financial System Essay essay

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The Effects of Artificial Intelligence on the Financial System AP Seminar 21 January 2019 Word Count: 1290 Introduction intelligence are already affecting the world’s biggest industries. Researchers everywhere are attempting to optimize its influence on our economy. Andrew Ng, the co-founder of Coursera and former Baidu chief scientists says that “AI is the new electricity”. It is already making a significant impact on our financial systems and at some point in time will be integrated into every single industry. This research paper will be inquiring the benefits and risks of artificial intelligence on the economy, including job security, distribution of impact, economic stability and productivity. AI makes revolutionary breakthroughs possible by being able to analyze large amounts of data at a time accurately.

Research from PwC and Accenture estimates that by 2030, artificial intelligence will add 15.7 trillion dollars to the global economy. That sum of money is especially entitled to the competitive R&D of artificial intelligence between the US and China, both countries hoping to lead the world of AI. The research is limited to generalization, considering that not all future applications of AI have been established. This topic is being researched and looked into worldwide so I did not have a scarcity of resources but it should be noted that most numbers presented are data that doesn’t exist in real time. Artificial intelligence is rapidly affecting the world around us and it’s going to have its pros and cons. While the boost in our economy is going to be massive it will not be a feat without a cost, such as the possibilities of mass unemployment and financial destabilization. AI and Distribution Artificial intelligence can be seen in many shapes and varieties and is eventually going to have an impact everywhere. While it is definite that many businesses will thrive off of AI, it is also definite that many will not.

The distribution problem of artificial intelligence has a huge significance to its economic influences. One of the primary economic effects outlined in the White House report on AI is the, “Uneven distribution of impact, across sectors, wage levels, education levels, job types, and locations”. This report was written to detail policymakers on what can be done as the US progresses with advancements in artificial intelligence. Artificial intelligence may have been introduced earlier to some places than others, such as in Silicon Valley compared to a place with a disparity in income. The introduction of AI will bring societal changes and new changes to the quality of life. Such areas that already have a big divide in income can possibly become even more extensive. The widening gap will result in more economic inequality and is estimated to be the cause of mass unemployment in the near future. Considering the difference in income as well it is right to assume that those who have AI will also improve their standards of living. According to Centereforcities, one of five jobs will be replaced by artificial intelligence and a total of about 800 million jobs are at risk (last_name 20XX).

This research done by this organization is intended to help British cities improve economically. Although artificial intelligence has the prospect to boost our economy and entail more productivity, what will it cost to the majority of lives in the lower and middle classes? AI Value and Jobs The greatest reason artificial intelligence is so beneficial economically is its ability to analyze big sums of data and predict accurately at a much lower cost than it would take to hire a team of research analysts to vigorously sort data by hand. Artificial intelligence’s ability to predict so precisely also comes to effect automation. For autonomous vehicles, the biggest blockade was having to code and layout different scenarios before they occurred through a matter of ‘if’ statements. It wasn’t very effective but this isn’t the case with AI. All AI has to do is follow and learn from a real driver.

Professor Ajay Agrawal from the Rotman school of management makes an important observation, “As in the case of arithmetic, when the price of prediction drops, the value of its substitutes will go down and the value of its complements will go up”. Agrawal is a distinguished and esteemed figure in the field of artificial intelligence and business. In the situation mentioned above, “substitutes” refers to actuaries and others who are disciplined in predictory sciences. So as AI becomes more reliable and decreases in cost, these substitutes will be out of work. Jobs being replaced are often distinguished between two categories, high skilled workers and low skilled workers. This example is just one of many that demonstrates that high skill jobs are at risk as well. As with any new technology utilized to further sales, it will output a variety of successful and unsuccessful businesses.

Some businesspeople may find their companies losing profit to others that more efficiently employ AI and as a result become merged or acquired. Successful companies that do so will save and layoff jobs of high skill workers but begin an upcoming demand for new ones. This is often an argument made as a solution to mass unemployment, but that necessitates a resolve for a more urgent matter concerning the rate of jobs appearing and disappearing. AI and the Economic Classes According to visuals presented by the World Inequality Database, economic growth from the past four decades went to the top one percent and 90% of the lower class income stagnated. WID is a well-acknowledged research tool used by economic researchers, even credited by the United Nations’ development program. WID visuals also provide that household average net worth was about 85,000 USD and the same 25 years later, while the top 1 percent more than doubled (to around 14 mil).

Differences are more extreme internationally wherein 2013 the combined wealth of the bottom half of the economic classes system is equal to that of the world’s eight richest people. AI development means that economic growth is certain, like in the business industries, but it does not mean everyone benefiting from automation is guaranteed. This is represented by global statistics on a substantial scale. The consensus can be seen that economic inequality is in fact rising and leftists will debate that the main cause is tax cuts for the rich. Erik Brynjolfsson and Andrew McAfee argue that the cause is just technology. Old jobs will be replaced with new jobs, and they will require more skill. Definitively, technology will give recognition to one’s education. Governments can help improve the average education of their people and prepare them for the workforce. The corporate owners will get abundantly more income than those who work there, and as AI develops more, their shares will increase correspondingly.

Eventually, when jobs disappear, new ones will be searched for. Jobs are wanted not only for income but for a purpose. In any case that jobs become too scarce, redistributing a small share of the growing economy should enable everyone to become better off. A simple proposal is a basic income, where every person will receive monthly payment with no prerequisites or requirements. Small scale experiments are being conducted in Canada, Finland, and the Netherlands. Advocates argue that basic income will be more efficient than other alternatives such as welfare to the poor because it will eliminate administrative inconveniences. Although they have been criticized for disincentivizing work, this may become irrelevant in a jobless future where no one does. As opposed to basic income, government services can accomplish reducing the cost of living and also provide jobs. If machines ever outperform people at everything, governments could pay for jobs in childcare, eldercare etc. Artificial Intelligence is allowing resources to be allocated across the world at the speed of light and will enable affordability for things like mortgages to startup companies.

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