Thread by @michaelxpettis

1/7
Bloomberg: "China is balancing productivity gains from AI with labor stability, as automation could displace workers and trigger an economic spiral."

I think this whole AI-will-cause-unemployment argument is very confused.
bloomberg.com/news/articles/…

2/7
Getting workers to become more productive doesn't cause workers to be fired. In fact that's the only way to make them richer.

What really matters is whether or not wage growth for the overall economy keeps pace with productivity gains.

3/7
If they don't, growth in production will outstrip growth in consumption, and while this can temporarily be resolved by rising household debt, ultimately it means that production will be reduced and unemployment rise.

4/7
But if wage growth keeps pace with productivity growth, then higher wages will result in greater overall demand, and employment will shift from sectors where productivity growth was higher to other sectors.

5/7
The point is that if you pay people, they will spend it on goods and services, and if one set of goods and services get cheaper (where productivity growth is high), this just leaves more money to spend on other goods and services.

6/7
China's problem is not that a surge in AI-related productivity will leave Chinese workers unemployed. It is that the many decades during which wage growth lagged productivity growth has left domestic demand extremely weak and overly reliant on non-productive investment to...

7/7
drive politically-determined GDP growth targets.

The solution is to raise wages, although with Chinese manufacturing competitiveness so dependent on the very transfers that keep wages low, this won't be an easy solution either.