May 24, 2024
U.S. Economy Saved in 2023 by AI and Industrial Policies

U.S. Economy Saved in 2023 by AI and Industrial Policies

Generative AI emerged as the top business story of 2023, with the buoyant American economy ranking as the second major narrative. The GDP exhibited remarkable growth at 5.2% in Q3, and though it likely slowed in the current quarter, there’s no indication of a sharp decline. Inflation, a concern, miraculously moderated to just 3% in November—slightly above the Fed’s 2% target.

Critics, including myself, have faulted the Fed for sluggish action against inflation, while others argue that rate hikes were too aggressive. However, if I were Fed Chairman Jerome Powell, I would celebrate this holiday season, as the Fed appears to have navigated it adeptly.

These significant stories are interconnected, with AI enthusiasm fostering optimism and driving business investments. The stock market reflects this, with the Magnificent Seven—Apple, Microsoft, Alphabet, Amazon, Nvidia, Tesla, and Meta—rising by 75% this year, leading to the market surge. Without them, the overall market increase is only in the double-digit range.

Another often-overlooked factor is the extraordinary upswing in public investment. The Committee for Economic Development notes that the Bipartisan Infrastructure Law, the Chips Act, and the Inflation Reduction Act represent the largest cross-sector public investment since the New Deal, injecting $2 trillion in federal spending over a decade.

This real investment incentivizes businesses to participate, making the U.S. a top destination for global investment, particularly in infrastructure, green energy, and semiconductor manufacturing. Intel alone could receive $10 billion to $15 billion in government subsidies after investing over $40 billion in new chip plants.

Regulatory zeal and potential economic challenges in the New Year are dampening factors. Stringent conditions accompany the aforementioned incentives, and concerns about overreach, especially in antitrust, have been raised.

However, presently, the U.S. boasts the world’s most robust economy. The potent combination of new technology and government investment is likely to sustain this momentum for the foreseeable future.

Image By freepik

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