AI Could Cost Tens of Millions of Jobs, Ex-Treasury Chief Warns

AI Job Losses Loom, Ex-Treasury Secretary Hank Paulson Warns

The rapid advancements in Artificial Intelligence (AI) could lead to a significant loss of jobs, potentially affecting tens of millions of Americans. This stark warning comes from former Treasury Secretary Hank Paulson, who previously served as CEO of Goldman Sachs. Paulson expressed his concerns during a recent interview on Fox Business, highlighting the immense spending in the AI sector and the growing gap between investment and actual earnings.

Inflation Pressures Remain High

Paulson’s comments come at a time when the economy is grappling with persistent inflation. While oil prices have seen some decline, they remain well above pre-war levels. He described the current situation as a period of inflation pressure, noting that certain industries will be hit harder than others. Airlines, farmers, and petrochemical companies are among those expected to face challenges, while military contractors might see increased business.

“We know there is inflation pressure and certain industries will be hit harder,” Paulson stated. “Airlines, farmers… Military contractors will do better. We know inflation will be higher for longer, for sure.” He believes that while the U.S. economy has shown resilience, disruptions elsewhere could still spill over.

AI Spending vs. Earnings: A Growing Concern

The AI sector has seen massive investment, with an estimated $650 billion spent this year alone. Paulson sees this spending in two ways: it’s driving stock prices, but there’s a significant difference between this spending and actual earnings. He warned of a potential price correction in AI-related stocks, driven by a complex web of investments between providers, customers, and suppliers.

“I think the chance of a price correction is significant,” Paulson said. “You have providers of tech investing in customers and customers investing in suppliers.” He added that when a correction comes, it will hit some harder than others.

Tens of Millions of Jobs at Risk

The most alarming prediction from Paulson concerns the impact of AI on employment. He believes there is a real possibility of “tens of millions of jobs lost” due to AI advancements. He stressed the importance of preparing for this potential outcome.

“What I am more concerned about is job loss,” he stated. “Because I think there is a real possibility of there being substantial job loss, and maybe tens of millions of jobs lost, and to me, they should be preparing for that.”

Federal Reserve’s Stance on Interest Rates

Regarding monetary policy, Paulson expressed confidence in Federal Reserve Chair Jerome Powell’s approach. He believes Powell and the Federal Open Market Committee are right not to cut interest rates at this time. Lowering rates could stimulate more spending, potentially worsening inflation.

“I believe he is right,” Paulson said about Powell’s decision. “The Fed is very important right now. Having an independent central bank is the best way to manage inflation and increase confidence in the dollar and in our financial system.” He also noted the importance of an independent Fed, especially as the nation accumulates debt.

Private Credit Market Risks

The former Treasury Secretary also touched upon the private credit market, a multi-trillion-dollar sector known for its lack of transparency and liquidity. While regulated institutions like banks are subject to stricter oversight, private credit funds operate with less scrutiny. Paulson suggested that the true impact of this market might only become clear when the economy goes through a full credit cycle.

“We won’t know until we go through the credit cycle,” he explained. “Some ways, you don’t like to see this in a shadow market. But I will tell you, we’re not going to know until we go through the credit cycle.” He recalled lessons from the 2008 financial crisis, where “too much of a good thing can be a real problem.”

U.S.-China Relations and Economic Stability

On the topic of U.S.-China relations, Paulson advocated for a responsible approach. He described the relationship as the “most consequential bilateral relationship” and a situation of “mutually assured economic disruption.” Both countries understand that they can significantly harm each other’s economies, making a trade war something neither can afford.

He emphasized the need for “guardrails” to ensure understanding of each other’s red lines, allowing for competition without escalating into a trade war. “The biggest thing to get out of this is put in place guardrails so we understand each other’s red lines, we can compete and don’t get into a trade war,” Paulson concluded.

What Investors Should Know

Investors should pay close attention to the potential impact of AI on the job market and the broader economy. The warning of tens of millions of job losses suggests a significant shift in labor demand, which could affect consumer spending and various industries. Companies heavily invested in AI or those whose workforces are susceptible to automation may face challenges.

Furthermore, the persistence of inflation suggests that interest rates might remain elevated for longer than some anticipate. This environment could favor value stocks over growth stocks and increase the attractiveness of fixed-income investments. The lack of transparency in the private credit market also warrants caution for investors, as potential risks may not be fully understood until a downturn.

Finally, the complex U.S.-China relationship remains a key factor for global economic stability. Investors should monitor trade relations and geopolitical developments, as these can significantly influence market sentiment and corporate earnings, particularly for companies with extensive international operations.

Source: ‘TENS OF MILLIONS’: Ex-Treasury head SOUNDS ALARM on potential job loss (YouTube)