AI In the Market Place, Pt. 2:
The Consumer King and the
Great Cosmic Yawn
In the Classical Greek tragedies, humans always got their comeuppance whenever a human tried to imitate the Gods. In believing that they could upset the natural order of things, and assume a form of divinity, humans brought on their own destruction. Such is the origin of our current definition of the word "hubris."
Commentators proclaim that Artificial Intelligence will change the way commerce is done and usher in a new booming economy. These economic soothsayers are ignoring an immutable law of capitalism and supply and demand. In our economy, and especially in a time of tight money, the economic theory of "Consumer Sovereignty" governs what is bought and sold. The more common expression of Consumer Sovereignty is the often heard proclamation that The Consumer is King. The theory of Consumer Sovereignty holds that it is consumer demand that drives production and distribution. And King Consumer is now reacting to the emergence of AI not in any way similar to how His Highness did in the mid-1990s as the World Wide Web saw immediate universal consumer adoption.
Economic analyses that predict potentially record profits brought about by estimated
reduced labor costs and increases in productivity are always tempered by
the losses in purchasing power caused by middle class white collar job
layoffs. The rosiest of projections made by
Mckinsey.com notes that the long term employment
issues that widespread adoption bring. McKInsey's in-depth report,
The economic potential of generative AI: The next productivity
frontier, June 14, 2023, estimates "the time spent
on 2023 work activities reaching 50 percent automation between 2030 and
2060." This simple fearful fact creates a natural
apprehension among many workers — and thus consumers — that will remain an
obstacle to widespread adoption of AI.
I do not need to cite any secondary sources when I state that consumers and businesses from all sectors drove retail and wholesale sales PC and related items throughout the 1990s. I spent most of the decade in several different settings facilitating consumers obtaining and using Windows based computers. Consumers continued to buy PCs products through the crash of 2000. The crash of 2000 had less direct impact on consumers than did other panics, unless a large stock portfolio they held became worthless overnight. As the chart on the right from statista.com details King Consumer continued to reign over PC sales for well over a decade.
AI is not having any kind of positive of impact on current PC sales.
For whatever are the reasons,
market researcher Garner said that consumer demand for PCs "collapsed" in
2022. Overall PC shipments were down "16.2%
for the Year," and a stunning decline of "28.5% in Fourth
Quarter of 2022." Into 2023, similarly sliding sales continued
sloping downward.
Garner found that "Worldwide
PC Shipments Declined 30% in First Quarter of 2023."
Its report laid this continuing decline in PC shipments to
an "unfavorable combination of oversupply and continued low PC
demand due to economic uncertainties." Moreover, Garner
found King Consumers had little "purchase motivation"
that caused two consecutives quarters of declining sales."
Another respected market research firm that specializes in IT, International Data Corporation (IDC), generally agrees with the assessment made by Garner. Corporate IT purchases have slowed considerably in 2023, and will be a factor in IDC's prediction that "we'll likely see 2023 volume shrink 4.2%." As the chart on the left shows, IDC forecasts that 2024 and 2025 will a see a modest increase in PC shipments as older Windows 10 PCs will require replacement with Windows 11 PCs. Afterward a precipitous drop in PCs shipment will resume, acceding to IDC.
On the corporate side, many large firms are limiting or outright banning AI from its offices and restricting employees use and access to AI platforms. South Korean electronics giant Samsung, has issued an outright ban of ChatGPT in its offices. Samsung found an engineer had uploaded "sensitive internal source code," to ChatGPT servers. It was feared that competitors would gain access to the proprietary code though ChatGPT. Many large firms, led by banks and other financial institutions, are banning ChatGPT from its offices. Verizon is one such firm with an outright ban of ChatGPT citing "risk of losing control of customer information, source code and more." The Wall Street Journal reported banking giant JP Morgan has restricted the use of ChatGPT in its offices. Yahoo News has an excellent summary of all the Big Name Companies that have banned ChatGPT from their workspaces.
Businesses large and small are also consumers. Businesses of all sizes and in all sectors were a tremendous buying force that kept PC sales strong for years. King Consumer is sitting on the sidelines now and fewer sales show his absence.
Those PC manufacturers that specialize in components for mainframe type performance, such as chipmakers Intel and Nvidia will see growth in their sales to datacenters. Indeed, Nvidia has seen the lion's share of this business now with its NVIDIA DGX™ platform that Nvidia says is designed for use in AI datacenters. Indeed, heavy machinery sales were a brisk $147,390,000 in 2022. But this was a small number when compared to the sales of passenger automobiles in the US alone that was an estimated at 1,201,700,00 in US dollars in 2022. The sales of heavy machinery are too few and cannot drive the economy. Likewise, IT products for datacenters cannot drive the entire economy, just as sales of heavy machinery cannot drive the economy the way passenger car sales often do.
Those who proclaim that Artificial Intelligence is on the cusp of ushering in a Renaissance in profitability by the ability of AI to simultaneously reducing labor and certain production costs, while at the same time increasing productivity, might well be proven correct over time. There will be, however, the inevitable costs to the overall economy as middle class workers lose their jobs. Garner in its otherwise glowing report makes reference to how "some labor economists have observed a “hollowing out of the middle.” And demonstrating again the elitism that permeates HI Tech, Garner admits that "models have suggested that work automation would likely have the biggest midterm impact on lower-middle-income quintiles," otherwise known as "one-fifth of a population."
It is specious, to say the least, that AI will propel the world economy into anything like King Consumer's driven boom that begin in the 1990s, continued through the crash of 2000, and subsided with the Crash of 2008, where many teetering PC vendors finally fell by the wayside. These spurious hucksters are selling stocks, not technology.
Now the time is here
For AI to spread some fear
It will take your
job
Leave you feeling like you've been robbed
— With Apologies to
Black Sabbath
¯\_(ツ)_/¯
Gerald Reiff