Haim Kedar-Levy
Haim Kedar-Levy

AI Boost and Demographic Bust: Is “Hi-Tech Feudalism” inevitable?

AI Boost and Demographic Bust: Is “Hi-Tech Feudalism” inevitable?

27/08/2025

AI and machine learning in finance

17:00

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17:30

We develop an Overlapping Generations (OLG) model with a nested CES production function and endogenous fertility to analyze the dual impact of two mega-trends: the emergence of Artificial General Intelligence (AGI) and demographic decline. Our analysis identifies two paths to economic instability: an "Edge of Stability" driven by strong human-AI complementarity, and a "Wage-Fertility Spiral" where high wages suppress population growth. AGI-Labor complementarity in aging economies leads to a paradox of soaring per-capita GDP amidst stagnating aggregate output, while substitutability leads to “High-Tech Feudalism”, where a few own most of the wealth. Extending the model to an open economy reveals that global capital flows and migration act as powerful stabilizers, transforming domestic challenges into questions of international policy. We evaluate a portfolio of fiscal responses and conclude that an optimal strategy combines internationally coordinated AGI taxes with domestic policies focused on migration management, human capital investment, and social cohesion.

We develop an Overlapping Generations (OLG) model with a nested CES production function and endogenous fertility to analyze the dual impact of two mega-trends: the emergence of Artificial General Intelligence (AGI) and demographic decline. Our analysis identifies two paths to economic instability: an "Edge of Stability" driven by strong human-AI complementarity, and a "Wage-Fertility Spiral" where high wages suppress population growth. AGI-Labor complementarity in aging economies leads to a paradox of soaring per-capita GDP amidst stagnating aggregate output, while substitutability leads to “High-Tech Feudalism”, where a few own most of the wealth. Extending the model to an open economy reveals that global capital flows and migration act as powerful stabilizers, transforming domestic challenges into questions of international policy. We evaluate a portfolio of fiscal responses and conclude that an optimal strategy combines internationally coordinated AGI taxes with domestic policies focused on migration management, human capital investment, and social cohesion.

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