I will start this with the understanding that I am not in any way an AI expert. I don’t know how it works or really anything about the technical aspects of it. I want to look at what the projections are for how it will affect the economy and our lives in general. The hope is that it will cause a large jump in efficiency which will translate into an increase in the Gross Domestic Product (GDP). GDP is a measure of the total value of all goods and services produced. For there to be an increase in GDP, either more hours need to be worked, or those hours need to be more efficient. So, if AI makes us more efficient, more productive, even with the same hours worked, we will have an increase in GDP. And if we increase GDP, by being more efficient instead of by working more hours, standards of living will improve.
In my head, I relate the possible changes we may see to those that happened when computers were first being incorporated into our lives. When my mother-in-law graduated high school, she went to work for the phone company. She sat at a desk and typed phone bills. That was her job and others’ jobs too. All those jobs were replaced by technology. The world got more efficient. I have also heard AI being compared to the changes that came with the availability of electricity. The idea is that we shouldn’t underestimate the power of AI, and the coming changes. Depending on what article you read, you can find estimates of increased productivity ranging from 8% to 66%. That is a large range but even at 8%, it’s a huge increase from the average annual productivity gains we have seen since 2000. The St. Louis Fed shows annual productivity gains since 2000 to be 1.12%. They also caution that previous technology adoption took time, think decades not years. And that AI adoption might be faster but will still not happen overnight.
Are there pros and cons? There always are. The pros would include increased efficiency so we can get more done in less time, leaving us maybe with extra time for other things. We no longer work just to live as people did before modern times. If we get even more efficient, what else could we do? AI can also reduce human error, automate repetitive tasks and can help make dangerous jobs safer.
The cons would include the increased need for electricity and data centers. AI needs an amazing amount of electricity, and we don’t currently have the capacity to power what AI might look like in the future. MIT estimates that by 2030 AI data centers could account for 21% of global energy demand. They are currently at 1 % to 2%. The construction of that infrastructure would create jobs but what environmental impact would the data centers and the power generation have? Some other cons include that AI can be biased, can make bad decisions and can replace jobs that are currently employing people. Tech Trends 2025 | Deloitte Insights AI Improves Employee Productivity by 66%
AI and Productivity Growth: Evidence from Previous Technologies AI has high data center energy costs — but there are solutions | MIT Sloan
Inflation:
The inflation numbers for December were announced at the end of last week. The Core Consumer Price Index (CPI) fell to 3.2% year-over-year, which was below expectations. Headline CPI came in at 2.9%, which was in line with expectations. Core CPI excludes food and energy prices while Headline CPI includes everything. We talk about the difference between Core and Headline quite often and that the Fed uses Core CPI because energy and food prices are volatile and taking them out can help even out the inflation picture. Does that make sense when I’m not sure we can get by without food and energy? Here are a few charts to help with the thought process.
This chart shows Core Inflation in the red line with the blue line showing just Food Inflation. You can see that Food Inflation can spike but in general it tracks Core Inflation’s pattern.
The second chart shows Core Inflation compared to Energy Inflation. Core is again in the red and Energy is in the blue. You can see that Energy is much more volatile and disconnected from Core Inflation’s pattern.
The last chart puts them all together with Core in the red, Food in the darker blue and Energy in the lighter blue. This chart shows clearly that while Food doesn’t always track Core Inflation, Energy is much more volatile. It’s interesting that we hate it when gas prices go up, but Food Inflation hits even closer to home. Those $7 eggs are all over the news. I, for one, am glad Food Inflation is not as volatile as Energy.
Financial Planning/Investment Strategy Corner:
Tax Season Deadlines
I know it’s January, but it’s never too early to start planning for tax season. The earlier you are prepared and the earlier you can get all your information to your CPA the better!
- 2024 tax return deadline is Tuesday, April 15, 2025
- 2024 tax extension deadline is Wednesday, October 15, 2025
- Schwab 1099-Rs are already available online (the 1099s for IRA distributions)
- Schwab 1099 Composites will be available in three runs. Most clients will be included in Run 2.
- Run 1 on January 31st
- Run 2 on February 14th
- Run 3 on February 28th
- IRA/Roth IRA contribution deadline for 2024 is April 15, 2025
- SEP IRA deadline for 2024 is either April 15, 2025, or when you file your return if you file an extension
- HSA contribution deadline for 2024 is April 15, 2025
As tax season approaches, we will have more helpful information and tips.
Quick Hits:
- This cold is really cold – it was 12 below at my house one morning this week! Here is a link to help you prevent your pipes from freezing: How homeowners can prevent pipes from freezing during winter
- As a mother, I am not sure I love the title of this one but it’s not wrong 😊: 'Lies my mother told me:' Debunking cold-weather myths
- ESG investing could it really be illegal? Maybe ESG Is Illegal Now - Bloomberg
- I love idioms. When my kids were younger it was fun to see them figure them out. Idioms in different languages are fun too. The one about being between the sword and the wall is great! I thought a rock and a hard place was descriptive: 20 Spanish Idioms You’ll Love
- I have never been a nap taker, but I am starting to see their appeal: How to Take the Perfect Weekend Nap
RSWA Baby Boom: The RSWA family is growing and not by hiring new team members. Gerrit Petersons and Donovan Ingle have both become fathers in the last few weeks. Here are the details and some pictures.
Baby Petersons: Ottilie Marjorie Jones Petersons was born on 12/29/2024, at 2:31 pm. It's pronounced aw-til-ee. She was 7lbs, 5oz and 21 inches long. And is already dressed in RSWA swag!
Baby Ingle: Miles Allen Ingle was born on January 18, 2025, at 2:36am. He was 7lbs, 14oz and 20 inches long.
I had to laugh, Gerrit came back from paternity leave the day before Donovan went out – you would think we were planners 😊.
Quotes to Consider in Honor of Our New Dads:
‘Nothing ever fits the palm so perfectly, or feels so right, or inspires so much protective instinct as the hand of a child.’ – Gregory David Roberts
‘Having a kid is like falling in love for the first time when you’re 12, but every day.’ – Mike Myers
Thank you for reading RSWA Financial Advisor Insights! We welcome feedback and please forward this to a friend! Be well, take care, and stay safe!