The biggest economic impacts of AI are all but invisible

Don’t think vibe coding has real value? You need to speak to more medium-sized businesses. As for open source software, AI is changing its fundamental economics – and that affects your car.

There’s a graphic doing the rounds. You know the one. It shows how all the AI output [in a specific sphere] is just pure waste because of [this metric of use or quality].

Sheesh man, this AI fad. Amazing how many people have fallen for this complete bullshit. Soon as they realise it is all smoke and mirrors, we can get back to real life.

There was a version of the argument around return on investment (ROI) on corporate AI spend a while ago. The current flavour driving me demented is an economist graphic that draws on data from the excellent NBER Working Paper published in May, Writing Code vs. Shipping Code: Productivity Effects Across Generations of AI Coding Tools by Mert Demirer, Leon Musolff, and Liyuan Yang.

In short: there’s a lot of crap in the app stores.

The formal finding, as the authors have it, “productivity gains at upstream layers can raise the flow of releases without a proportional increase in adoption-weighted output”.

This is a bit of a sidenote to a very good paper, and a sidenote that is useful in its own right too; it’s a solid confirmation of the intuition that AI has not (yet?) changed discovery, even as it massively changes the supply side of the equation.

Also: so what?

Consumer app stores are not (yet) where AI is changing the software world. There’s a little more sign of that at the level of globe-spanning enterprises, but those huge ships turn very slow. But if you want the real story, speak to some medium-sized companies, the owner-operated outfits that have enough employees to have some cognitive surplus sloshing about and the kind of flat structure (owner-operated is best) to run fast with good ideas.

At that level, a million flowers are blooming. Those companies are in a creative frenzy, whipping up apps to automate stuff they were doing by hand, or to replace big, expensive ERP and CRM systems built for much larger companies, and of which they only need a small bit.

The quality is highly variable, the security is a nightmare, but the productivity increases and cost savings are off the charts.

They are also invisible. This is not stuff that shows up in the quarterly financial reports from listed companies. These companies don’t ship their software via GitHub, or publish in an app marketplace. They just use it, to do stuff they could never do before.

It’ll show up, eventually, in long-lag productivity and economic growth measurements. By then, of course, the impact is commingled with so many other influences that you can’t credit it to AI-made code.

As for open source, oh boy

If you use a smartphone, any type of computer, a router, or a TV made since about 2010, then you are dependent on open source software. The list is much longer than that if you care about factory machines and the like. Include servers and databases, and there are open source packages with tens of billions of installs.

Which is by way of saying that open source software has some economic significance.

AI is doing to open source what it is doing to software in general, making both development and flaw-detection faster. And it is a short hop from flaw detection to exploitation to merrily hacking systems and bringing down power grids and hospitals.

That is freaking out big companies, and the powerful regulators responsible for them, and governments too. You may have heard that the USA was mildly perturbed when Anthropic dropped its last model, and what wasn’t even the weaponised version.

And that is seeing billions of dollars’ worth of effort flowing into open source. Literally billions. Which is two orders of magnitude beyond where it used to be. Government and industry coalitions would occasionally drop a couple of tens of millions into the open source ocean to support development or security. IBM alone is now spending $5 billion on much the same thing, in a commercially sustainable fashion.

Again, that money is invisible. There is no transfer of cash you can track. IBM will be spending that money internally to generate patches that it will then contribute to open source projects, where they become available to everyone, almost always for free. It is a huge increase in effort that leads to a public good.

The impact of that will not show up in productivity statistics. It is a rising tide that lifts the quality of something approaching all software, and so all human endeavour that relies on software, which is increasingly all human endeavour.

It is a change so vast that you can’t get far enough away from it to actually see it happen.

So please don’t try to tell me about the next set of statistics that show how AI isn’t a big deal. You’re looking in the wrong places.