Title: Stagflation's Silver Lining: Fueling the Unprecedented AI Revolution and the Global Seignorage Race
Inflation vs Stagflation: The Catalyst for an Unprecedented AI Revolution
While inflation and stagflation both pose significant challenges to the economy, their impact on the development and adoption of artificial intelligence (AI) technologies could be remarkably different. Inflation, characterized by rising prices and a relatively stable job market, may not create the same sense of urgency for businesses to invest in productivity-enhancing AI solutions. However, stagflation, with its combination of high inflation, slow economic growth, and high unemployment, could serve as a powerful catalyst for an unprecedented technological revolution in AI.
As companies grapple with the need to maintain profitability during a stagflationary period, they will likely turn to AI to automate processes, streamline operations, and boost efficiency. This increased adoption and investment in AI could accelerate advancements across all seven layers of the AI technology stack:
AI Chips & Hardware Infrastructure: $71 billion market by 2025
AI Frameworks & Libraries: $23 billion market
AI Algorithms & Models: Generative AI to produce 10% of all data by 2026
AI Data & Datasets: $229 billion market
AI Application & Integration: $126 billion market by 2025
AI Distribution & Ecosystem: 50% of cloud providers to offer AI orchestration by 2025
AI Collective and Knowledge Sharing: $5 billion market, 76% growth rate
The total addressable market across these AI stack layers is immense, potentially reaching hundreds of billions of dollars this decade. As AI technology progresses and more economic value accrues to the AI "kings" who control the technologies and platforms, a new "kings game" will likely emerge, with artificial intelligence agents developing strategies to accumulate as much seignorage, or monetary value, as possible.
Seignorage, the difference between the value of currency/money and the cost to produce and distribute it, represents the economic value captured by the issuer of the currency. In the era of AI, seignorage will flow to those who control the valuable data, algorithms, computing power, and platforms that enable AI applications, rather than traditional kingdoms and governments.
Countries and companies that proactively invest in AI research and development to capture more AI seignorage are positioned to reap substantial economic benefits. These AI seignorage profits can be reinvested into the country's economy and institutions, supporting infrastructure, education, healthcare, and social programs to enhance the standard of living for the general population. This creates a virtuous cycle - the more a country invests in capturing AI seignorage, the more resources it will have to improve citizens' quality of life and fund further R&D to maintain its competitive edge.
In summary, while inflation alone may not drive the same level of urgency, the challenges posed by stagflation could inadvertently accelerate the adoption of AI technologies as businesses seek to remain competitive in a difficult economic environment. This, in turn, will trigger a global "kings game" competition to capture AI seignorage across the seven-layer technology stack. Nations that strategically invest in building AI capacity across these layers will see seignorage profits accrue, providing them with more resources to enhance living standards and maintain their AI advantage. Those slow to adapt, however, risk falling behind in both economic and geopolitical terms. In this context, stagflation may be the unexpected spark that ignites an unparalleled AI revolution in the coming decade.
