Technology and Innovation are Overrated–Implications for AI

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Technology and innovation are overrated. They are the twin messiahs that are supposed to save us from ourselves if we only believe and pray hard enough.

They won’t and there’s little evidence that they have made much of a difference over the last 50 years.

I know. This is heresy. It can’t be true—but it is.

Most people believe in the progress narrative—that almost all of society’s advances are because of technology and human ingenuity. Clever machines have increased human productivity far beyond what was possible a generation or two ago.

Some of that must be true but it’s hard to support with productivity data. I was surprised to discover that departures from the long-term productivity average were surprisingly modest, and that they didn’t last very long.

Personal computers, the internet and associated advances only resulted in about a 0.5% increase in US productivity growth in late 1990s and early 2000s (Figure 1). Maybe that explains why the technology and dot-com bubble burst at the turn of the century.

An earlier increase in the 1950s and 1960s was greater (0.7%). It was unrelated to technology but to the greatest historical period of oil production growth. Other positive productivity departures were mostly because of recoveries from recession.

The total factor productivity data for these observations is publicly available from the University of Groningen and the St. Louis Federal Reserve Bank.

Figure 2 shows that changes in world oil supply growth adequately explain most positive U.S. productivity departures without technology and innovation as factors.

Let that sink in.

That doesn’t mean that technology doesn’t matter—just that it’s probably less important than energy, and that it’s probably a lot less important than the progress narrative suggests.

That shouldn’t be surprising. An economy runs on work and work comes from energy. Technology and innovation arrange the deck chairs.

Fossil energy accounted for 82% of world energy supply in 2022 (wind and solar contributed only 6%). Productivity is therefore proportional to the amount of work that can be harnessed from fossil energy, at least for now.

Technology and innovation are secondary. They are good for optimizating energy but neither produces energy. Their main function is to increase the rate of energy extraction and use. Technology creates a larger straw.

That brings me to artificial intelligence —AI. In a recent report, McKinsey and Company claims that AI has the potential to boost U.S. productivity by 0.5% to 0.9% per year.

“Generative AI has the potential to increase US labor productivity by 0.5 to 0.9 percentage points annually through 2030 in a midpoint adoption scenario…Combining generative AI with all other automation technologies, the potential growth could be even larger. All types of automation could help drive US productivity growth to 3 to 4 percent annually in a midpoint adoption scenario.”

McKinsey & Company

Goldman Sachs goes even farther and expects that AI could increase U.S. productivity growth by 1.5% annually.

These forecasts imply that in two years, AI will exceed all previous periods of productivity. That does not seem reasonable.

Another problem with McKinsey’s and Goldman’s forecasts is their narrow focus. They largely ignore the feedback loops introduced by the new layers of complexity that AI will introduce into society.

For example, Elon Musk recently warned that AI and EVs (electric vehicles) will produce an electric power shortage by 2025.

“The world will face supply crunches in electricity and transformers next year…However much electricity you think you need, more than that is needed.”

Elon Musk and Elon Musk

How will that added demand for electricity be met? Natural gas is the obvious answer for gas producer EQT Corp that announced a $5.5 billion pipeline acquisition last week.

“The fervor for all things AI has finally spread to a sector whose own heady start-up phase came about 160 years ago: pipelines…Nvidia Corp., the chip-maker whose meteoric rise embodies the AI hype, is worth about four times the market cap of the entire North American midstream energy sector. But without electricity, all those data centers are just big sheds.”

Liam Denning

What about GDP growth? Goldman Sachs expects an incremental increase of 0.1% in the U.S. by 2025 from AI alone. That may not seem like much, but against their baseline of 1.9%, it’s a 5% increase. Goldman’s economists project a 0.4% rise for the U.S. from AI by 2034—20% over baseline. Their forecast for other developed markets is an incremental 0.3% by 2034 and 0.2% for emerging markets.

Higher GDP will require more energy most of which will be from oil between now and 2034.

There are great expectations that AI will transform the oil industry. Already, AI is being used to design more effective fracking methods, find ways to cut drilling time, and even to better interpret subsurface data.

“Over the past five years, contractors have shaved a day off the roughly two weeks it takes to drill a well and three days off the 11-day average for fracking one…Now AI holds the promise of even greater gains.”

Kimberlite International Oilfield Research

That is consistent with claims of spectacular improvement in well productivity.

“U.S. crude oil production averaged 13.3 million barrels per day (b/d) in December 2023, following sustained productivity increases at new wells, according to our latest Petroleum Supply Monthly (PSM). U.S. crude oil production has increased to record highs since 2010 and has risen even more quickly in recent months. These record highs have come despite declining U.S. drilling activity because the new wells are more efficient.”

U.S. Energy Information Administration

The popular belief that shale plays led to productivity gains, however, cannot be supported with data. In fact, the opposite seems to be true.

Industry productivity peaked in 2003 (Figure 4). The Barnett shale gas play began at about the same time and tight oil plays started several years later. During the shale period, productivity fell by about 25%. At the same time, the producer price index—the real cost of drilling—doubled.

It seems that the closer we look, the weaker the progress narrative becomes.

“The technology-equals-progress narrative has to be challenged and exposed for what it is: a convenient myth propagated by a huge industry and its acolytes in government, the media and (occasionally) academia.”

U.S. economists Daron Acemoglu and Simon Johnson

If everything keeps getting better, why are there so many populist movements around the world that want to make things great again like they were a few generations ago?

I imagine that AI will result in new accomplishments. Will its effects on productivity will be greater than computers and the internet? Perhaps but those earlier advances had less impact than I expected before doing the research for this post—and their incremental impact lasted only about a decade.

Whatever future benefits AI hold for us, it is likely that they will come at a serious cost involving far more energy than we use today. AI will certainly expand the growth of the human enterprise which will confound efforts to limit the negative effects of climate change and destruction of the biosphere. Call me skeptical but I doubt those problems will be high on the list of AI projects.

I see little evidence that technology will provide more than bandaids for those problems as long as society’s focus is on growth and its energy consumption partner.

“AI will act as a straw on our humanity. People will be captured by AI to the detriment of our humanity.”

Nate Hagens

Many of us were captured by technology a long time ago. The world no longer holds any wonder or magic for many. Those are found only in electronic gadgets, video games and augmented reality. Few of us think about the psychological and energy consumption implications of this shift in human society.

“Screens brighten with the flow of words. Millions flock to binge their favorite television programming, to stream pornography, or enter the sprawling worlds of massively multiplayer online roleplaying games…

“The Cloud now has a greater carbon footprint than the airline industry. A single data center can consume the equivalent electricity of 50,000 homes.”

Steven Gonzalez Monserrate

Over-consumption of energy is damaging the earth. This includes the destruction of forests, the genocide of the animal kingdom, the pollution of land, rivers and seas, the acidification of the oceans, and loss of fisheries and coral reefs.

We do not acknowledge this reality because it causes too much cognitive dissonance so we choose not to see it.

I was recently accused of being anti-human for calling attention to these problems.

On the contrary, it is pro-human to suggest that our flourishing depends on the health of the planet’s ecosystem—the true basis of wealth that forms the foundation of human prosperity.

At some point we will have to step back from the sacred alters of technology and start working on our own behavior if we expect to continue thriving. If we don’t, Nature will do it for us and that will be a civilization-altering trauma.

Energy is what matters. Technology and innovation are like tiny stowaways on the super tanker of the human enterprise that take credit for the journey without acknowledging the massive fossil fuel engines underfoot.

Art Berman is anything but your run-of-the-mill energy consultant. With a résumé boasting over 40 years as a petroleum geologist, he’s here to annihilate your preconceived notions and rearm you with unfiltered, data-backed takes on energy and its colossal role in the world's economic pulse. Learn more about Art here.

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27 Comments

  1. Christian Hanley on March 25, 2024 at 3:11 pm

    The Rise and Fall of American Growth (R.J. Gordon) is an excellent resource on historical productivity and clearly presents the harsh realities for achieving the same improvements in the standard of living to which we’ve become so accustomed. He focuses more on the innovations empowered by plentiful energy than on the availability of the material itself.

    • Art Berman on March 26, 2024 at 10:36 am

      Christian,

      Thank you for the reference to R.J. Gordon. His work is interesting but completely energy-blind.

      He is a typical Neo-classical economist who sees everything as capital + labor. It’s as if technology springs forth from nothing. How would there be steam engines or electricity without coal, or internal combustion engines without oil?

      All the best,

      Art

  2. Joseph DiBello on March 24, 2024 at 8:47 pm

    “Humankind cannot bear very much reality”
    T.S. Elliot

  3. John Rogers on March 24, 2024 at 12:40 pm

    “History is indeed little more than the register of the crimes, follies, and misfortunes of mankind”.
    –Edward Gibbon

    “We should abandon the fantasy of phasing out oil and gas,” said Amin Nasser, head of Saudi Aramco. The energy transition was “visibly failing,” he added, saying that predictions of impending peak oil and gas demand were wrong.
    –NY Times, 03.19.24

    The colossal, unprecedented ruination of Earth is glaring and obvious. Mainstream newspapers, such as the NY Times, Washington Post and The Guardian, publish hundreds of articles every year on climate change and closely related topics. These articles regularly and clearly depict humanity’s continuing, vast destruction of Earth. The public ignores all these articles.

    Mr. Nasser’a accurate assessment embodies humanity’s crime and folly of warring on nature. His statement is one tiny bit of overwhelming evidence confirming Gibbons’ concise and accurate assessment of history.

    Mr. Nasser and Luca Bertagnolio are monstrous partners in forming the visible anus of humanity. Irrefutable, overwhelming evidence of the colossal destruction caused to Earth by greenhouse gas emissions, deforestation and other human activities are totally ignored by these monsters.

    The recent wildfires in Canada burning an area the size of Germany, and in the process burning alive vast numbers of wildlife—no problem The Great Barrier Reef, the Earth’s crown jewel coral system, recently undergoing the fifth mass bleaching event in eight years—no problem.

    The industrialized world engages in grotesque hypocrisy by pretending to be serious in ending Earth’s ruination. Last year’s COP epitomizes this hypocrisy. This conference took place in a year when 40 billion tons of greenhouse gases were emitted. The accurate name for the COP is “Carnival of Poltroons”. Governments go through this annual farce, then publish inane, meaningless reports, while continuing Earth’s ruination.

    Like Nasser and Bertagnolio, citizens of the industrialized world are morally, spiritually and intellectually dead. They are uncaring, indifferent and oblivious to the massive global destruction caused by fossil fuel emissions, habitat destruction, overpopulation and pollution. Despite over three and a half decades of massive, irrefutable evidence that fossil fuel emissions are destroying Earth, delusional citizens of industrialized countries continue to happily exist in a fantasy world.

    • Art Berman on March 25, 2024 at 12:06 am

      John,

      Please don’t use this commment forum as a platform for your theories.

      All the best,

      Art

  4. Jonathan Wright on March 23, 2024 at 2:14 pm

    Technology is our modern Christ, since the old one went significantly out of fashion by mid-20th.

    The narrative is parallel. “Jesus saves!” He’ll give you “eternal life.”

    The narrative has only shifted. Jesus is likely more useful to humanity in the long game. He came with a robust code of conduct.

    What is technology supposed to save us for exactly? More “anything goes.”

    • Art Berman on March 25, 2024 at 12:10 am

      Jonathan,

      Saviors without spiritual content don’t save people.

      All the best,

      Art

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  6. Michael Pogrebinsky on March 21, 2024 at 9:54 pm

    Very interesting observations, thanks

    • Art Berman on March 25, 2024 at 12:11 am

      It is good to hear from you, Michael.

      All the best,

      Art

  7. Kevin Maher on March 20, 2024 at 1:46 pm

    You are amongst the very few brave enough to say that we just need to use less energy. Our entire predicament is summed up very well here:
    “On the contrary, it is pro-human to suggest that our flourishing depends on the health of the planet’s ecosystem—the true basis of wealth that forms the foundation of human prosperity.

    At some point we will have to step back from the sacred alters of technology and start working on our own behavior if we expect to continue thriving. If we don’t, Nature will do it for us and that will be a civilization-altering trauma.”

    Thanks for stating the issues so plainly.

  8. Robin Schaufler on March 20, 2024 at 5:22 am

    Thank you. Well said.

  9. Tim Brown on March 20, 2024 at 1:48 am

    Art, once again you produce meaningful observations. Thank you.

  10. Kevin Maher on March 19, 2024 at 9:59 pm

    Art, It has been a pleasure reading your writings these last couple of months. There are not many people willing to plainly state that we need to simply consume less energy, and at some point it won’t be a choice.

    This bit seems to sum it up: “On the contrary, it is pro-human to suggest that our flourishing depends on the health of the planet’s ecosystem—the true basis of wealth that forms the foundation of human prosperity.

    At some point we will have to step back from the sacred alters of technology and start working on our own behavior if we expect to continue thriving. If we don’t, Nature will do it for us and that will be a civilization-altering trauma.”

    Thank you.

    • Art Berman on March 24, 2024 at 10:04 pm

      Kevin,

      This is a hard message to give and to receive. People want solutions that allow them to continue with their current behavior and lifestyle. Me too but that will not work under any scenario.

      People often say that they agree with me but it’s depressing. I respond that knowing where you must go should not be depressing.

      All the best,

      Art

  11. Steve Genco on March 19, 2024 at 5:27 pm

    Thanks for your continuing focus on over-consumption as a key driver of both our fossil fuel addiction and our ongoing damage to the environment, including the damage being wrought by climate change. Can’t be emphasized enough.

    A couple of thoughts on this excellent piece.

    Productivity is causally complex. It’s not just a function of technology and innovation, but also many other factors like population size, age distribution, education levels, industrial footprint, etc. So I’m not surprised to see that new technologies like the internet or AI do not in fact yield clear increases in productivity. It’s more complicated than that. Also, the jury is still out on how severely climate-driven damage will impact global productivity. Much of the Global North’s productivity has actually been outsourced to the Global South, where climate impacts (droughts, floods, wet-bulb temps) are expected to be more disruptive to vulnerable populations and infrastructure.

    Finally, maybe just a nit pick … You write that “technologies and innovation … are good for optimizing energy but neither produces energy. Their main function is to increase the rate of energy extraction and use.” There are indeed technologies that do just that, as you describe in your example of shortening the time it takes to drill a well. But we shouldn’t ignore technologies that do produce energy. Solar panels, windmills, and pumped hydro facilities come to mind. These are not meant to make us more productive, they are meant to help us avoid boiling the planet and exterminating ourselves, which would seem to be worthwhile goals, whatever the cost might end up being. Technologies for renewable energy generation, storage, and transmission are going to be big factors in determining how much energy we end up with after the fossil fuels run dry.

    • Art Berman on March 24, 2024 at 10:02 pm

      Thanks for you thoughtful comments, Steve.

      All the best,

      Art

  12. Robert lowrey on March 19, 2024 at 4:40 pm

    You really are quite unique, Monsieur. So, given your stance, a little data that perhaps only you will appreciate the enormity of:

    50 yrs ago, the rate of CO2 accumulation was 1.32 ppm over the previous year; today, it is 1.36 PER CENT! above a year ago’s value. Today is the tipping point called the vernal equinox, but it seems we may have reached a far more dire tipping point: with apologies to David Bowie, https://robertlowrey.blogspot.com/2021/04/beware-savage-jaws-of-2024.html

  13. kramm on March 19, 2024 at 4:18 pm

    I would argue that a lot of alleged Productivity growth is due to global trade. If you look at gdp per capita growth in the US from 1906 to 1946 or so its virtually zero. No progress? Well global trade and cooperation went into reverse. When global trade resumed after WWII productivity growth resumed. When you think about it, it makes sense. Production shifted from producers with high energy input to producers with lower energy inputs needed (you have to include energy for wages and infrastructure).

    • Art Berman on March 24, 2024 at 9:20 pm

      K,

      What alleged productivity growth?

      nullU.S.-productivity-peaked-in-2002-and-was-40-less-in-2021-

      All the best,

      Art

  14. Pierre-Paul Turgeon on March 19, 2024 at 12:57 pm

    Art! You’re on the money as always! We need voices such as yours that dig deeper into these issues and beyond the hype.

    • Art Berman on March 24, 2024 at 9:03 pm

      Thank you, Pierre-Paul,

      All the best,

      Art

  15. P-O on March 19, 2024 at 11:25 am

    Art, you are a bright star in the information space. Together with Nate, Simon and others you bring sanity into discussions around energy. Keep up the good work!

    • Art Berman on March 24, 2024 at 9:03 pm

      Thanks, PO.

      All the best,

      Art

  16. Anne Keller on March 18, 2024 at 5:11 pm

    Well done and yes, surprising that “technology” didn’t result in more productivity. But I also agree with the person who said that if AI can take over 30% of the work that’s done now in offices, chances are it could be eliminated altogether instead. Now THAT would b productive! If what I have to say in an email is so mundane that it can be written by a machine I don’t need to send the message.

    The constraints that will increasingly be applied to society from limits on energy availability and/or affordability will finally force some choices, and that will be a good thing.

    AI may increase well productivity but we haven’t seen yet that this constitutes anything other than getting the less than 10% of the resource that’s recoverable via horizontal drilling and frac’ing faster vs expanding the amount available. And if you enjoy dealing with the “TPMS” light on your dashboard, you’ll love dealing with the lights from the realtime monitors on your equipment.

    Where are the industrial engineers of days gone by, who actually observed and measured the impact of changes to workflow or hardware? That would be data worth having.

    • Art Berman on March 25, 2024 at 1:28 am

      Thanks for your thoughts, Anne.

      I suspect that AI will be used to accelerate trends of greater power for the beneficiaries of inequality—-in other words, those closer authority and to the sources of lower cost of capital.

      I’m quite skeptical that oil and gas extraction will be much improved.

      All the best,

      Art

  17. Yevhenii on March 18, 2024 at 4:40 pm

    Amazing!

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