The Great Economic Pivot: When AI Makes Demographics Irrelevant
Central banks have long been preoccupied with the ticking clock of demographic decline, fretting over how fewer hands might hamstring productivity and fuel inflation. It’s a foundational concern, built on decades of economic models that view labor as a critical, often scarce, resource. But what if this deeply ingrained fear is, in the grand scheme of things, a distraction? What if the real economic earthquake is coming from an entirely different fault line?
That’s the provocative question posed by Desmond Lachman in a recent Financial Times letter. On August 31, 2025, Lachman directly challenged the prevailing anxieties of institutions like the Bank of England and the European Central Bank, arguing that their concerns about declining birth rates and their subsequent negative impact on productivity and inflation are fundamentally outdated in the age of rapid AI advancement.
AI’s Unsettling Solution to Labor Shortages
Lachman’s argument isn’t merely an academic thought experiment; it’s grounded in the stark realities of AI’s burgeoning capabilities. He points to estimates, such as one from Goldman Sachs, suggesting AI could displace or significantly diminish up to 300 million full-time jobs globally in the coming years. This isn’t just about efficiency gains; it’s about a wholesale transformation of the labor market’s supply side.
If AI is poised to flood the market with effectively “replaced” labor, the notion of a *shortage* due to demographics starts to look peculiar. Instead of an insufficient workforce driving up wages and inflation, Lachman suggests policymakers should be bracing for the opposite: a future where AI-driven productivity pushes economic concerns squarely towards deflation.
Beyond the Usual Economic Playbook
This isn’t just a tweak to economic theory; it’s a direct assault on its foundational assumptions. For decades, central banks have calibrated monetary policy based on a delicate balance of labor supply, demand, and inflationary pressures. Lachman’s letter implies that the very instruments and frameworks used to navigate the economy are becoming obsolete in the face of truly transformative technological shifts.
- The Deflationary Shadow: If AI can produce goods and services with minimal human input and at unprecedented scale, the cost of production could plummet. This isn’t the “good” deflation of increased efficiency; it’s a potentially destabilizing deflation driven by a surplus of output relative to demand, and a diminishing need for human labor to create that output.
- The Irrelevance of Demographics: If AI can perform the work of millions, then whether birth rates are up or down by a few percentage points becomes economically marginal. The human population might shrink, but the “effective labor supply” as augmented by AI could explode.
- Policy Paralysis: How do central banks, designed to manage an economy of human labor and traditional capital, respond to a world where these variables are radically redefined by artificial intelligence? Their existing toolkits might be ill-equipped for this new reality.
What This Means for “Us”
For those of us observing the “AI Replaced Me” phenomenon unfolding in real-time, Lachman’s analysis carries a particularly sharp edge. It’s not just that our individual jobs are at risk; it’s that the macroeconomic landscape is shifting to reflect a fundamental re-evaluation of human labor itself. If our collective economic value is being challenged at the highest levels of policy discussion, the implications for employment, social structures, and even the very definition of a functioning economy are profound.
The conversation is no longer just about retraining for new roles or adapting to automation. It’s about grappling with a future where the traditional economic levers are being pulled by an invisible, autonomous hand, and the old fears give way to entirely new, and potentially far more unsettling, realities.
