Elon Musk is something of a visionary and has never been afraid of making bold predictions. This one, though, is a bit of a head-scratcher. On an episode of the podcast A Different Conversation with Nikhil Kamath, released Sunday, Musk predicted that the United States' massive national debt can only be dealt with by advances in artificial intelligence (AI) and robotics.
I'm not so sure.
Musk said in a podcast interview on "A Different Conversation with Nikhil Kamath" released Sunday that the widespread deployment of AI and robotics are the only ways to address the large and growing national debt.
"I think that's pretty much the only thing that's going to solve for the U.S. debt crisis, because currently the U.S. debt is insanely high," Musk said. "The interest payments on the debt exceed the entire military budget of the United States – just the interest payments, and that's at least in the short-term going to continue to increase."
"So I think actually the only thing that can solve for the debt situation is AI and robotics," he added. "It probably would cause significant deflation because deflation or inflation is really the ratio of goods and services produced to the change in the money supply."
Musk is exactly right about the national debt. The $38 trillion - that's "trillion" with a "t" followed by a "rillion" - is hanging over the nation's head like the sword of Damocles. But Musk's solution is curious.
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Yes, the national debt is a serious threat to the economic prosperity of the nation. Yes, the interest payments alone on the debt are horrible, outstripping what we spend on the military. That's only going to get worse.
Also, Musk is correct that inflation and deflation is primarily a monetary issue; it has to do with the ratio of goods and services to the money supply. But deflation is caused when the supply of goods and services increases faster than the money supply. It means each dollar is worth more. That results in prices falling. When prices fall, the purchasing power of each dollar increases. Debt, on the other hand, is fixed. If you own a bank $30,000 for a car loan, the amount of the loan does not change; it is fixed. So the $30,000 loan becomes worth more in real terms. Its purchasing power has increased.
That means that the real value of the debt, the borrowed money, grows. More output, more work, is required to service that debt. Inflation, on the other hand, makes each dollar worth less, reversing the process. It takes less work to finance a debt under inflation.
Elon would seem to be maintaining that a massive increase in output will overwhelm the effect of deflation. But AI cannot create, and robotics cannot replace every segment of the economy.
The national debt, sadly, will have to be dealt with the old-fashioned way: Cut spending and increase repayment. This is a governmental problem, and, sadly, there seems to be little interest in Washington in dealing with this problem in any substantive manner.
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