Bank of England Governor Andrew Bailey wants everyone to pump the brakes on AI optimism. Not because he thinks the technology is overhyped, but because history suggests the really transformative stuff takes longer than anyone expects to actually show up in the economic data.
Bailey’s argument boils down to a pattern that economists have seen before: powerful new technologies often make things worse before they make things better. The initial phase demands heavy capital investment, workforce retraining, and organizational restructuring. All of that costs money and time. And during that transition, productivity growth can actually slow down.
The electrification playbook
Bailey categorizes AI as a “general purpose technology,” placing it in the same lineage as electrification and the internet. That comparison is instructive, and not in the way Silicon Valley pitch decks would prefer.
When factories first adopted electric power in the late 19th and early 20th centuries, productivity didn’t immediately surge. Companies had to redesign entire factory floors, retrain workers, and develop new management practices. The economic payoff was enormous, but it arrived decades after the technology itself was available.
