The Startup Boom Has an Unexpected Co-Pilot

Back in April, I wrote that the recent upturn in US productivity growth is a story about business formation rather than AI acceleration. But maybe … it’s kind of both, at least to an extent. The basics of the original argument still hold. The headline productivity numbers deserve skepticism, at least if you want to credit AI for boosting economy-wide efficiency. From the earlier piece: Labor productivity is a famously noisy and oft-revised statistic. Analysts at the Budget Lab at Yale warn against overinterpreting a few quarters of strong readings . . . What looks like rising efficiency can also reflect changes in who is working: if lower-wage workers exit the labor force, average output per worker rises even if no one has actually become more productive. There’s also the timing problem. Much of the AI story so far is investment — companies building data centers, buying software, and upgrading equipment — rather than widespread use that clearly boosts output. The Bank of America Institute describes this buildout as essentially ‘prep work,’ with any productivity gains from actual AI deployment still to come. At the same time, new-business applications have surged since the pandemic and remain well above pre-2020 levels, according to John O’Trakoun of the Federal Reserve Bank of Richmond. Even better, much of that activity is showing up in sectors that have historically added jobs at a faster pace, hinting at a “tailwind for future job creation.” Now Torsten Slok, chief economist at Apollo Global, adds an intriguing twist : AI itself may be helping fuel the dynamism. Large language models are “dramatically reducing the cost and complexity of launching a company,” he argues, pushing weekly business applications toward all-time highs (as seen in this chart from Slok): A new piece in MIT Technology Review suggests how that process could be playing out ground-level. Among the vignettes: a quilt shop in Arizona reports cutting inventory-listing time by 60–80 percent using an AI tool built for craft retailers, while a London-based tutor uses AI to handle meeting summaries, invoicing, and goal-setting—hours recovered that he reinvests in growing his business. Yes, these may seem like boring uses compared with some anticipated by Silicon Valley. But multiplied across millions of small operators, the cumulative effect on output per hour worked could be substantial. That said, AI probably isn’t yet the direct productivity accelerant that its most optimistic boosters claim (or hope). But if it’s meaningfully lowering the barriers to starting and running a business, it may be boosting business dynamism and leading to a more productive economy both today and tomorrow. The post The Startup Boom Has an Unexpected Co-Pilot appeared first on American Enterprise Institute - AEI .