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Everyone talks about what AI will do. But almost nobody asks who will pay for the machines. Taking advantage of AI will require an extraordinary amount of capital, from data centers to new power plants. Will that capital be around?

I try to address that question in the first Saving for the Machines.”

To show how important capital is to fuel the transition to an AI-based economy, I document how the same technology path that generates 11.7% annual growth when households choose their saving rate optimally delivers only 2.2% when the saving rate remains fixed. In other words, if we experience slow growth over the next few years despite fast improvements in AI, this slow growth may reflect too little capital accumulation instead of a technological bottleneck.

The key to this result is that AI raises the capital share by moving tasks from labor to machines, which requires that those machines are built. In comparison, ordinary technical progress makes labor and existing machines better at the tasks they already perform.

To inspect the mechanism, I start from an accounting identity: the saving rate is the capital share times the ratio of investment to capital income. If I take the evolution of the capital share as given, I can ask how much the latter ratio moves in response to that evolution. Crucially, with an optimizing household, this ratio barely moves. As machines take over tasks and the return to capital rises, the household responds by letting consumption grow faster, by the intertemporal elasticity of substitution times the rise in the return. To pay for that faster consumption, capital must also grow faster by the same amount. So, the household keeps investing about the same fraction of what the machines earn. And since machines earn a larger share of output, the saving rate also goes up. With a fixed saving rate, the same accounting identity tells me the opposite: the ratio falls in proportion as the capital share rises.

Will the U.S. and other advanced economies then generate enough capital? For many reasons, I doubt it. We might end up in a situation where many of the opportunities offered by AI are left on the table. This is particularly important for all who think that AI might get us out of many problems, such as fiscal troubles (like in France) or ultra-low fertility. We need to save for the machines, and it is not clear we can do that.

Anyway, this paper has been long in the making (many months of hard work), but I have learned much from it. In particular, working through the model changed my mind about many issues related to AI. Again and again, my intuition said X, but the math said Y. And math always won in the end. That is why we write formal models.

A nice example is Proposition 5, whose proof is the one I like the most in the paper. With improving machines and strong task complementarity, there is no fixed balanced growth path because the target itself keeps moving. The nice part of the proof is to realize that, after the right normalization, the moving target becomes a fixed point, and the saddle gets steeper as machines improve. So instead of falling behind, the economy tracks the moving BGP more and more closely. A fair amount of ODE work to get there, but a very simple economic idea underneath it once you get it.

The paper is here:

sas.upenn.edu/~jesusfv/Savin…

and the slides are here:

sas.upenn.edu/~jesusfv/Slide…

Some lawmakers have suggested eliminating the payroll tax cap to shore up revenue for Social Security. Doing so would push the top marginal tax rates above 60% in some states, writes @kpomerleau. 

aei.org/economics/unca…

How can the US economy achieve 3% annual growth? @MichaelRStrain and @SCClemons discussed the essential components for accelerating growth at @Widehall1769’s American Growth Summit.

The 2024 elections showed that voters blame the president for their economic woes. In @bencasselman's piece for the @nytimes, @MichaelRStrain says he thinks voters will maintain this mindset ahead of the 2026 midterms.

nytimes.com/2026/10/18/bus…

As inflation continues to run hot, voters are poised to punish President Trump and Republicans this November. What should future governments learn from this episode? @MichaelRStrain explains in @ftopinion.

aei.org/commentary/tru…

AEI senior fellow @ScottGottliebMD joins CNBC ‘Squawk Box’ to discuss the FDA’s new Rare Disease Framework Initiative and its guidance for developing drugs for unmet patient needs.

President Trump is not making a serious effort to address voters’ legitimate affordability concerns, despite his campaign promise to “end inflation” on “day one.” Instead, he has belittled such anxieties, referring to worries about high prices as a Democratic Party “con job” and t families should deal with higher prices by buying their children fewer “dolls” and “pencils.”

Moreover, voters make connections between policy choices and inflation. By large margins, voters believe Mr. Trump’s trade war has raised prices — so much so that some GOP politicians are publicly breaking with the president on tariffs. And regardless of the merits of the Iran War, the American people seem to understand that it is responsible for high petrol prices.

My @FT column.

Federal revenue rose in 2026, but spending rose twice as fast. With the FY26 deficit nearing $2 trillion, Jim Capretta warns that rising entitlement spending and debt-service costs could push the fiscal outlook further off course.

Read more: aei.org/economics/heal…

Lawmakers treat Social Security like a third-rail policy issue. R. Glenn Hubbard argues that a citizens’ assembly could give Congress a politically viable path toward reform.

Read more: aei.org/commentary/ame…

.@MichaelRStrain joined @SCClemons at @Widehall1769’s American Growth Summit to discuss the incompatibility between authoritarianism and free-market economics

AEI Senior Fellow @ScottGottliebMD joined CNBC’s Squawk Box to discuss the public-private effort to speed cancer vaccine development, this year’s flu season, and how hospitals are integrating AI.

AEI’s @MichaelRStrain: After adjusting for inflation, the average wage of American workers is up more than 40% relative to three decades ago. Are people doing better more broadly speaking? I think the answer is yes.

"Clinical AI is developing faster than the framework to regulate it,” AEI senior fellow @ScottGottliebMD writes in a new op-ed. Drawing lessons from how lab-developed tests (LDTs) were regulated, he urges Congress to build a framework that balances local innovation with wider access.

Read more: aei.org/research-produ…

🚨TOMORROW, AEI's @stanveuger will host WSJ's
@greg_ip, @omzidar, and Eric Zwick to discuss Zidar and Zwick's new book, The Everywhere Millionaire: Who Is Really Rich in America and How They Got There.

RSVP here: aei.org/events/the-eve…

DC spends $5,900 per resident on Medicaid—more than twice the national average. Why so much? @stanveuger examines how generous payments, fraud, and weak oversight drive the District’s high costs.

Read more: aei.org/commentary/why…

Two Social Security reform plans. With identical effects on Social Security's solvency.

But one reduces the debt/GDP ratio by twice as much as the other.
littleknownfacts.substack.com/p/the-two-char…

🚨 New Episode Out Now

Are we really experiencing an affordability crisis?

Americans overwhelmingly say yes. But wages have been outpacing inflation, even as the cost of housing, healthcare, groceries and other necessities continues to shape how people feel about the economy. en and Bill Haslam explore the disconnect with economists @MichaelRStrain and @jasonfurman and ask what government can do to make life more affordable.

Listen to the new episode of You Might Be Right: bit.ly/4e9pt5U

“When conservatives become undisciplined by the need to respect market forces, they end up sounding a lot like progressive Democrats,” Michael Strain said.

wsj.com/politics/polic…