The AI Productivity Boom with David Solomon

On this episode of The Forum, hosted by CNBC’s Becky Quick, David Solomon, Chairman and CEO of Goldman Sachs, joins Leslie Picker, Senior Finance and Banking Reporter at CNBC, for a conversation on artificial intelligence, economic growth, and the future of work.

Solomon discusses why he believes fears of an AI-driven jobs apocalypse are overblown and explains how artificial intelligence could drive a significant productivity and economic growth boom in the years ahead. He also explores workforce adaptation, AI infrastructure investment, cybersecurity risks, and the opportunities and challenges emerging from rapid technological change.

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Host: Becky Quick

Guests: David Solomon (Speaker), Leslie Picker (Moderator)

Produced by: AMZG Media

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Transcript

SPEAKER_00 0:02

I'm Becky Quick of CNBC, and your host of the forum. I'll be guiding you through exclusive conversations among some of the world's global leaders. Conversations previously held behind club doors, but today we invite you in. The Economic Club of New York serves as the premier forum for nonpartisan discussion dedicated to connecting the world's brightest minds with preeminent public and private sector leaders. A nonprofit, 501c3, the club is a 115-year-old platform for the conversations that help shape the future of our world. The Economic Club of New York, brightest minds, critical conversations, catalyst for innovation.

SPEAKER_02 0:42

You recently wrote an op-ed in the New York Times where you said the AI jobs apocalypse is overblown. You know, what made you write that? What what kind of spurred that op-ed idea for you? And what were you hoping to really get across there?

SPEAKER_01 0:58

Well, you know, first of all, I just say that I tend as a CEO and somebody that's running a big business, I tend to think in five or ten year increments. And so I'm spending a lot of time thinking about how the world's gonna unfold over the next five to ten years and how Goldman Sachs is gonna support our clients and participate in that, and how you know the evolution of the world shifts what we need to do to be successful as an enterprise. And so, you know, I think over five to ten year increments, and I would just say I am extraordinarily excited about the opportunity, particularly for our country, to really grow productivity and grow the economy as this technology is deployed and gets wrapped into enterprises and you know helps people be more productive in the context of what they can do. That doesn't mean that it's gonna be a straight line and gonna be simple. In fact, I'm sure, and I stated in the op-ed, that there's gonna be dislocation, as there always has been as technology is scaled and it's deployed, you know, into our economy, and as there are economic, you know, economic shifts, you know, over time. I decided, you know, to write an op-ed, you know, you're putting yourself out there. There are a number of people that are talking about this, and you know, I felt they weren't creating a constructive discussion about the gives and the gets and the balance. And I decided that it was it's an important discussion. There's a lot of change in the world that's happening very, very quickly, and that I thought it was important for Goldman Sachs, you know, to weigh in on some of that evolution. And so I don't believe that we're gonna have massive structural unemployment, but I do believe that AI is gonna interrupt jobs and dislocate, it's moving at a very, very quick pace. We're gonna have to upskill people, the labor force is gonna have to adjust. But I think it's important to really step back and understand the labor force and understand the construction of the labor force in the United States when you think about these things, because then we can make good decisions as we go forward. And one of the things that I stated very clearly in the op-ed is if the disruption gets to a place where it's very dislocating to certain groups of people, then government and business has a responsibility to work on policy to soften that, you know, that journey. But I really do believe as we get 10 years out, just as other technologies have disrupted, we will have reasonably full employment, we will have a very, very productive economy. And in fact, I believe this is gonna unleash you know a growth boom and a productivity boom that could be quite constructive. And I think it's really a generational thing. You know, we've seen this before with other technologies. I think one of the different things here is the pace of change, the pace at which it's with which it's moving, which can make it more dislocating. But I'm incredibly encouraged, but it's gonna be a journey, and we want to be engaged and we want to have thoughtful discussions. We want them to be fact-based. You know, people look at the labor force, they talk about you know, technology jobs, for example. Technology employment in the United States is 2.3% of the labor force. I mean, these are important things to think about. And so I'm glad I did it. The feedback I've gotten, first and foremost, and I was at a big meeting, you know, private meeting of a large group of CEOs, people want to engage. They want to think about it, they want to talk about it. They don't like the doomsday narrative. They want a productive narrative about the goods and the bads and how we balance and how we move our economy forward, how we move our communities forward, how we move our society forward. And that's that's important.

SPEAKER_02 4:19

Absolutely. And as we think about kind of upskilling, I think in historical technological cycles, upskilling was all about, you know, learning how to code and learning how to how to do things and go to college and all that. Now it feels like the skills that could be more valuable or skills where you use your hands and things like that. Do you buy into that notion? And have you seen as a leader of a very dynamic organization with lots of people and lots of different types of jobs, have you seen AI replace any of them yet?

SPEAKER_01 4:49

Well, I I you know, I think, Leslie, the way you frame that, it's just a little bit, to me, it's a little bit overly simplistic. Now, let's start with the fact that we live in a service economy, and 65% of all the jobs that are created in this country, this country is a very dynamic economy. Over the last 25 years, on average, every year, we've created and destroyed 30 million jobs. 65% of all the job creation comes from small and medium-sized enterprises, a lot of which are service-based. There's an enormous amount of the economy that has to do with people serving people, okay, and that's not shifting, you know, anytime very quickly. So we're talking about what's different is we're talking about certain white-collar jobs.

SPEAKER_00 5:27

Right.

SPEAKER_01 5:28

Okay, and you know, that's a different disruption. But we've seen disruptions to other jobs that were, you know, that people strove for. If you look and you go back 25 to 30 years ago, as we opened up the global manufacturing economy, we dislocated a number of people. And I think there are a lot of things that we can learn, you know, from those dislocations. And let's hope as there's change here, we find better ways, you know, to manage through some of the dislocation that will come. But the economy is very nimble, new jobs are created, new skills develop, and people will evolve appropriately. And it's just not black and white. People want black and white answers. We were talking in the back room there about writing as a career, and you know, it's it's not going away. It's not going away. Um, and so it's it's just not simple, it's much more nuanced, and I think the economy is dynamic. I think people are dynamic, and I think people, you know, will adapt, but they need time, they need help, and it's our job to figure out, you know, as that comes, how to operate. And we shouldn't be so sure about how everything plays out. There are a lot of people that are very sure. I'm very unsure, but I think the direction of travel is going to be quite exciting and quite positive when you look at it holistically over a moderate to longer term period of time.

SPEAKER_02 6:40

Yeah, one thing you mentioned in your op ed is just because a job can be replaced doesn't mean it will be.

SPEAKER_01 6:45

Doesn't mean it will be. Doesn't mean it will be.

SPEAKER_02 6:47

Um we've talked a little bit about the social impact of AI, but what about kind of beyond jobs? Large data center builders will say that uh it used to be the biggest hindrance was capital. That's no longer an issue for them. Now it's permitting and going into these municipalities and um facing some blowback from the residents of those communities. How do you how do you kind of see that shaping up amid this kind of over and to the right trajectory that we're on with AI?

SPEAKER_01 7:15

Well, like any, like if I mean there are different issues, you know, tucked in that. You know, first of all, you know, communities will wrestle with, you know, the parameters of benefits and drawbacks to having you know data centers in their communities, and it's different in different communities, and you know, that's been the case with all sorts of infrastructure over time and you know the way it evolves. But the thing that I'd highlight just when you talk about all this, I that I know is true. Whenever you have a technological acceleration, everybody anticipates you know the journey as though it's a straight line and one direction compounding, and just the demand for the compute, it's just not going to go in the straight line that everybody's now currently projecting. And I think we have to be prepared for that to have and flow. Also, the technology will change, the productivity of the chips will change, the cost of manufacturing will change, the cost of distribution will change. And so, you know, all of this is in the early stages, and there are going to be, you know, more data centers for sure. You know, I think that the implications for power infrastructure are real, and we're gonna have to wrestle with that more because certainly it can't increase you know the cost of power on the course of utility services to average Americans. That's not gonna work. And so this will continue to evolve, but it's not gonna be the demand curve that I think people are expecting, will not go in a straight line. As when you think about other technological evolutions, you know, we don't always get them right. I mean, I you know, you think back to you think back to um, you know, kind of to demand for digital infrastructure back in the late 1990s and you know, undersea cable and things like that, you know, people had enormous expectations of how the information would travel. Nobody imagined wireless. They thought everything would travel on fiber optic cable, and you know what, the world changed. And so the world will change here too, and we'll have to figure out how to evolve that over time, and we will.

SPEAKER_02 9:07

In the meantime, Gartner projects $2.6 trillion being spent to fund that build out. Obviously, you're in the center of these discussions. How is it impacting corporation strategic decision making? The various trade-offs, any type of crowding out that you see?

SPEAKER_01 9:22

Well, you know, you've got two things going on. You have the infrastructure being built to supply the compute that ultimately has to be bought by enterprises, okay, to be used in their business. The one thing I know for sure is that enterprises broadly will go slower at that. They will be slower to change, they will be slower to adapt than I think some of the current expectation. And one of the things you're seeing that just is important, these tokens are super expensive. So you saw the article about Walmart saying yesterday, whoa, okay? Token spends going up like, whoa. Okay, I'd also just observe, as somebody that's talking to a lot of CEOs, that there are a lot of things where this technology is helpful, but you don't need a super high-powered, expensive model. Just a very base model will give you something that improves your operating processes and you don't have to pay a lot, you know, for that. And so if you're running a very high margin business, you probably have more propensity at this point in time to be experimental and aggressive with your token spend and using the technology in the enterprise. If you're running a low margin business, even if it's a low margin business at enormous scale, okay, you start playing with a half a margin point, it has a big, big you know, implication. And so, you know, I think enterprises are going to be cautious about this, and the demand curve might be different than the demand curve that's now imagined. So obviously, there's a lot of capital that's going into build this. The hyperscalers and other big companies who have other businesses that generate a lot of cash are making what they see as a generational bet. And so even if the returns aren't as good as they'd like them to be, they want to carve out their position and they're gonna make significant generational bets. But then ultimately they have to get demand, you know, from other enterprises, and by the way, potentially consumers, and the consumer model is a much more complicated model than the enterprise model. They've got to get demand, you know, to pay for all of that. And the one thing that I know is I don't know what that curve looks like. I don't know how that's gonna play out. And, you know, I think that there's gonna be a lot of volatility around that, but ultimately we'll find equilibrium and balance in both the amount of compute, the demand for that compute and how it gets deployed in enterprises, and how individuals pick it up in their daily lives.

SPEAKER_02 11:30

And potentially over time getting more efficient and changing that equation as well.

SPEAKER_00 11:36

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SPEAKER_02 11:50

A lot of the funding for this build-out will come from the equity market, and Goldman Sachs, of course, has been the center of most, if not all of the big headlines that we've seen lately. Anthropic just confidentially filed for its IPO, OpenAI, reportedly planning to go public. Uh Alphabet announced plans for an $80 billion equity raise. This is all kind of coming out around the same time. I know you can't talk specific deals that are currently ongoing, but I just wonder how you're thinking about the impact of the supply of equity funding this build-out all around the same time.

SPEAKER_01 12:23

Well, global equity markets are about, these are rough numbers, don't hold me to them exactly. Global equity markets are roughly 150 trillion, U.S. equity markets are 100 trillion, you know, U.S. money market funds are about 8 trillion. There's enough capital. There's enough capital for what we're talking about at this flow in this point. And while I'm not going to talk specifically about any of the deals, I just make an observation that any of you can make by looking at the screen today as Alphabet is going through the process of you know raising this $80 billion, and we are in the middle of it, um, the stock is trading quite well. Okay, this is the largest equity deal, largest follow-on equity deal that's ever been done. The stock's trading very well. That's it. This is the first actual concrete data point for bringing something of this scale, and it's encouraging.

SPEAKER_02 13:09

Yeah.

SPEAKER_01 13:09

Okay, and so you know, I I think there's plenty of liquidity in the system. If the world continues to remain as optimistic, and I do think we're in a period, um, and I know when I say this, so I'm you know, I'm pausing for a second to say it, but I know when I say it, it will get quoted, but I think there's I think it's definitely true and something for us to reflect on. We are definitely in a moment where there's more greed than there is fear. Okay, and you know, that's one of the reasons why people that need this capital are coming to the markets because the capital's available. And so if you're advising companies that need capital, one of the big pieces of like base advice for 42 years of doing this, when capital's available, if you're capital consumptive and it's available, take the capital, okay, if you know that you're gonna need it. And so um, you know, given the way equity markets are robust, debt markets are robust at the moment, I think you're going, you are seeing a lot of activity, and I think you're gonna continue to see activity. But I just say in the context, these are unprecedented in terms of the size. There's also unprecedented liquidity and wealth in the markets, you know, to absorb some of this. And it also, these things also create a virtual flywheel because you've got a lot of people that have made a lot of money, you know, in a bunch of these companies, and they're gonna be monetizing and reinvesting that into the system into other things, um, and paying taxes, by the way, on those gains. Um, and so you know, there is a there is a virtuous ecosystem um, you know, in the context of this too, that should support it. But it is unprecedented. You know, we'll see how it goes, but you know, I'm encouraged, I'm encouraged by what I see so far, but that doesn't mean that something couldn't change that creates more volatility around this, just given the size of the scale, the amount of capital that's being raised.

SPEAKER_02 14:49

Yeah, because how quickly could greed turn into fear?

SPEAKER_01 14:52

Um it can turn into fear very quickly. That doesn't mean it will. You know, it's it's you know, history is always a great lens and it's never the same, but it's never really different. Alan Greenspan started talking about irrational exuberance in markets in the fall of 1996 when the NASDAQ was like 120 or 1300. Three and a half years later, the Nasdaq was 5200. Um so, but then ultimately the Nasdaq retraced by over 80 percent. So, you know, he was right, he was just three and a half years too early. So exuberance can go on for you know for big periods of time. You know, at the moment, there is enormous opportunity to invest in these technologies. It's one of those, you know, generational kind of technological shifts. And, you know, I think there's a good chance that we're earlier in the cycle than later, but I don't know, and we could wake up in a couple of months and the lens would be different. Something will happen that will change the lens. But at the moment, you know, that seems less likely in the in the you know, in the short term. You know, you haven't asked me about just kind of the macro, you know, economy at all. You know, one of the things I'm watching very closely, you know, I in January or February, I was really quite supportive of higher nominal growth and therefore higher real growth with lower inflation than the market was kind of anticipating at the beginning of the year. After the war started, I think we now have higher and better and better inflation. We obviously have energy pressure, it's filtering through to supply chains that affect a whole variety of other things. And it hasn't yet, in ways that are tangible, affected consumer behavior that we're seeing. But I'm starting to hear whispers of it. And my expectation is you're gonna see more of it in the second half of the year. You're gonna see more shifts in consumer behavior because at the end of the day, consumers, 14% of their wallet approximately, average American is gas, and they're spending more, and that will, you know, force choices and it will filter through in the economy. Also, the supply chain pressures, because you think about the way energy gets into supply chains, that increases prices on things that are made, and that has to go through. And my own view, the capacity to keep passing that through is limited, and so you'll see that in that context. So I'm watching that. You could see some economic data in the next six months that shifts the sentiment and that changes the balance and all this, but for the moment, that's not that's not coming through.

SPEAKER_02 17:09

Yeah, I was gonna ask you what what you saw as the biggest risk to some of the the exuberance that we have seen. Is it is it geopolitics? Is it the war?

SPEAKER_01 17:17

I think the war is a very significant issue. I think the market believes, I'm not saying this is right, the market believes that uh over some period of time there'll be resolution to that. And you know, with resolution there'll be an easing on energy prices. The market may be overvaluing the pace of the speed of that resolution at the moment. If you did see a material shift in consumer sentiment, I think it would affect the market. I think you've also got to remember you have a small group of stocks that have run very, very quickly. We could wake up any day and have those stocks retreat meaningfully any day. You know, one of the things that's interesting is if you look at the SP 500, you've got 10 stocks that have driven the returns and are 30 some percent of the market cap, you know, the market cap waiting to the SP, you've got 490 stocks, this is a generalization, that have kind of gone sideways. And so when you look at those earnings multiples, they actually look pretty reasonable. So complicated formula. I, you know, I do think slower economic growth, if we saw it because of the pressure from energy, you know, could have an impact on equity prices. But for the moment, you know, the medium-term kind of opportunity set of the technology is certainly driving a lot of capital allocation. If things got more complicated, you know, in the Middle East, of course, that could play through. You know, one of the big risks that I have talked about for years and continue to worry about, and obviously changes with these models and it's getting more attention, is cyber risk. And, you know, when you look at, you know, there's been a lot of talk with these new models. When you look at the largest companies and the industries that are most vulnerable to this, the largest companies have been investing a lot in cyber. Think about financial services, the large banks have been investing a lot in cyber protection. That doesn't mean that we don't have vulnerabilities. But when you get into the medium-sized banks and the smaller banks, they don't have the same capacity to invest in protection. And we know that if you had a problem in a medium-sized bank, it would filter or create fear, you know, in other institutions. We've seen that at other points in history. So I think cyber risk is a big risk. The conference board actually did a survey in the last couple of weeks where they asked a broad group of CEOs, what is the number one thing that you worry about from a risk factor and cyber, 60-some percent, you know, puts cyber as a significant risk. So that's something that's getting a lot of attention. You could have a cyber incident that could change confidence and could shift the way we look at markets or the growth trajectory of the economy. There are a lot of things out there. But you also have to ask, instead of what can possibly go wrong, what could possibly go right? At the moment, there's a lot from a market perspective that's possibly going right. And in the distribution of outcomes, I think there are more distributions that, given the technology investment, this continues to go for a period of time. But you know, we're at Goldman Sachs, you know, on guard, humbly focused on, you know, all the different distributions, trying to talk to our clients as much as we can about things we think they have to think about, and what's become an ever more complicated landscape.

SPEAKER_02 20:14

Well, and you've been one of the firms that's testing Anthropic's mythos model, right? What have you learned from that, and uh especially in the context of the future of cybersecurity and the vulnerability of the system?

SPEAKER_01 20:26

They're very, they're very, very powerful models. Um, you know, what I what I think I can say about it is there are a large group of companies that are doing a lot of testing, and you know, I think it's important that that testing's done. I think it's important that the information gets shared more broadly so that other companies in the economy can learn. It's one of the things a number of us have been talking about in Washington. How do we get the information that the 40 or so companies have gleaned, broadly disseminated to other companies and other enterprises to create more, you know, more protection. But a lot of this is going to be correlated to kind of consistent long-term investment in cyber protection. And obviously, bigger companies do better with that, and as you move down the chain, people are more vulnerable. And so I do think I heard that the president signed an executive order that was a little bit, you know, I haven't had a chance to really read it, but it was a little bit watered down. It talked about voluntary 30-day, you know, process for testing these models. I think we want transparency and information and protection before this stuff goes out. But we also have to understand they're open source models that are all over the place and they have the same capacity very quickly to do the same things. And so, you know, this is a place where I do think thinking thoughtfully about guardrails and how you know these companies that are producing this can work with the government, the government can help create some guardrails is something we should be thinking a lot about.

SPEAKER_02 21:41

But to your point about open source, I mean, you went to China with the president. We can set guardrails here in the US, but there are other countries, China, working on these models as well. How concerned are you about you know the ability to set the guardrails and really have them protect the system?

SPEAKER_01 21:58

You know, it's all everything's just Everything's Leslie, kind of you know, level of step. Um, you know, at the end of the day, the models exist, and the models when in the wrong hands okay, can do bad things. There are bad actors in the world, there have been bad actors in the world, they're gonna continue to be bad actors in the world. What we have to do is try to do everything we can, you know, to protect against that. And it's not a straight line, and it's not perfect, and it's not it's not easy.

SPEAKER_02 22:25

I I'm curious, as you kind of reflect on your tenure as CEO, you've seen a transformation of the firm leaning into consumer, pulling back from consumer. You spearheaded the firm through COVID. Now you've got this generational shift with AI and technology. Uh what's been the most surprising thing for you to hold this position?

SPEAKER_01 22:46

It's always something. I mean, the thing is, it's I'm eight years in. You know, I woke up at the beginning of this year and I said, this is going to be eight years in, this is going to be the first normal year where we're just gonna run the business. Okay, well, so much for that. Um, war pops in, and I mean it's such a dynamic world. We run a big, complicated global business, we have extraordinary people, you know, all over the world. You know, there's there's there are always things going on, it's always changing. But our j my job as the CEO of the firm is to set a strategic plan to grow the firm at the core of things that we do. We serve clients, um, we want to do it at the highest level of excellence that we possibly can. We want to do it in a differentiated way compared to people that we compete with, and we have a responsibility because we have a we have $110 billion of other people's capital. We have a responsibility to drive good returns on that capital. And it's very hard to be a public company and drive reasonable returns on the capital that you control if you don't grow your business. If you don't grow your business, it's very, very hard. And so I think one of the things we're most proud of is that we've really invested in growing the firm and growing our client franchise and growing our business, and we've successfully been executing on it. Has not been perfect, has not been a straight line. I think one of the most powerful things we did is that there were things that were really working and there were things that weren't, and we were willing to say, not working, we're gonna pivot, we're gonna change. And um, you know, I think when you do that, you know, you gain more credibility with your people, with investors, etc. And so we're making good progress. But it's an incredible firm. I feel incredibly lucky to have a great leadership team around me where we're stewarding it together, and you know, I'm excited about I'm excited about the world. There are lots of problems, and I wring my hands over problems, and I'm concerned about a lot of things going on in the world, but I think the glass is half full, and you know, we have an incredible resilience and ability, you know, to grow, to do more, to do better, you know, when you start thinking about 10, 20, 30 year periods, and I'm hugely optimistic.

SPEAKER_00 24:53

You've been listening to the forum by the Economic Club of New York, a nonprofit 501c3 dedicated to connecting the world's brightest minds for critical nonpartisan conversations. Be sure to subscribe now to be alerted to future new episodes. Would you like to be a part of the conversation at the Economic Club of New York? Learn more about membership, the New York City and National Fellows programs, and other opportunities for engagement in the club at www.econclubny.org. I'm your host, Becky Quick. Thanks for listening.