We’ve talked a lot about AI and the economy in previous newsletters, but what about AI and creativity?

With AI capable of churning out original illustrations, texts, songs, and videos in a fraction of a second, it’s worth considering what will happen to the next generation of artists. Is a creative-class “war” against AI inevitable?

If the Writers Guild strike is any indication, the war has already started.

But first, an even more immediate crisis: the debt ceiling. Kellogg professor David Besanko explains why the U.S. absolutely, positively, totally, and sincerely must not default on its debt.

Three reasons not to default

Kellogg Insight recently sat down with Besanko to better understand what would happen in the event the U.S. failed to raise the debt limit and actually defaulted on its debts. Here’s what he had to say.

1. The government outflows would fall. Given that the deficit is about 20–25 percent of total government spending, outflows would fall by that amount. That’s an abrupt shift toward austerity unlike anything we have seen before. The macroeconomic effect would be significant even if it persisted over just a few months.
   
2. The ratings agency would take steps to downgrade us, and the “risklessness” of government Treasury bills, notes, and bonds would be called into question. Treasury securities are an important form of collateral, so what happens if they are now perceived to be risky? Well, then you might have margin calls, where financial institutions start calling in loans that have been secured by this now­­–higher risk and less valuable form of collateral. And then you have borrowers who are scrambling around to meet these margin calls, and they have to sell securities to raise the cash that they need to pay their loans. This is the kind of dynamic that could put the entire financial system at risk.
   
3. The federal government’s bills won’t be paid, meaning a vendor for the Department of Defense can’t meet payroll and may have to lay off people, or a physician’s office that doesn’t receive Medicare reimbursements may shut down, or a family doesn’t get their tax refund and their home purchase falls through. And, of course, if elderly people do not get their Social Security checks on time, that could mean not meeting rent. The consequences for Americans living their everyday lives are really significant.

But what about just invoking the Fourteenth Amendment and continuing to borrow? Or issuing a 2 trillion dollar coin? According to Besanko, these are hardly silver bullets: they’ll get tied up in the courts, sending markets rattling much the same way a default would.

You can read more of his conversation with us here.

The future of creativity

Kellogg professor Brian Uzzi has been thinking a lot about human creativity and specifically whether its days are numbered. Writing in Forbes, he wonders whether the demands of profitability and immediate gratification will lead AI-generated content to be the standard across the creative fields. And if that’s the case, he asks, “what will be the motivation for the next Mozart, Faulkner, or Curie to step forward? If innovators and artists come to realize that their future exists only as long as it takes to copy them, why bother trying at all? Ironically, the faster AI changes things, the faster we will be coming to a creativity halt.”

Uzzi calls for updated legal conceptions of intellectual property—including agreements around how and when IP can be used to train generative models. (In other words, along the lines of what the Writer’s Guild of America is asking for in its current strike.)

But business leaders, too, have a role to play here, he writes. “The mantra for decades has been, ‘Listen to the consumer.’” But does that make sense if the vast majority of consumers are focused on short-term outcomes?”

You can read the rest of his article here.