What is Jevons paradox?
In 1865, English economist William Stanley Jevons published The Coal Question, arguing that improved efficiency in coal-powered technology would paradoxically increase coal consumption rather than reduce it. His logic was that greater efficiency lowers operational costs, which reduces prices, which drives higher demand.
This principle, which is now broadly referred to as “Jevons paradox”, extends beyond coal. When you make cars more fuel-efficient, people drive more miles. When light bulbs use less power, people use more light. When irrigation becomes more efficient, water consumption rises.
Many thought leaders are applying Jevons paradox to the market for artificial intelligence. In other words, as AI gets more efficient and cheaper, demand for it might explode.
Similarly, Jevons paradox can also help us understand what could happen to secondary effects of AI like job markets. As AI makes certain occupations more efficient, it could lead to an increase in demand for human labor, not mass layoffs. For example, airplane pilots became more productive and effective once jets were invented. They could travel farther and faster, effectively lowering the cost of every mile of air travel. As a result, consumers started flying more and demand for pilots increased.
A Jevons paradox for AI-affected occupations will only really happen if at least three crucial boxes are checked: 1) Workers get more productive thanks to AI; 2) That higher worker productivity translates into lower prices; and 3) consumer demand explodes in reaction to lower prices.
According to Stanford University economist Erik Brynjolfsson, there will be certain occupations that check each box. For example, coders, translators, and radiologists are all occupations that may be seeing AI increasing their productivity and that seem to be growing despite (or because of) that. An anti-example is farmers and increase food production efficiency. Farmers got way more efficient, but there's a relatively fixed amount of food we eat, so demand didn’t explode and therefore the number of farmers shrank.
A Jevons paradox occurs when demand explodes dramatically in response to efficiency improvements, often outpacing the efficiency gains.
Have thoughts on this topic? I'd love to hear from you! I'm @RickLindquist on X.