The Jevons paradox
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Last week, news spread that a Chinese AI company, DeepSeek, had built a cutting-edge chatbot at a fraction of the cost of its American competitors. It sent the stock prices of American tech companies plummeting.
But Microsoft CEO Satya Nadella put a happy spin on the whole episode, citing a 160-year-old economics concept to suggest that this was good news.
"Jevons paradox strikes again!" Nadella wrote on social media, sharing the concept's Wikipedia page. "As AI gets more efficient and accessible, we will see its use skyrocket, turning it into a commodity we just can't get enough of."
In other words, don't worry, investors! This obscure economics concept shows a profitable path forward even though our competitors are drastically undercutting us. Look, here's Wikipedia and a story about 19th-century coal.
Jevons paradox may remain somewhat obscure, but over the last few decades, it has been cited as a reason why more energy-efficient cars, appliances and light bulbs may fail to reduce our consumption of fossil fuels. It has been cited as a reason why building more highway lanes fails to solve traffic congestion. And it's being cited by people in the AI realm — beyond just Nadella — as a potential reason why AI may actually create more jobs in some occupations rather than mass layoffs.
Today in the Planet Money newsletter, what is Jevons paradox? Where does it come from? How much of it is BS? And why does this 160-year-old concept all of a sudden seem relevant for our futuristic age of AI?
https://www.npr.org/sections/planet-money/2025/02/04/g-s1-46018/ai-deepseek-economics-jevons-paradox