The “jobless recovery” from the 2008 global financial crisis was the deepest in the history of the United States and Western Europe, as companies automated jobs rather than rehiring, researchers said.
Today, the threat to the labor market from artificial intelligence is “on a much larger scale,” said Gita Gopinath, the Gregory and Ania Coffey professor of economics. “The risk is that if we go into a recession within the next few years, we could experience a transition period of much greater job losses than we saw after the Great Financial Crisis.”
The former First Deputy Managing Director of the International Monetary Fund was one of three faculty experts who attended this month’s “From the Studio” FAS Symposium. The livestreamed conversation, moderated by FAS Social Sciences Dean David M. Cutler, touched on geopolitical rivalries, shifting trade alliances, technological disruption, and other topics of urgent importance to the global economy.
“I thought it would start with the future of the dollar as a reserve currency, or maybe tariffs,” said Ralph Ranalli, host and co-producer of the podcast “Economics for Inclusive Prosperity.” “But as the old saying goes, ‘No plan survives once the first bullet is fired.'”
Panelists Carmen M. Reinhart and Minos A. Zombanakis, professor of international financial systems at Harvard University’s Kennedy School, said the economic impact of the prolonged U.S.-Israel war on Iran goes far beyond soaring oil prices. Food, fertilizer and transportation costs may also increase.
“In other words, inflation risks are rising,” Reinhart said, adding that the Federal Reserve’s efforts to cut interest rates could be halted.
Panelist Dani Rodrik, Ford Foundation Professor of International Political Economy at HKS and co-director of the Economics for Inclusive Prosperity Network, said that since President Trump took office 14 months ago, the global economy has proven “surprisingly and unexpectedly relatively unaffected” by the flurry of shocks from tariffs and other measures.
But the authors of Shared Prosperity in a Divided World: A New Economics for the Middle Class, the World’s Poor, and Our Climate (2025) also recognize a psychological disconnect with the fundamentals of the US-led economy.
Rodrik feared that the cumulative crisis would eventually cause “a dissolution, a dissolution of the kind of optimism that still drives growth in the United States and provides some stability to the rest of the world.”
A year ago, it looked like the world was moving away from the US dollar. Roderick recalled that the dollar weakened after President Trump introduced “Emancipation Day” tariffs last spring.
Roderick interpreted these events as “a very clear vote of no confidence in the United States.”
But new wars in the Middle East appear to have strengthened the dollar’s status as a safe-haven currency for global investors and central bankers, panelists agreed.
“We saw a resurgence of the dollar as the classic ‘flight to quality’ took hold,” says Reinhart, co-author of “This Time Is Different: Eight Centuries of Financial Folly” (2009).
With no alternatives in sight, what could ultimately trigger a “flood” of dollars? Reinhart suggested reintroducing capital controls similar to the gold holding limits imposed by President Franklin D. Roosevelt in 1933.
Reinhart noted that capital controls are not currently on the table in the United States.
“Again, I didn’t think 19th century tariffs would be on the table,” she said.
Britain’s withdrawal from the European Union (EU) came to mind as it considered the potential long-term impact of US tariffs. Both events were driven by calls for tighter borders and more support for domestic supply chains.
Gopinath said that from the beginning, the consensus was that the 2016 Brexit referendum would damage the UK economy. However, investment rates remained strong two years later.
“It seemed like a lot of fuss,” said Gopinath, who returned to Harvard’s faculty last fall after more than six years at the IMF. “But system-wide it worked slowly. In retrospect, the estimated impact of Brexit on the UK economy was huge.”
Ranalli asked whether the global economy would be in recession without AI, alluding to recent hundreds of billions of dollars of investment in the technology. Gopinath immediately replied, “No.”
Did the panelists think that current AI investments, which are increasingly credit-funded, represent a bubble?
“Do you have symptoms? The answer is yes,” Reinhardt said.
Rodrik argued that AI has the potential to act as an equalizer. “We need the knowledge, skills and experience of more educated professionals, but we make it available to those with less skill and experience,” he said.
The challenge is that making technology serve the public good will require a level of democratic engagement that is currently unimagined. By some estimates, 30% of jobs in developed countries like the United States are vulnerable to disruption by artificial intelligence.
If an AI bubble were to emerge and burst, the damage could extend far beyond individual households. Panelists took turns assessing the potential impact on the global economy, citing a 2021 paper by Princeton University economist Atif Mian.
Gopinath said that in most countries, most of the public revenue comes from taxing labor income. Capital income is taxed at a lower rate for the legitimate reason of encouraging investment.
“But if AI is transformative and labor’s share falls even more significantly and capital’s share rises even more significantly, we cannot implement the kinds of programs we are currently running from an entitlement perspective without raising capital income taxes,” she said. “That’s not viable.”
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