SEC Chair Gary Gensler has raised concerns about the adoption of artificial intelligence (AI) and its potential impact on the global economy. In a paper co-authored with MIT engineer and computer scientist Lily Bailey, Gensler argues that the widespread use of AI could lead to a highly interconnected and fragile economic system, leaving it vulnerable to a major crisis.
Gensler’s paper suggests that if too many deep learning programs with similar models are embedded into our economic structures, it could result in a catastrophic crash. The authors warn that the current regulatory frameworks designed to manage traditional human-paced fintech and analytics may not be equipped to effectively oversee the rapid advancements in AI and the potential risks associated with it.
One of the key concerns highlighted in the paper is the risk of data crowding and herding, where models built on the same datasets generate highly correlated predictions that proceed in lockstep. Essentially, if multiple advanced models draw the same conclusions at the same time, it could have detrimental consequences.
Beyond model predictions, Gensler and Bailey also express concerns about machine bias. AI systems, even with existing guardrails, can be influenced by the social prejudices of their human creators. Rebuilding financial systems based on biased predictive programs could have devastating effects, especially for marginalized groups.
However, one positive aspect to note is that Gensler, who has been aware of these potential impacts since 2020, now holds a prominent position as the Chair of the US Securities and Exchange Commission (SEC). He has been vocal about the financial harms AI can pose and has emphasized the need for regulation.
In a recent interview with The New York Times, Gensler asserted that AI could be at the center of future financial crises due to its inherent scale and network effects. While he has shown awareness of these risks, the article acknowledges that meaningful regulatory action is yet to be seen.
The concerns raised by Gensler and Bailey’s paper highlight the need for vigilance and proactive regulation to prevent potential economic disasters resulting from the widespread adoption of AI. It is essential to carefully navigate the integration of AI into financial systems to safeguard against fragility, interconnectedness, and bias. By addressing these challenges, it is possible to harness the transformative potential of AI while protecting and enhancing the stability of the global economy.
