In his Farewell Letter from America, Daron Acemoglu writes about worrying developments and the need for more research
This is my last Letter from America. I have enjoyed sharing my thoughts with you over the last four years, but I feel that it is time to pass on the baton so that readers get new and different perspectives.
I want to take this occasion to go back to the issues I discussed in my first Letter, written in September 2021 and published in October 2021, and see how the United States and the world have fared on the issues I discussed there.
In 2021, I argued that the world and America were at a critical juncture – a term that James Robinson and I defined in Why Nations Fail to mean a period of unusual instability because existing institutions are destabilized by new technologies, demographic changes, or external factors, such as wars or pandemics.
It wasn’t just Covid-19 that made 2021 a critical juncture. Rapid advances in technology were visible, even before the AI fever set in with the November 2022 release of ChatGPT. These technologies were understood to have the capability to transform our social, political, and economic lives. It was also the striking increase in inequality in the United States that had been going on since 1980, driven in part by the ever-increasing number of multibillionaires, and in part by the real wages of lower-education workers that have stagnated or even declined as the economy continued to grow.
Climate change added to the uncertainties that many felt around this time, which were further amplified by the recognition, amplified by the failures of the WHO and international coordination during the pandemic, that existing international institutions and norms of global cooperation were no match for the common challenges the world was facing.
Equally ominous were the problems of democracy that had become all too apparent, not just elsewhere in the world, where authoritarian regimes were consolidating and democratic ones were looking shakier – it was in the United States as well, where even with President Biden, then in power with the promise of restoring democracy, it was clear that political polarization and extremism on both the left and the right were taking a toll.
I argued at the time that these changes were clear and present dangers for the stability of the economy and the political systems on both sides of the Atlantic, but also topics that required more serious research from economists. In hindsight, the problems were deeper and our understanding poorer.
Like most others, I probably underestimated the severity of the critical juncture, and how ill-prepared traditional politicians and parties (and perhaps policy tools) were for dealing with it. This is a good time to revisit these and other challenges, now that the world is at the cusp of an even deeper and more dangerous critical juncture, as we are watching a global trade war and domestic institutional erosion in the United States. It is also a good opportunity to take stock of how economists have approached these problems over the last few years.
On artificial intelligence
The last few years have been discombobulating when it comes to artificial intelligence news and claims of AI-powered economic, social, and humanistic revolution. Indeed, when one talks to industry insiders, reads their blogs, or listens to most technology reporters in leading newspapers, one might quickly come to believe that artificial general intelligence (AGI), where AI technologies reach human-level cognition and can perform almost all human tasks, is just around the corner. Yet reality is more complicated. Despite mesmerizing advances in large language models for text and speech, diffusion models for image generation, and use of AI tools in a few areas of scientific inquiry, there has been relatively little progress in using AI in the production process. Many commentators and some economists are optimistic that AI will lead to a massive productivity revolution. Yet, it remains unclear where these productivity gains will come from.
Economic research in this area is essential for providing us with a better understanding of the labour market consequences of AI and how and when productivity gains could be realized. Research in this area is flourishing and becoming more varied, though my assessment is that most economic research still starts with a presumption that AI technologies will bring massive gains. More critical research on AI may be necessary.
On inequality
Even before 2021, the literature on inequality was vast and growing. It has continued to grow. Economists’ approach has been multifaceted. One area that may have received insufficient attention in the past is the role of monopoly power, especially in the tech industry, as a driver of these inequalities. Many economists used to interpret the huge profits of tech companies as being due to the quality of their products and to the natural “winner take all” dynamics of the tech industry, rather than being driven by monopolistic abuses.
My own interpretation is that monopoly power is much more important than previously appreciated. Silicon Valley is now home to the largest corporations humanity has ever seen. At the beginning of the 20th century, when US society and lawmakers were alarmed about the growing power of “trusts” (large corporations), the two leading companies, Standard Oil and US Steel, had market capitalizations of around $1 billion, which in today’s currency would be worth about $32 billion. In comparison, Alphabet/Google’s and Amazon’s market valuations are hovering around $2.3 trillion, Apple’s is above $3.6 trillion, and Microsoft’s is close to $3 trillion. Today’s tech giants also have revenues that are more than 100 times those of early 20th century trusts, including Standard Oil and US Steel.
There is also evidence that these companies are not just growing because of their superior offerings, but because they are strategically able to block entry and acquire rivals, such as Facebook’s purchase of Instagram and WhatsApp. Arguably, such acquisitions did not just help tech giants grow rapidly. They may have also extinguished competition. Economists have been much more engaged with these debates, both pointing out these abuses, and sometimes taking the contrary position in defending these companies.
There is also mounting evidence that some of these companies may be abusing their monopoly power. US judge Amit P. Mehta, for example, ruled in August that Google had illegally monopolized the search engine market, among other things, by paying billions to be the default search engine on various platforms.
Even more worrying is the fact that, despite the oft-claimed innovativeness of these companies, there is recent evidence suggesting that, as they have monopolized resources, innovators and scientists, social gains from their dominance have been short of bullish expectations. For example, once an innovator starts working for these large corporations, they are less innovative than they used to be in smaller companies.
Broader issues related to rising monopoly power in the industrialized world are discussed and summarized in the recent book by Jan Eeckhout, The Profit Paradox. Much more remains to be done on inequality, but the fact that economists are approaching different facets of inequality, including those related to product market abuses, is encouraging.
On climate change
The world’s track record in slowing down climate change has been disappointing, but the economics literature on this topic has continued to grow. Important areas that may need more research from economists and new thinking among policymakers are global cooperation (which looks much more maimed at the moment with the Trump administration’s second withdrawal from the Paris Accords) and what holds back the adoption of new, lower-emission technologies, including renewables, especially in the developing world. I also believe, unsurprisingly – since I have worked on this topic – that how policies and various market factors will influence the development of new cleaner forms of energy remains a critical question.
On democracy
Some of the worst news of the last four years concerns democracy. Almost everywhere around the world, support for democracy is in decline, especially among the young. In the United States, trust in public institutions is at an all-time low. The title of a recent Pew Research Center report says it all: “More than 80% of Americans believe elected officials don’t care about what people like them think.” Worse, political polarization has reached alarming proportions in the United States and elsewhere. This creates an environment ripe with dangers for democracy, especially when authoritarian populists – intent on weakening checks and balances, breaking democratic norms and using state institutions against their rivals – come to power. We are seeing exactly these dynamics in the United States at the moment.
This is the area where much more research is necessary, since the roots of polarization are still unclear. Economists have been contributors to this area. While political scientists have emphasized the dangers of democratic collapse and civil war in such polarized environments, research in political economy (including my own recent work) has focused on the causes of the decline in support for democracy, and polarization. There is new evidence suggesting that a major driver of polarization has been parties’ emphasis on cultural issues. There are many who believe that social media and digital technologies have fuelled polarization, but we lack conclusive evidence on this. The interplay of technology and polarization constitutes a challenging and important area for economic research.
Overall, I believe, as I did in 2021, that we are in the midst of a major critical juncture. While not all hope is gone, I am more worried today than I was four years ago that collapsing institutions, worsening monopoly power and inequalities, and dangerous directions of new technologies are likely. It is definitely no silver lining, but still worth emphasizing that sound and creative economic research remains essential, and these destabilizing changes offer plenty of interesting and difficult questions for new thinking in economics.
Daron Acemoglu
2 February 2025
Further reading
Acemoglu, D. (2025). The simple macroeconomics of AI. Economic Policy, 40(121), 13-58.
Acemoglu, D., Aghion, P., Barrage, L. and Hémous, D. (2024). Climate change, directed innovation, and energy transition: the long-run consequences of the shale gas revolution. Manuscript, September.
Acemoglu, D., Ajzenman, N., Aksoy, C. G., Fiszbein, M. and Molina, C. (2025). (Successful) democracies breed their own support. Review of Economic Studies, forthcoming.
Acemoglu, D., Aksoy, C. G., Baysan, C., Molina, C. and Zeki, G. (2024). Misperceptions and demand for democracy under authoritarianism. VoxEU, 16 December.
Acemoglu, D., Kong, F. and Restrepo, P. (2024). Tasks at work: comparative advantage, technology and labor demand. NBER working paper no. 32872.
Acemoglu, D. and Robinson, J. (2012). Why nations fail: the origins of power, prosperity and poverty. Profile, London.
Akcigit, U. and Goldschlag, N. (2023). Where have all the ‘creative talents’ gone? Employment dynamics of US inventors. Manuscript, March.
Andreessen, M. (2023). The Techno-Optimist Manifesto. https://a16z.com/the-techno-optimist-manifesto/
Autor, D. H. (2014). Skills, education, and the rise of earnings inequality among the ‘other 99 percent’. Science, 344, 843.
Barrett, P. M. (2021). Fueling the fire: how social media intensifies U.S. political polarization – and what can be done about it. NYU Stern, Center for Business and Human Rights. https://bhr.stern.nyu.edu/publication/fueling-the-fire-how-social-media-intensifies-u-s-political-polarization-and-what-can-be-done-about-it/
Buchholz, W. and Sandler, T. (2021). Global public goods: a survey. Journal of Economic Literature, 59(2), 488-545.
Deane, C. (2024). Americans’ deepening mistrust of institutions. Pew, https://www.pewtrusts.org/en/trend/archive/fall-2024/americans-deepening-mistrust-of-institutions
Eeckhout, J. (2021). The profit paradox: how thriving firms threaten the future of work. Princeton University Press, Princeton.
Gautier, A. and Lamesch, J. (2021). Mergers in the digital economy. Information Economics and Policy, 54, 100890.
Hatfield, J. (2024). More than 80% of Americans believe elected officials don’t care what people like them think. Pew, 30 April. https://www.pewresearch.org/short-reads/2024/04/30/more-than-80-of-americans-believe-elected-officials-dont-care-what-people-like-them-think/
Ivaldi, M., Petit, N. and Unekbas, S. (2023). Killer acquisitions: evidence from EC merger cases in digital industries. Antitrust Law Journal, forthcoming. http://dx.doi.org/10.2139/ssrn.4407333
Kerr, D. (2024). Justice Department calls for sanctions against Google in landmark antitrust case. NPR, October. https://www.npr.org/2024/10/09/nx-s1-5146006/justice-department-sanctions-google-search-engine-lawsuit
Korinek, A. and Suh, D. (2024). Scenarios for the transition to AGI. NBER working paper no. 32255.
Kotchen, M. J., Deryugina, T. and Wolfram, C. D. (eds.) (2024). Environmental and energy policy and the economy, Volume 6. NBER, in preparation. https://www.nber.org/books-and-chapters/environmental-and-energy-policy-and-economy-volume-6
Kwok, R. (2023). A wave of acquisitions may have shielded Big Tech from competition. Yale Insights. https://insights.som.yale.edu/insights/wave-of-acquisitions-may-have-shielded-big-tech-from-competition
Levitsky, S. and Ziblatt, D. (2018). How democracies die: what history reveals about our future. Viking, London.
Longuet-Marx, N. (2025). Party lines or voter preferences? Explaining political realignment. Columbia University, January.
McKinsey (2023). The economic potential of generative AI: the next productivity frontier. https://www.mckinsey.com/capabilities/mckinsey-digital/our-insights/the-economic-potential-of-generative-ai-the-next-productivity-frontier#introduction
Nobel Prize in Chemistry, 2024: https://www.nobelprize.org/prizes/chemistry/
Pew (2014). Political polarization in the American public. Report, https://www.pewresearch.org/politics/2014/06/12/political-polarization-in-the-american-public/
Roose, K. (2024). Podcast. https://www.kevinroose.com/hard-fork-1
Tangermann, V. (2024). Sam Altman says AGI is ‘achievable with current hardware’. Futurism, https://futurism.com/sam-altman-agi-achievable-current-hardware
Walter, B. F. (2022). How civil wars start: and how to stop them. Viking, London.