AI and Economic Ideas: A Discussion with Diogo Costa

Artificial intelligence is rapidly changing the global economy. However, Diogo Costa believes that the true danger to prosperity lies not in technological disruption but in the re-emergence of faulty economic theories. According to him, outdated economic ideas are making a comeback.

Costa, who heads the Foundation for Economic Education (FEE), feels that the current affordability crisis is a prime opportunity for socialist ideologies to attract younger generations, suggesting that economic education could counteract this trend.

In a recent interview at Freedom Fest in Las Vegas, he shared his thoughts on free markets, the intersection of freedom and technology, and how his experiences growing up in Brazil provide him with a distinct perspective on economic policy today.

Gen Z faces a challenging economy, making the American dream seem unattainable.

“Today’s biggest challenge is the resurgence of ‘anti-economicism’ in various forms. This time, it’s taking shape through a new brand of socialism. Over the last century, we’ve seen many versions, including trade union socialism and environmental socialism. Now it’s manifesting as cost-of-living socialism,” he noted.

Costa asserts that while young people generally acknowledge the benefits of a market economy, they often call for strong interventions that they believe will directly benefit them.

“Young people want to live in a market economy; they don’t aspire to move to places like Venezuela or Cuba. Yet, they often demand price controls. They want rent freezes and government-managed grocery prices. This isn’t just an issue in big cities like New York or California; it’s a global phenomenon,” he explained.

Costa added that this reflects a new form of ‘anti-economics.’ Referring to the founder of FEE, Leonard Read, he emphasized that good economic ideas need to be continually refreshed to avoid decline into poverty. “We’re now seeing a rise of affordable socialism among Gen Z,” he commented.

He further expressed concern that while market economies foster groundbreaking technology, the ideological foundation of capitalism faces unprecedented challenges.

“We’re in a technological golden age, yet the understanding and appreciation for the market economy seems to be waning. When discussions about AI arise, many jump to conclusions that all jobs are at risk and humanity is doomed,” he noted.

“Despite incredible advancements, there’s a prevailing pessimism and a scarcity of ideas to help us leverage these technologies effectively,” he added.

Costa’s engagement with Austrian economics has allowed him to disentangle economic principles from cultural influences.

“As economist Joseph Schumpeter suggested, capitalism drives economic power but remains culturally weak. Companies create incredible innovation, yet as they do, capitalism can become abstract, making it harder for people to recognize their role in this complexity,” he shared.

There’s a trend where Democrats are attracting Generation Z to socialist ideas – a response is forming.

“At FEE, we sometimes go back to basics, like asking people about how pencils are made. Understanding the complexities of market systems helps individuals see their connection to, and the benefits of, this intricate environment,” he said.

Growing up in Brazil during the volatility of the 1990s deeply influenced his views on economic education and policy.

“I lived through hyperinflation. At around 10 or 11 years old, inflation rates were skyrocketing—over 1000%. Prices changed literally every day. In such an unstable economic climate, it’s tough to navigate life,” he recalled.

“Once, my mother handed me a 1,000-reais note to buy a snack, and I had to rush to the store to avoid price changes,” Costa reflected. “My family converted bedrooms into pantries so they could stock up on food right after payday. When you face these issues, they significantly shape your life,” he added.

Costa also experienced the detrimental effects of protectionism firsthand.

“In the early ’90s, I wanted video games, but severe protectionist policies meant I could only access knock-offs. People often overlook how such restrictions shaped the Brazilian economy,” he explained.

Costa concluded by quoting Milton Friedman, who stated that people forget the lessons of economics when they are not living under hardship. “Economic understanding must be refreshed constantly,” Costa summarized.