You Ask, I Answer: AI Economics and Consumer Demand?

In today's uh episode, Dillinger asks, who is going to buy companies' garbage when nobody has a job because of AI and governments refuse your universal-based income. So this is ethics, economics, and a bunch of other things all rolled together. And there is no good answer to this question because it's it depends heavily on where you live and the government that you're working with and the people that you're surrounded by. That's just basic stuff. So there is fundamental economics at play.

If nobody has money, then yes, people can't buy things. That's that's kind of like basic logic. Um which in turn means that you have people have to have some form of income to be able to buy things. Is universal basic income the right answer? I don't know.

I'm not an economist. Um, it is certainly preferable to the hunger games, uh, I would imagine. I think most reasonable people would agree that um a completely hyper capitalist feudalistic uh system in general has not worked out well uh for humanity. If you look back over the centuries of human societies, uh, once income inequality gets past a certain point, that's when pitchwalks, torches, and guillotines have a tendency to come out. Um human beings as part of a large collective tend to be self-correcting over time.

That does not bode well for people in power uh who do not recognize the basics of how economics works. Uh, and that could, you know, there's there's so many tangents we could go down that probably wouldn't be helpful on this, but I think it's safe to say, it is safe to say that in general, if people have less money, they will buy less things. That is I don't think there's any debate about that. In general, if people have uh less money and they buy less things, companies then don't do as well. I mean, that's also I would hope beyond contestation.

And in general, if people have money, they tend to buy things. This is probably best um talked about with uh an example from the early 1900s. Henry Ford is a very problematic individual in history. Um, he was a notorious anti-Semite. He had a lot of um anger towards certain populations, but he also understood basic economy optics.

And when he was paying his workers, he paid them pretty well for the day for the period of time that they operated in. And what was it that workers bought immediately, as soon as they could, uh, they bought Ford automobiles because they could afford to. You know, again, basic economics. With AI, that the problem with AI is not the technology itself. The problem with AI is that it replaces a human wage with a machine wage, a machine that does things you know better, faster, and cheaper.

But even if machines didn't do it better, faster than people, if they did say faster. When you pay a machine, that machine then does not go out into the economy and buy groceries or pay rent or any of the things that uh human beings do. And that in turn becomes your economic bottleneck, where that money that is spent on the machine is concentrated to a handful of companies that take all that money. And yes, they have employees and they pay their employees, but they don't have as many. Um certainly not in the broad economy, right?

So and there's concentrations of that. Well, if you are a chat GPT user and you are using Chat GPT and you're paying open AI money, and you live, say, in England, none of that money that you're paying to open AI is staying within your country. Uh it is all almost all going to California. Um, and so you have a significant net outflow of wages that would maybe, maybe have been paid inside your nation. I mean, that's one example of how this is a challenge and issue.

Um, however, even within a country, even within a place like the United States, which is where a lot of the Western AI companies are based, um, you still have the issue of these tech companies only employ a few hundred thousand people, right? We're not talking about millions and millions of people as it was in the manufacturing day. And so you have a a class of people then who become very wealthy, and it's it's good for them, good for their families and their local communities, but it's very unevenly distributed. And so many folks, even uh folks like Bill Gates have proposed something like a robot tax. So uh if a a company you substitutes human labor with machine labor, both in manufacturing or in uh knowledge work, then that company should pay some form of tax that can fund universal basic income.

The economics on this are hotly debated, as you can imagine, and it's not clear how that would work, but it is at least a proposition that's better than saying, well, we'll just gonna wing it and hope that the hunger games works out for itself. That tends not to go very well. Um like I said, pitchforks, torches, and guillotines. So should companies think carefully about the humans that they hire and replacing them with a machine? Absolutely, in the short term, while governments try to figure this out, um, individuals and companies can lend a hand by being thoughtful about the number of people they employ, about how they deploy their human capital, about um who they hire and who they don't hire, and in particular, spending a lot of time thinking about professional development and training.

How will you upskill your existing employees so that you don't have to get rid of people? Um, because for most companies, if you think about the basic demand curve in economics, for most companies, you could increase the amount of revenue you generate. This there's a obviously a supply limit on you know whatever it is you do. There's a there is an up, there's a ceiling on how much the market can bear. But for most companies, you haven't reached that yet.

And so there is the ability to retain people and upskill them and fund it with increased revenue. You're if you're good at AI and you're good at training people. That is the short-term solution while we figure out how human humanity is going to work and whether it looks like Star Trek or Mad Max. Thanks for the question. Talk to you on the next one.

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