In the Labor vs. Capital Fight, Be Capital
Time to bust out your faded Che Guevara t-shirt from college and your never-read copy of Das Kapital because we’re going to talk about rising up and seizing the means of production! OK, not really. But I am going to try to convince you that in the labor vs. capital fight, AI gives an enormous advantage to the capital side and you need to plan accordingly.
Fundamentally, there are two ways to make money: labor and capital. If you have a job, you’re a laborer (or a worker, a wage earner, or, if you’re of an especially Marxist mindset, a proletarian). If you own stocks, bonds, or a business, you’re a capitalist. (Yes, holdings in your IRA and 401(k) count.) Obviously, lots of people are both—they have both a job and investments. Each person has their own capital-labor split, depending on how much they earn from investing versus working.
On a national level, the capital-labor split in the United States was relatively stable for a very long time but in recent decades has been shifting. The labor share has been declining, meaning that workers have been getting less of the total income of the country and business owners have been getting more. Economists debate the reasons behind this but I’m here to argue that this disparity is about to get worse. Much, much worse.
In short, AI is capital that can substitute for labor. It can’t do everything that people can do—at least not yet—so it’s not a perfect substitute in every case. But most jobs don’t require that people do everything they’re capable of doing, and AI can in fact already outperform people at a large and growing number of jobs. And AI gets better.
What happens when labor simply isn’t needed as much? What happens when it isn’t needed at all?
We’ve all seen the charming lists of jobs that no longer exist: lamplighter, street clerk, rickshaw puller, plowman, elevator attendant, etc. Jobs can and do disappear. (What even is a street clerk?) But AI doesn’t even have to be capable of doing the whole job. If it can do only half of your job, making you twice as productive, the size of your team may soon be cut in half.
As demand for labor decreases, so do wages. As AI becomes capable of doing more and more of the jobs that people currently do, we’ll eventually reach a point where wages collapse and jobs become scarce.
Once your labor is no longer valuable, selling your labor (i.e., having a job) is no longer a feasible way to make a living. What’s a worker to do, you ask? Simple: don’t be a worker. Be a capitalist. Own capital. For most people, that means owning things like bonds, stocks, or even entire businesses. Earn your income from dividends paid to shareholders, or from profits made buying and selling these assets. Problem solved!
Admittedly, this prescription may sound a little tone-deaf, like I’m suggesting that the way to prepare for unemployment is just to “be rich”. And sure enough, as a general rule only the wealthiest people today can afford to live comfortably off of their investments. But I’m not saying that.
I’m saying you need to shift the source of your income from labor to capital and to be prepared for the income you earn from capital to be sufficient to meet your needs. There’s a window of time in which you can do that, but it’s closing. Once you can no longer be paid to work, the window will have closed. (This is exactly the situation workers approaching retirement have always faced, just on a foreshortened timescale.)
As you shift your personal capital-labor income split away from labor and towards capital, you’ll insulate yourself against wage deflation and unemployment.
This is the advice I’ve given my kids, who are currently in college. Do I sound like an AI doomsday prepper? Um, maybe. Do I still think it’s good advice? Yep. And if the worst-case outcome is that they don’t drive as nice a car, live in as big a house, or take trips as fancy as do their friends early in their careers and instead wind up with a beefy investment portfolio, well, maybe that’s not so bad.