How AI Will Reshape Prices, Politics, and Power
While thoughtful, this article tries to mix old economic theory with old political theory to predict or suggest outcomes for the future. This is futile. Technocrats want to destroy our current political system and convert the economic system into Technocracy. Do you see the problem?
Public opinion is split into a few clear camps on AI and work. Some call for moratoria and tight limits, some say AI is just another productivity boost, some argue for universal payouts, and consulting shops map job-by-job exposure. Each stance focuses on particular short-term effects rather than a full economic theory of the whole.
My approach is simple: AI will create a radical shift in the relative scarcities of goods, and that shift will force a radical re-politicization of social life. Treating AI as merely faster automation misses how its cognitive substitution changes the basic constraints of production. The political consequences follow from altered scarcity, not just better tools.
- Panic and moratoria on data centers and development.
- Optimists who expect higher productivity and rising real wages.
- Proposals to hand out universal cash as AI replaces work.
- Consultants listing which jobs will be affected when.
AI will make cognitive tasks dramatically cheaper: writing software, answering calls, diagnosing images, and eventually driving and managing logistics. When the brain-driven portion of production collapses in cost, that creates a huge, uneven negative cost shock across the economy. Some sectors will deflate fast, others not at all.
Physical inputs—land, steel, timber, rare minerals—cannot be made by AI out of thin air. Even if robots build cars and houses, the raw materials and especially land remain scarce. As AI lowers labor costs, demand for these physical inputs rises, pushing their relative prices up.
Think of TV prices falling while land values in cities climbed; AI will trigger a greater reshuffling of relative prices over the next decades. Bottom line: land and raw materials will become the key contested goods, central to individual living standards and geopolitical rivalry. There is also a third constraint—politics itself—but that follows once the economic picture is clear.
This vision assumes three things: AI keeps getting cheaper, capabilities spread widely, and no new binding constraint—like sudden energy bottlenecks—appears. If those premises hold, brain-substituting inputs become abundant while physical inputs stay scarce. That flips much of the economy on its head.
Historically, productivity gains in some sectors spread across the workforce, a fact I call “Baumol’s prosperity sharing,” related to the better-known “Baumol’s Cost Disease.” When brains were scarce, productivity increases in manufacturing helped raise wages broadly. If human cognition stops being a bottleneck, that sharing mechanism weakens or disappears.
When cognitive labor ceases to command scarcity rents, the economic leverage that workers extract from the market falls toward zero for many occupations. Yet political leverage—the ability to demand redistribution through votes—may not fall in step. That divergence breeds pressure for bigger government intervention. If the market no longer determines incomes, politics must.
The likely result is intense politicization over allocation of scarce physical goods and distribution of income. Debates that once centered on taxes and regulation will become contests over who gets land, materials, and government income streams. This is not just left versus right; it reshuffles our whole incentive structure and social hierarchy.
American political culture prizes self-reliance and markets; a sudden shift toward government-directed distribution would be unfamiliar and risky. Governance quality will matter far more: a nation with competent institutions will convert AI gains into broad prosperity, while weak governance will squander them. Politics itself becomes a binding economic constraint.
Between now and any long-run equilibrium, expect messy transitions: disrupted unions, new immigration debates, and a rethinking of higher education’s purpose. Industrial policy must reckon with the endgame as much as the transition, because short-term fixes without a clear long-term frame will lead us off course. How we govern AI’s fruits will decide whether it enlarges liberty or concentrates power.