The AI-powered Veblen economy (reducibleerrors.com)

A recent discussion in the AI community centers on the potential economic implications of advanced artificial intelligence (AGI) and automation, as highlighted by Philip Trammell and Dwarkesh Patel. They argue that as AIs begin to outperform humans in various jobs, this could lead to a significant economic imbalance, necessitating a system of wealth redistribution to prevent widespread immiseration. Their perspective builds on the Baumol effect, which suggests that as long as some human labor is required, wages will remain stable. However, the concern arises that once automation becomes sufficiently widespread, the demand for human labor could diminish, leading to crashing wages. Central to this debate is the concept of "Veblen goods," which are commodities that gain their value from their exclusivity and status-signifying properties, rather than just their utility. The authors caution that even in a future dominated by AI, there may still be a market for uniquely human products and experiences—products that cannot easily be replicated by machines. The production of these goods could foster employment opportunities and maintain a level of human engagement in the economy, despite widespread automation. This indicates a crucial shift in how we might define wealth and status in an AI-driven era, suggesting that humans will continue to seek out scarcity and exclusivity, not just material abundance.