The pace of wealth concentration is accelerating … AI is our economic future … where’s the line for who pays UBI? … the problem with incentives … Luke Lango’s AV/EV research
Imagine a billiards table with its pool balls spread about the table randomly…
Now, imagine hoisting up a corner of the table so that all the balls roll into a single pocket.
This is the financial impact of Artificial Intelligence (AI) on global wealth.
AI is lifting the billiards table… the pool balls are global wealth/investment capital… and the one pocket receiving all the balls are the owners of the businesses that wisely and effectively implement AI technologies.
What about the five other empty pockets?
Well, they’re the businesses that fail or are unable to adapt to next-gen AI technology or business models. They’re also the “regular Joes” who get shafted financially as AI steps in to do their jobs faster, better, and cheaper.
Assuming things play out this way (which, to be fair, isn’t guaranteed), let’s jump to the investment takeaway, which would reduce to one action step…
Forget stock market valuations… forget traditional efforts to sidestep a bear market and time your entry… forget dollar-cost-averaging… forget all the rules of traditional wise investing…
Just get your money invested.
Specifically, get your money aligned with the companies that are going to leverage AI effectively and be on the receiving end of all the “pool balls.”
After all, in the era we’re entering, there will be just two types of people: the owners of AI, benefiting from the lopsided flow of capital, and everyone else, who are watching AI swallow their former economic productivity like light into a black hole.
Yes, this is dystopian, and hopefully, things don’t play out this way. But when you follow the logic – and the trajectories of wealth concentration and technological advancement over recent decades – it’s clearly the direction we’ve been headed and continue going today.
In it, two men watched a mechanical shovel digging a hole.
“If it wasn’t for that machine, 12 men with shovels could be doing that job,” gripes one of the men.
The other replies, “If it wasn’t for your 12 shovels, 200 men with teaspoons could be doing that job.”
At its core, technology accomplishes more with less. Of course, from a wealth perspective, what that means is that the “less have more.”
We’re already decades into this wealth shift. Here’s Chicago Booth Review:
Since the 1930s, the share of the US economy dominated by the top 1 percent of companies (when sorted by assets) has increased to 90 percent, up from 70 percent.
Meanwhile, the asset share of the top 0.1 percent of companies has risen to 88 percent, up from 47 percent…
This transfer will only accelerate now that AI is here – despite massive pushback from the workers impacted by AI technologies.
The most recent example of this clash came last week with the International Longshoremen’s Association (ILA). The union was on strike for two reasons: one, they wanted more money; two, they wanted assurances that they wouldn’t be replaced by automated robots on the docks.
Let’s begin with the “money” part of this.
Here’s USA Today:
The current top wage amounts to about $81,000 per year, but according to a Waterfront Commission of New York Harbor report about a third of local longshoremen made $200,000 or more a year…
The average U.S. salary was about $59,000 in the fourth quarter of 2023, according to the U.S. Bureau of Labor…
Meanwhile, the ILA [was] demanding a 77% increase over the duration of the contract…
With this kind of money on the line, ethics aside, if you’re top brass at the United States Maritime Alliance (the group representing the ocean carriers and docks), will you not be tempted to just walk away from the negotiating table and walk straight to the nearest robotics company?
After all, a robot works 24/7… never gets sick… doesn’t require overtime pay… won’t ever have an accident that requires medical pay… won’t demand a 77% pay increase… and eventually, will pay for itself many times over.
As we noted last week in the Digest, back in 2016, former McDonald’s USA CEO Ed Rensi said something that foreshadows this entire issue:
It’s cheaper to buy a $35,000 robotic arm than it is to hire an employee who’s inefficient making $15 an hour bagging french fries.
Companies like Amazon and Walmart are years-deep into this transition.
We showed the following graphic last week. It illustrates how in 2013, Amazon used about 1,000 robots in its warehouses. Last year, that number clocked in at 750,000.
Why would this trajectory switch course?
It won’t.
Fewer people are earnings more money – should they be penalized?
This isn’t just “Big Tech taking all the money.” We’re seeing smart solopreneurs taking their share of the pie too…all by themselves.
Last year, WGMI Media ran a story about Justin Welsh, a solo entrepreneur who makes $2.5 million per year selling digital products – with zero employees.
According to Starter Story’s 2024 report, over 163 solopreneurs are making millions without employees by running businesses in various sectors like SaaS, e-commerce, and digital products.
Logically, this makes perfect sense…
Thirty years ago, entrepreneurs who started “commerce” businesses needed a manufacturer… someplace to store inventory… a sales team… a physical storefront… distribution… an accountant…
Consider what that would mean for employee headcount and overhead expense.
Today, technology has replaced virtually all those roles, which means the solopreneur leveraging those technologies keeps all that money as profit.
Big Tech is playing out this dynamic on an enormous scale.
Our CEO Brian Hunt recently speculated that, thanks to AI, we’re not far from seeing the rise of the world’s first billion-dollar single-person company.
Now, this spiderwebs onto all sorts of questions and issues…
Is this ethical?
To what degree should our government regulate businesses to prevent this? Would our Constitution even allow such government interference?
Do the companies leveraging AI have an obligation to the masses who lose their jobs to technology?
Now, a kneejerk reaction might be, “Heck yeah! Big tech must pay an enormous tax to fund Universal Basic Income (UBI) for all the people it puts out of work!”
But let’s make it more personal…
What about Justin Welsh from just a moment ago? Should the government force him to fork over an enormous percentage of his $2.5 million from selling digital products to fund UBI because he didn’t need any employees?
How would that be fair?
Assuming Welsh just had a smart idea for a digital product, then leveraged online tools/services available to everyone, why should he not benefit from his idea and hard work that didn’t require employees? Is that anything other than economic Darwinism?
But take this idea a step farther…
What about Brian’s idea – the solopreneur who creates a billion-dollar business with zero employees? Does he/she have an obligation to pay for all those people he didn’t have to hire as employees?
Why?
If so, where’s the line between Welsh and a billion-dollar company?
More importantly, who decides where that line is? Some politician in Washington, DC, who has never created his/her own business?
If AI businesses/entrepreneurs are required to fund UBI from their profits, consider the impact on the incentive structure…
Why would anyone want to create a new business and attempt to innovate if the government is going to step in with, say, a 75% UBI tax on profits?
Well, they wouldn’t. In fact, we’ve already seen a version of how this plays out.
In 2012, the newly elected French president at the time, François Hollande, imposed a “super tax” on the French ultra rich
It was a 75% marginal tax rate on annual incomes above €1 million (about $1.35 million at the time), targeted at both individuals and companies paying high salaries.
The super tax caused an uproar amongst the wealthy, and between 2012 and 2014, it’s estimated that more than 10,000 millionaires fled France, relocating to countries with more favorable tax regimes.
And what was the financial impact on France?
Some estimates put it at a loss of €35 billion to €50 billion as the wealth fled.
By the end of 2014, Hollande’s government quietly allowed the policy to expire.
Clearly, any tax policy must be implemented only after carefully considering the incentive structures and likely daisy chain of economic consequences.
That said, a system where the vast majority of the wealth funnels into the hands of a limited few isn’t healthy for a nation’s economy, nor social peace.
Lots of questions with deep shades of ethical gray.
But for you and me, as things stand today, what’s clear is that whether we do it as AI solopreneurs or by aligning our wealth with top-tier AI companies (via their stocks), if we want to avoid being a “have not” tomorrow, being an AI owner – in some way – appears increasingly necessary.
That brings us full circle to our earlier hypothetical action step of how to do this (barring being a solopreneur):
Forget stock market valuations… forget traditional efforts to sidestep a bear market and time your entry… forget dollar-cost-averaging… forget all the rules of traditional wise investing…
Just get your money invested [in] companies that are going to leverage AI effectively and be on the receiving end of all the “pool balls.
To be clear, that is NOT our actual action step today. Ignoring valuation isn’t smart. And as our Editor-in-Chief Luis Hernandez stressed recently in a conversation, just because a company claims they’re an AI leader doesn’t mean they are. Investors need to do their due diligence to make sure they’re investing in companies that are effectively using AI to propel their businesses forward…not just using AI as a marketing gimmick.
That said, our trajectory is clear: AI is our future.
And this dovetails into an important event that took place this morning with our technology expert, Luke Lango…
Earlier today, Luke held a special event to help prepare for the fast-approaching Autonomous Vehicle Revolution
Tying into today’s Digest theme, what happens when hundreds of thousands of taxi drivers, Uber drivers, Lyft drivers, and truck drivers are no longer needed by their companies? And what happens when millions of vehicle owners no longer need to buy cars or drive themselves?
All the salary expense from companies that had to employee drivers… all the maintenance cost that had to be spent by car owners…
To where does that money now flow?
Well, to the handful of companies utilizing the groundbreaking AI technology.
So, back to our point…
Are you going to be amongst the group of individuals who benefits from all the pool balls rolling into that one pocket?
Or are you going to be one of the majority of individuals who are watching this flow of capital from an empty pocket?
Bottom line: The greatest wealth shift in history is on our doorstep. Get ready for it.
