The Current Market Mechanism Will Break Down in the Full Machine Age
Businesses will be making all the stuff that nobody has the money to buy because they lost their jobs.
In my last post, I discussed the true nature of AI systems and the transformative potential they will bring to society. Put simply, AI systems are machines that can mimic and automate any intelligent behavior within the bounds of their context windows. (I will later dive deeper and write another post on the theoretical perspective of transformer models to mimic any intelligent behavior and reverse local entropy.)
It is important to note this point: Any known and existing methods, production processes, and human and animal behaviors can be imitated and automated by AI systems. Artificial Intelligence, is really just what it says on the tin. It exhibits intelligent behavior, but it is artificial. In the sense that it can only mimic behaviors that already exist within its training data. It can only do what humans are doing already.
Therefore, in the near future, we will enter a new age in which the day-to-day functioning of the economy to create goods and (most) services will be completely automated. I call this the Full Machine Age.
It is clear that the existing definition and scope of many jobs will no longer exist in this economy. Many people will not have a job anymore. Most people are not innovators and will have very little to offer to the process of value creation because AI will automate all known methods of value creation. The exceptions are services in which human interaction is the product itself.
The conclusion is clear: Redistribution of income is the only way forward. In an economy where 98% of people don’t have a job, corporations will be producing all these goods and services that nobody has the money to buy. The market mechanism will simply collapse.
Many people in the Valley propose Universal Basic Income (UBI) as the way forward, in which the state gives each adult a fixed monthly payment equally, no questions asked. Elon Musk calls it Universal High Income (UHI). The fixed monthly payment from the state is so high that everyone can live the American dream, for free. However, no one seems to have an adequate proposal on how the state funds the UHI.
Sam Altman has a proposal for what future capitalism looks like. Put simply, prices for most goods and services will fall to near-zero due to AI and automation. The state will hold 2.5% of shares of every single corporation and redistribute the share dividends equally to the public.
This proposal, in fact, resembles China’s economic model of State Capitalism, where state-owned and private enterprises compete within the market mechanism, but the percentage of state ownership is much reduced. The only problem is that I think this system still underestimates the scale of job displacement and the capability of AI systems to completely automate the economy. Redistributing only 2.5% of income when 98% of people don’t have a job is simply not enough. The market mechanism will still break down.
I believe there is still a role for the market mechanism to play in the Full Machine Age. This is because prices will never completely fall to zero. Energy has a price, resources have a price, land has a price, and time has a price. No technology or automation can break the laws of thermodynamics.
The market mechanism, as Adam Smith put it as the invisible hand, is an information processing mechanism to balance supply and demand. Different people want different things. Energy, resources, space, and time are still finite. When a lot of people want the same good or service, the price for that good or service will increase to lower the demand.
We still need the market mechanism. It’s just that AI and automation will almost completely remove labor as a factor of production.
On the other hand, there will still be some jobs left. Humans are still needed to move society forward.
I believe AI only has the ability to automate existing methods and human behavior, and does not have the ability to create new knowledge, at least not independently. There still need to be incentives for those who have the skills and drive to become innovators.
Innovation is hard, very hard indeed. There is a lot of personal suffering involved in creating something new. UHI will allow those innovators to have a safety net and not worry about the basic necessities of life. However, there still needs to be an upside for people to put in more effort and take more personal risks than others who are not doing so. Society still needs a mechanism to reward innovators materially.
So, how might the future economy look if labor is mostly removed from the factor of production, yet retaining a market mechanism to balance supply and demand, and a reward mechanism for innovators? I will reveal this in the next post.
