Transcription
Companies have been trying to cut down on workers for as long as those workers have demanded pay and benefits. Whether it's downsizing, outsourcing, streamlining, or understaffing, or automating, if there is something a business can do to get rid of workers and their salaries, you better believe they are going to do it.
But this time does feel a little bit different. Recent AI advances have been mocked for not quite living up to the bold claims of their tech bro founders. But even in their current imperfect form, LLMs, general-use robots, and generative models are already replacing jobs, and they are getting better every day. So that's bad for workers. But if you're a senior corporate executive or company owner, maybe you should be asking yourself, if we automate everybody's job, who is going to buy all of your [ __ ]?
A new study out today is predicting almost half of all global jobs could be affected by artificial intelligence. That 40% of all jobs around the world will be impacted by AI and found AI could replace 300 million full-time jobs, including positions in the legal and engineering fields. So far, there are nine robots here doing the work of more than 250 humans.
I have some good news and some bad news for your theoretical company. The good news is that labor reduction systems of all varieties have already cut out millions of man-hours in America alone and made the workers who are left more efficient at their jobs. Artificial intelligence is just another tool that your company can use to get more work out of fewer staff or replace teams entirely. Even here at Little O Works Media Group, we used to have someone working part-time whose job it was to cut out images on Photoshop to use in our goofy little animations. Now, Adobe Suite has inbuilt AI features which can automatically remove backgrounds from any image with absolutely no human time or skill involved. Now, we love our editors, so we gave him more work editing our history videos. But there are a lot of companies that now don't need to or don't want to employ people for these simple jobs.
According to a survey of 697 companies conducted by Metro G, a research and strategic advisory firm, whatever that means, companies who did not use AI in calendar 2023 hired 89% more agents than those who did use AI in their contact centers. For existing employees, it was even worse. When AI was added to a contact center, 36.8% of companies laid off an average of 26.1% of their employees. These alarming numbers were within just one year and just within call centers, which have already been hit by outsourcing, understaffing, and automation harder than most other professional services for now.
So, congratulations, your business now has reduced headcount and significantly reduced expenses. But here comes the bad news. In 1914, Henry Ford doubled the salary of his factory workers to $5 per day. The story goes, he did this because he wanted all of his employees to be able to afford a Ford Model T of their own, boosting company revenue. Now, this is basically complete nonsense. In reality, Ford just wanted to reduce turnover and deny talent to up-and-coming car companies like Dodge to maintain his monopoly over the growing automobile industry. But as with every good fairy tale, there is negative truth in there. If the employment rate suddenly drops as hard as it did in the call centers from the study in every company around the world, then companies will undeniably struggle with reduced revenue, as people without jobs don't have the buying power they once did. And even people with jobs will cut back out of fear that they might be next.
But there is a business plan that you, as a hypothetical titan of industry, might want to consider so that this isn't a problem. And that's just making stuff exclusively for other wealthy business owners while diverting resources away from people who have nothing to offer you that can't be done more efficiently by a machine or a cheaper worker on the other side of the world. Now, if you think that sounds a bit crazy, you should know that it's already kind of happening. And the best place to see it is in video games. Yes, those occasionally fun distractions from real life are the perfect example of the shift happening in the real world right now.
So let me cook. According to Grand View Research, the video game industry is now bigger than the movie, music, and television industries combined. And it is honed in its most profitable strategy: free-to-play games are ironically some of the most profitable games on the market because they have perfected a business strategy called freemium pricing. Most people will play their games for free, but a select few, affectionately known in the industry as whales, will spend thousands, sometimes even millions of dollars on a single game to unlock in-game perks that would be almost impossible to obtain as a free user. It's important that these games still have free users, though, because without them, the whales would have nobody to show off to or play with their paid-for advantages.
In a world where people are looking for budget-friendly forms of entertainment, the game industry has realized that the best way to turn a profit is to cater to those who have the financial means, or at the very least, the credit limit to spend ridiculous amounts of money on a video game. The people who have the most financial means don't work for their money; they own income-producing assets. And if automation does replace jobs on an even more widespread scale, that will make your ability to work less valuable and simultaneously income-producing assets more valuable.
The rate of change in AI and automation makes the future impossible to predict. But if the people investing in these technologies want to see a financial return on that investment, they are going to learn what the game industry already has: there is more money to be made by catering to other rich people, and everybody else can be kept around as entertainment. Now, if you think that sounds a bit depressing, well, welcome to this channel. But also, I should tell you that market trends already say this is happening. AI isn't going to change your world; it's just going to continue a trend that's already been happening for years now. So it's time to learn how money works to find out how companies are adapting to a world where nobody can afford anything anymore.
This week's lesson is sponsored by Brilliant. Brilliant is an educational platform designed for comprehending what you learn. It focuses on a bottom-up learning strategy, starting with the fundamentals, using interactive problem-solving activities. Learning and retaining knowledge this way is shown to be six times more effective than traditional video lectures. The courses available on Brilliant are carefully crafted by world-class educators, scholars, and professionals from leading organizations and institutions such as MIT, Caltech, Duke, Microsoft, Google, and more. Brilliant's growing number of programming courses are a great way to build foundations and learn real-world applications. I recently took their course on Creative Coding, which builds your computational problem-solving skills by writing programs that produce complex outputs. With Brilliant, learning is accessible from anywhere using a computer, smartphone, or tablet. Brilliant provides opportunities to acquire real knowledge in just a few minutes each day with its captivating and enjoyable lessons, seamlessly integrating into your schedule whenever you have time. To try everything Brilliant has to offer for free for a full 30 days, visit brilliant.org/manyworks or click the link in the description. You'll also get 20% off an annual premium subscription.
In the 1992 movie *Glengarry Glen Ross*, the iconic "Always Be Closing" scene has Alec Baldwin's character bragging to another salesman about driving an $80,000 BMW. Adjusted for 1992, according to the Bureau of Labor Statistics, that would be the equivalent of just under $182,000 today. That is a very expensive automobile, to be sure. But these days, if you drive around a major city, you're likely to see dozens of cars that cost that much or more, and they probably wouldn't even stand out that much. According to company sales data and historic records, Lamborghini has sold more cars in the last 10 years alone than it did in all the rest of the company's history combined because there is simply a bigger market for $300,000 cars than ever before.
The same general trend is true for other extreme luxury brands like Bentley, Ferrari, Patek Philippe, luxury groceries at Erewhon, gym memberships that cost more than rent, hotels that make Hilton look like a Holiday Inn, and to top it off, private jets are all now way more popular than they ever have been. One thing that often gets lost in discussions of wealth inequality is that yes, billionaires are getting richer, but there are also far more rich people around than ever before. And it's because the value of an hour of human labor has stayed more or less stagnant, while the value of an asset and the availability of credit has skyrocketed. People who held on to an even modest portfolio over the last 40 years now have enormous fortunes. Certain individuals got incredibly lucky with good investments, and other people accessed easy credit to get absolutely jacked to the tits on leverage and ride the longest asset bull run in history. Very few people have made modern fortunes through work alone. And you might have even noticed how investing went from something that you should do to secure your retirement to something you need to do to have any quality of life at all.
If robots really do take over, then it will just continue to push the value of an hour of human work down because it could be done by a machine instead. And it will rally the value of assets because business owners and investors will benefit from the free labor substitute. This is where people point to policy fixes like a universal basic income. If you haven't heard about this idea by now, that's impressive. But it's basically a government payment made to everybody regardless of personal financial conditions that should be enough to cover basic living expenses. It's been proposed as a solution to keep the whole system going if people can't earn an income for themselves because their labor has been outsourced or automated. But that is still not a desirable outcome for anybody. If comprehensive automation of human labor gets as far as needing this, then you will fall into one of two defined classes of people. You will either be getting by based on a government lifeline, or you will be in the class of people that own the businesses complaining about all the taxes they need to pay to fund that lifeline. I find it a little bit easier to sympathize with one of those groups, but there are still no winners.
Just last week, the result of one of the most comprehensive universal basic income experiments was published. The research gave 1,000 people living in Texas and Illinois $1,000 a month with no conditions attached. To qualify for this study, their 2019 household income had to be less than 300% of the federal poverty line, or $37,400 for an individual. There was also an unlucky control group of 2,000 people who were only given $50 a month. This is because when your personal finances are being studied, you are more likely to be careful about your spending decisions, and the researchers wanted to control for these changes. The study itself was funded by an organization called Open Research, which is not technically affiliated with OpenAI, but they are both managed by Sam Altman, who has been very vocal about how this technology could displace billions of jobs.
Now, if you ever find yourself running an AI startup that burns millions of dollars a day, then one of the best ways to ensure that you keep that investor money coming is to pretend to be really scared about how your technology is going to replace workers because, well, replacing workers is really exciting to investors. So realistically, this study was probably little more than a marketing stunt conducted by one of the best-funded organizations in the space. But that doesn't mean that the results aren't still interesting.
The key results related to employment was that the group that received the $1,000 payment ended up earning significantly less for themselves than the control group after the payment was accounted for. They still earned more, but $12,000 a year is not enough to live anywhere in America without other forms of support. All households ended up earning more, but that was largely because this experiment started right at the beginning of COVID, when employment, particularly in low-wage professions, was hurt by lockdowns.
The reason the researchers gave as to why households receiving the subsidy ended up earning less money for themselves was because many people took it as an opportunity to cut down on how much they were working and commit more time to leisure and looking after their family. This fits the optimistic idea of an AI future where we can have machines do everything for us while we just relax and collect universal basic income. But the findings still told a story of people who were financially struggling. Mental health improved because people were less stressed, but those improvements faded by the end of the first year. Food security also increased, but again, only in the first year, as even people with additional income fell victim to rising living expenses, and that was when they could work to earn additional money. When compared to being plunged into poverty, it's an okay compromise.
But this isn't going to happen overnight. Outsourcing turned entire cities in America into ghost towns, but it happened so slowly that big changes like this never got addressed. The endgame for people investing in automation is to build that automated utopian future. The endgame for everyone else is to make sure that they aren't excluded from it. Now, if you want to get these videos a day early and get articles that can never be made into YouTube videos, then be sure to subscribe to my email newsletter, linked in the video description.
Now, while everybody is worried about not getting enough work, there is one country that has decided the solution is getting people to work six days a week. So go and watch this video to keep on learning how money works.