Wide Spread Impacts of AI

As all my social media feeds ( and yours) fill in with "the AI takeover" type articles it is becoming clear that some percentage of knowledge work, otherwise untouchable by automation a few short years ago, will no longer be done by humans. With the advent of code reading and suggestion tools a lot of my colleagues comprised of software professionals are cautiously watching the advances.

My friends and I have been having longer and longer discussions about AI advancements. How will it impact their careers? Their training? Their future prospects? Jokingly one of my buddies said if this goes sideways I will likely start a taco truck, and another friend told me he may sell sandwiches on the street...we all had a good laugh ( some of it was nervous laughter ). I started thinking about the nature of our employment and realized that at the moment a lot of us are participating in a formal system where services are rendered between employee and employer and there are state mechanics in place to mandate things like worker's compensation, accurate tax payments, disbursements of benefits etc. Let's call this the formal economy in short.

If the predictions from my friends come true, then they would drop into the informal economy doing things like becoming a street vendor, unlicensed construction worker , etc . Someone reading this would possibly ask what about the gig economy and I would respond yes that is definitely a factor, however the platforms that provide gig work to individuals are fast incorporating AI into their offerings to remove the "human-in-the-loop" situation. Hence, in my thinking whatever will happen in the formal economy will likely happen in the gig economy.

The conversations above center around individuals talking about what will happen to them and what they will do....but what happens to us all collectively?

I. All companies apply AI/Automation at Scale

Companies are thinking of doing this at scale, as a thought experiment let's just say that this happens at once. Here in the US something like this has already happened once before. It was when manufacturing shifted out of the US to someplace else or was Automated. We can look closely at what happened in places like Detriot, Flint both in Michigan and Gary Indiana. But I believe the best example is what is considered the Capital of the Rust Belt Youngstown, Ohio.

We can see the following issues plagued Youngstown ( and to some degree the other cities mentioned before )

Increased Unemployment: This has reverberating impacts all over a community. Local businesses are impacted and will shut down because of the first-order impact of residents having less money to spend. The folks that are let go may turn to the informal economy to make ends meet ( more on this below )

Collapse in tax revenues: Given this will happen at scale there will be less funding to provide government services like education, healthcare, infrastructure and possible basic security. This is made worse by the out migration of people that are able to leave.

Start of a Poverty Cycle: The above two conditions can lock a community into a path that perpetuates poverty for an extended period. If tax revenues dry up, and up-coming generations do not attain valuable skills then the cycle of unemployment and diminishing services continues. Additionally, the situation can cause an increase in crime, addiction as well as poor health outcomes.

II. What will people who fall out of the formal economic sector do.

A good number of jobs may never come back again. As such a large number of folks with training and education will find themselves with a series of obsolete skills for the formal sector. As someone who has lived in a third world country ( in Africa ) that has a significantly small formal sector and a large >90% informal sector, I will try to present a picture of what things could look like:

Downward pressure on prices for services that are currently done by licensed professionals. We will see an explosion of handy-people, barbers, cosmeticians, construction workers, and various types of health service providers ( home aide, therapists, etc ). Most of the work will be done at a low cost and paid in cash. Currently, there are a several professions that are considered "sheltered from automation" for them automation will have an indirect impact...over time a large pool of unlicensed individuals and cliques will pop up that will do licensed work. This will be akin to large bands of illegal marijuana dealers that hang around down the block from Legal Marijuana dispensaries.... they compete on the fact that their product is cheaper ( no overhead, no taxes ).

Several such impacted folks may blend illegal jobs into the mix of odd jobs they would pick up. They may find that the work listed above is arduous and that activities such as drug trafficking and or other forms of criminal activities pay better. This will indeed be a practical consideration especially if state budgets collapse leading to cuts in the police and other institutions.

III. What will happen to Governments

At least at the local level, governments will struggle with a dirth in the tax base. As the tax base shrivels, institutional relevance will continue to erode. We in the US are already on this trajectory. As I discussed impacts with my friends and colleagues, regardless of political leaning, I could see folks turn their eyes away from the conversation in a "yeah right that will never happen" whenever government aide or intervention or regulation was mentioned. For a good number of my colleagues, politicians promising to do something about the coming era of uncontrolled technological automation is mostly theatre to try to garner votes and take power.

With that said, ideas are floating around among policymakers that hint at a new tax called a "Robot Tax". I suppose this will be like a tariff on a country or nation that is exporting cheap products into the US. This ensures that government will remain solvent but what will the situation be for average workers? Will money from the Robot Tax be committed to certain public good expenditures? What about companies that would relocate to another country...use robots but claim the products are human-made? Based on my lifetime of observing the interplay of corporate actors and the government, taxes lead to tax cheaters.

With tax revenues tanking, I am sure politicians will be forced to make decisions like look for more activities/transactions to tax. Would we look at laws governing inheriting wealth closer? Would we go after capital gains? Stock-based compensation schemes and other techniques currently in use by wealthy folks to get their assets out of the reach of the US tax laws. I doubt it, most of the politicians thinking of these ideas would be impacted negatively. What about things like deregulating more industries to spur growth and tax that growth -- health, banking, energy, telecom? Deregulation will always be welcomed by AI companies...because migrating these industries onto AI platforms would be the first order of business. Given the tax policy around this is designed smartly it could be a huge boost for business and the government.

As pay and benefits decline in the government sector, those that will remain in any of these institutions will be vulnerable to corruption and other forms of criminal behavior. This will further diminish the role of state institutions in society.

Bands of individuals with training and capabilities may form into organizations and offer services to paying state actors. These state actors could be adversaries and/or regional rivals looking to get an edge. The strength of our safety net and economy will need to be solid to keep state secrets and IP from getting leaked out.

IV. Would an Anti-AI based strategic approach work?

I was recently in Asia and someone told me about a dating app that was free of AI matching Algorithms. Next, I heard some thinkers I follow begin addressing the fact that there is a quiet backlash forming against organizations that are ALL-IN on AI. What I mean by ALL-IN is essentially moving as many tasks as possible to an AI Agent vs Human Labor. This feels a bit like when Execs in the West shutdown factories at scale and moved production to Asia and began wondering why the country's political stances have hardened and grown unforgiving. Not only did we hollow out our production capacity and atrophied that muscle , but we also at the same time transferred IP and management techniques to regions we now consider our adversaries.

Looking at this from a similar lens where would the expertise and domain knowledge go once AI is implemented at scale. We seem to be heading into a "no one knows how anything really works" world. The actual know-how within an organization would be embedded in a Model and who would own that model? Can the public trust such a Model? In 2024, most organization are completely outsourcing the actual training and model building portions to third-parties. Think of this as a sub contractor model. The only thing owned by the organization is the integration interface but all the other pieces of the AI system are somewhere else. The power of the profits that will come in from such a move has a lot of the senior management and share holder absolutely fixated on the ALL-IN implementations.

I was recently speaking with the owner of a creative agency who told me that they are abandoning the use of AI in some of their work....all writing , graphics etc. From a naive outsider's point of view , it seems like a big miss and as a technologist I advised him that this might be a mistake. But this was a well thought out consideration at the agency. What he informed me about was all of a sudden this summer (2024) clients started inquiring with him about whether the work product ( copy, code, and designs ) where built using AI.

Our clients began saying things like, how much of this ( deliverables ) was AI ?

When we asked our clients' why this was being asked, they eventually told us that they ( the client ) wanted to come up with a different rate card or in some cases ( pay nothing at all ) for work that was AI generated. Also some clients wanted to re-negotiate their existing terms to include things like:

• Shortened Timelines. The client is experimenting with AI and expects instant results

• Shortened Feedback Windows or adding more feedback windows. Since it is all AI , iterations can happen faster

• Lowered Fee Rate Card: Clients want to pay less than 50% of the current rate and in some cases even less.

• Some clients are now building some of the deliverables internally using similar AI tool and want the Agency to surpass what was done by the AI. In some cases this is like an A / B test that the clients are doing and seeing what will work cheaply

Essentially, it is race to the bottom. Consumers, Business' all are looking at AI for the same thing. Consumers are thinking...this is AI so it should be dirt cheap or free. And business's are thinking I can use AI to save money. I am no expert but this seems like a Nash Equilibrium forming in front of our eyes.

The Agency owner also told me that they have turned "not using AI into a feature not a bug". They make it very public in their pitch decks that all the work [can be] done by humans that are have been chosen through a strict selection process/criteria to work there vs AI that was plugged in. Another interesting thing has happened is that in the space of copy writing and editing. A lot of internally staffing position are sadly gone due to the advent of new technology. However, there has been an explosion of copy writing agencies that have come onto the scene as a result of AI. In any domain now a business that makes AI the central core of their business can emerge to compete. So the market dynamics of price pressure on the service come to the surface once more. Businesses that are searching for a rock bottom pricing have found a new price floor form as a result of these ALL IN AI agencies.

What it seems like to me is that maybe this will just be solved by market forces and an Anti-AI strategy will not be needed from a policy standpoint. It might just be a matter of time as more consumers and businesses catch up to this idea. It is obvious that this idea is more pronounced in the B2B realm now since businesses are the best way to keep other businesses at bay.