Billionaire tech CEOs have often insisted that AI is ushering in an era of plenty, in which automation will provide unthinkable abundance even among the poorest in society.
Not everyone takes their word for it. As economist Dean Baker explains in a new essay for the Center for Economic Policy and Research, for AI companies’ current valuations to make sense, they’d need profit growth over the next five years that requires one of two things: either AI starts bringing in cash by the truckload, or profits for all the other corporations in America collapse.
Both prospects seem extremely unlikely, yet the AI investments keep coming — and they seem to be dragging American workers into an economy their wages can’t support.
From 2013 until the pandemic, labor compensation as a share of consumption — the percentage of national consumer spending compared to wages— hovered between 75 and 76 percent, according to data cited by Baker. It spiked in 2020, due mainly to a rise in unemployment and stimulus checks sent out in 2020 and 2021.
After the pandemic, you might expect that labor share to return to that 75 to 76 percent baseline, but that’s not what happened. Instead, the share dipped dramatically, dipping below 72 percent by the second half of 2025.
That percentage decrease might not sound like much of a difference, but as Baker explains, it represents about $1 trillion in annual consumption — a boatload of spending that’s happening without any wage growth to support it.
Americans, in other words, are buying stuff at levels their paychecks can’t justify, propped up by the AI bubble. Basically, that $1 trillion is fueled by inflated stock portfolios, venture capital gambles, and data center construction, not by workers who are doing the spending.
“That is equal to 3.0 percent of GDP,” Baker writes, “which is certainly enough to give us a recession, especially when added to the collapse of spending on data centers and other AI investments.”
Making matters worse, that trend line doesn’t look like it’s going to reverse back to the old average anytime soon. It all supports Baker’s long-running thesis that the AI bubble bursting would actually be a phenomenal economic development for working class Americans.
“The sooner the AI bubble bursts,” he explains, “the better it will be for almost all of us, except the AI whizzes.”
More on labor: Business Leaders Suddenly Fearful as Anger Surges Over AI Replacing Human Jobs
The post Tech CEOs Say AI Is Ushering in an Age of Abundance, But Instead the Evidence Shows That It’s Pushing Down Wages appeared first on Futurism.
