The Better AI Gets, the Smaller Its Share of the Economy Might Get – Alex Imas and Phil Trammell

Why It Matters

These insights shape how governments and firms prepare for AI-driven shifts in wages, capital returns, and public policy: better data and clearer scenario planning are essential to design taxes, redistribution, and workforce strategies if AI reallocates economic value away from labor.

Summary

In a conversation about AI-driven automation, Alex Imas and Phil Trammell map out how rising machine capabilities could shrink the human-centered “relational” sector—services whose value depends on human involvement—while stressing that outcomes are highly uncertain. They argue economists should focus on scenario-based models that start from extreme premises (e.g., labor share falls to zero) to identify which scarcities would produce each outcome, and call for much better data—what Imas terms a “Manhattan Project for data”—on consumer demand, job tasks, and structural change. The speakers note historical surprises (e.g., sustained labor share despite past automation) and urge prediction markets and aggregated forecasting as tools to improve forecasts. Overall, they emphasize policy relevance for taxation, redistribution, and what to measure to anticipate where economic value will accrue.

Original Description

Economics of AGI episode w Alex Imas and Phil Trammell.

There's a bunch of important questions about how we deal with AI that only economics can answer.

What is the optimal way to tax and redistribute the wealth that will be generated? How should countries not in the AI supply chain index into the gains? Is there any world where inequality doesn't explode?

It might seem like these questions have obvious answers, but the first thing economics teaches you is that your intuitions can often be entirely wrong.

It was very helpful to chat through these things with Alex and Phil.

𝐄𝐏𝐈𝐒𝐎𝐃𝐄 𝐋𝐈𝐍𝐊𝐒

* Transcript: https://www.dwarkesh.com/p/alex-imas-phil-trammell

* Apple Podcasts: https://podcasts.apple.com/us/podcast/alex-imas-and-phil-trammell-what-remains-scarce-after-agi/id1516093381?i=1000771185825

* Spotify: https://open.spotify.com/episode/52wp90vqwiRmmQaOm9M2uZ?si=8a81MnA4Tf-X3VUzpzE1qg

𝐒𝐏𝐎𝐍𝐒𝐎𝐑𝐒

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𝐓𝐈𝐌𝐄𝐒𝐓𝐀𝐌𝐏𝐒

00:00:00 – Will capital share increase?

00:19:36 – Messy Middle scenario

00:25:57 – How to tax and redistribute AI wealth

00:30:02 – Why demand collapse is unlikely

00:39:26 – Human employees would be hard to integrate into the machine economy

00:43:08 – What if some humans (or AIs) value wealth accumulation intrinsically?

01:01:28 – What should developing countries do?