The Better AI Gets, the Smaller Its Economic Share?

Why it matters

In this conversation, behavioral scientist Alex Imas and economist Phil Trammell explore a counterintuitive proposition: as AI capabilities improve, its share of the economy might shrink. They analyze elasticity of substitution, monopolistic trends, and how technical gains are distributed, offering a fresh perspective on where value flows in the AGI era.

Key takeaways

• Better AI may not increase capital's share of income; if elasticity of substitution is below one, the capital share could fall.
• Competition among AI agents could drive AI service prices toward cost, channeling value to consumers rather than developers.
• Diminishing returns to scale in AGI could prevent a few firms from sustaining monopoly profits.
• Understanding AI's economic impact requires distinguishing total welfare gains from the share captured by capital owners.