The Economics of Loss

The Economics of Loss

Technological innovation has always been accompanied by both what disappears and what emerges. Whether it was the steam engine that brought looms to a halt or the computer that replaced ledgers, the void left behind was always filled with new value, albeit with a time lag.

However, as AI and cutting-edge technologies rapidly spread throughout society, this conflict is intensifying far more than ever before. The pace of disappearance is outpacing the pace of replacement, creating a void proportional to that gap. This is because the way AI-derived industrial systems and technologies encroach on the human domain operates differently from the simple replacements of the past.

The economy operates on a cycle of production and consumption. As the share of production previously handled by humans shifts to AI and capital, the proportion of that production that translates into human income decreases.

Of course, there is naturally a portion where the increased efficiency of production brought about by the new system, and the resulting growth in total capital, is converted back into income. Here, however, we are speaking from the perspective of the agents of production and consumption.

As income decreases, demand decreases accordingly, and this demand is, in turn, a prerequisite for production. In other words, it is a structure in which the income base that supported production and the demand base that supported consumption are simultaneously weakened by the same cause.

The challenge lies in redefining value within this weakening foundation. If human experience and judgment serve as the raw materials for training AI, then those materials must be defined as assets and assigned a value.

Furthermore, if income and demand are shrinking along the same pathway, a new circulation mechanism must be designed within the economy to compensate for that pathway.

Viewed more broadly, this is a matter of reconnecting production and consumption.    Just as AI takes over production in the form of capital, there must be a pathway for part of the resulting value to flow back to people so that the cycle is not broken.

What should be assigned new value, and what new pathways should be established? The process of finding those answers is the next economy.

The economics of loss does not deny the emergence of new industries or societal changes. It addresses the reproduction of value and the transformation of the structure of wealth circulation.  

In other words, the economics of loss is a redefinition of value for what is disappearing.