Random Thoughts on the Permanent Underclass meme

On Twitter, there’s a meme about “escaping the permanent underclass”, where the increasing leverage of technology decreases opportunities of economic class movement. The core argument is AI enables exchanging capital for intelligence, and as robotics matures, capital for labor. Therefore, the value of intelligence or labor below the capabilities of current technology approach zero and that above the threshold approach a very large number.

AI has shown great improvements in the last two years - GPT 3.5 to GPT 5.2 is night and day, the latter refactoring big code base autonomously. While capabilities could plateau, AI is slowly but surely eating up the last shoreline humans own - long term judgement. The current juniors underwater will see their roles commoditized, but principle engineers will see their value increase as they no longer need to up skill a team, but can simply direct agent assistants. This has already happened to software engineering but not yet realized widely. For other fields it is delayed, but the flood comes for all.

I think counterintuitively, the bifurcation of value also applies to art fields, which was deemed the most at risk. Very skilled artists are actually quite advantaged since taste and judgement will become the most valuable asset as rote work gets automated. For example, manga artists need several assistants to drawing backgrounds, applying screen tones, but the automation of these tasks will enable a single author with a good story and unique style to publish much more ambitious works.

Today’s rules are not tomorrow’s

“It ain't what you don't know that gets you into trouble. It's what you know for sure that just ain't so. “ – Mark Twain

The world is constantly in flux - the rules of the past do not apply to future. The obviously difficult part is discerning which rules no longer apply.

I would guess that classical wisdom of index investing in the S&P 500 is going to slowly become wrong. Just as low cost index investing replaced individual stock picking, my hubris says that the next paradigm after index investing has not been realized.

Previously, our economy depended on physical/knowledge labor to produce goods, which the laborer then consumes. Capitalism is checked against infinite greed since without paying the laborer, there is no one to buy the goods produced, with the cycle looking something like

raw materials → human labor processing → technology/consumer goods → better quality of life and labor processing

However, if the laborer becomes increasingly automated, the cycle of economy trends towards

raw materials → artificial labor processing → technology → better artificial labor processing

Human consumption economy increasingly is no longer a part of the loop. Who cares about Starbucks, I need 100 Nvidia Rubin racks to train robots. Although the S&P 500 is adaptive, I still argue the key bottlenecks to the future increasingly become raw materials, energy, semiconductor/robotics manufacturing instead of human consumables. As the index lags the transition, then I expect pure plays to generally outperform over time.

While each industrial revolution has produced great improvements to quality of life, it disproportionately affected the individual outcomes, e.g railroads collapsed local markets by connecting global markets. In the end, the value accrued to the owners of capital, resulting in the gilded age. As many people have already reported, I fear the return to a second. We need to run hard and up skill, push hard for UBI, and hedge via investing to capture the upside.