Most observers of the AI revolution agree: it's real. And it's going to be huge. That's about all they agree on, though. Some believe it will lead to the biggest economic boom known to man, and others believe it will hollow out the job market and destroy lives. Some think it will make us smarter and happier, while others are warning about, well, Terminator.

There are intelligent people on both sides. As noted by Daily Mail:

The 'godfather' of artificial intelligence (AI) has tossed a grenade into the raging debate about the dangers of the technology — after sensationally quitting his job at Google and saying he regrets his life's work.

British-Canadian pioneer Geoffrey Hinton, 75, further fanned the flames of a growing Silicon Valley civil war, as he issued a spine-chilling warning that 'scary' chatbots like the hugely popular ChatGPT could soon become smarter than humans. 

Some of the world's greatest minds are split over whether AI will destroy or elevate humanity, with Microsoft billionaire Bill Gates championing the technology and Tesla founder Elon Musk a staunch critic.

The bitter argument spilled into the public domain earlier this year when more than 1,000 tech tycoons signed a letter calling for a pause on the 'dangerous race' to advance AI.

When that many brilliant minds can't agree on the outcome, then let's face it — nobody knows how the macro situation will shake out. I'm reasonably confident that most of the billions flowing to any startup with "AI" in its name or pitch deck will be lost. Some of them are borderline scams. The next Kozmo.com, WeWork, or Fyre Festival is already here. We just won't know which ones are the cautionary tales until the doors close and the documentaries come out. Surely, some of the survivors might become the next Amazon or Google, but it's hard to pick winners this early, as the dotcom bubble showed us.

In the meantime, we can observe some trends and make some guesses about the future. Barring the Terminator scenario, the AI revolution could lead to the greatest rebalancing of societal power in history. It's The Real Great Reset. There's a plausible scenario where The Forgotten Man and Woman re-emerge more powerful and prosperous than ever. Where the elites lose their grip on centralized power. Where freedom, economic mobility, and an ownership society become the norm (again). It's not the great reset Klaus and his merry band of elites had planned — and they aren't going to let the "freedom" version happen without a fight. But let's explore this scenario further.

Working In Reality

Three quick stories:

1. Our beloved family dog Sunny just had throat surgery. Her larynx was paralyzed, making it hard for her to breathe. In extreme cases, dogs with this condition can drop dead from a cardiac event. We could have let Sunny live as a shut-in and atrophy until she died. Instead, we opted for surgery to restore some quality of life in her golden years. The surgical vet was a guy from New York who looked and talked like Chuck Schumer. He said, "I've been doing surgery for 30 years. It's the only thing I do. It might be the only thing I'm good at." It's a delicate surgery with serious risks. But the vet opened a 10-inch incision in Sunny's throat, tied back half her larynx, and closed her up. Thankfully, she's recovering well.

2. Two doors down from where we live, workers have jacked up an entire house and placed it on piles of railroad ties. They are building a new foundation underneath. Once the house is back on that foundation, we assume the plan is to renovate the place. It's probably simpler to tear the house down and start over. Still, for permitting reasons that we've unfortunately all come to accept, the renovators probably concluded it was easier to lift A HOUSE six feet in the air and keep it there for a few weeks.

3. An article in the Wall Street Journal talked about the impact of AI on finance jobs. They spoke with an analyst who wasn't exactly sure how AI would impact his job. He guessed his usual output of one comprehensive analytical report per month might increase to four. 

There's a saying going around:

This saying is partially true, but it's a sliding scale. Who in the above three scenarios should most fear for their livelihood?

The vet has no fear. A robot isn't doing that surgery in our lifetime and probably not our grandkids' lifetimes. And people aren't just going to let their otherwise healthy dogs die. The vet is safe.

The house renovators have no fear. Lifting that house was grinding work that required a mix of skilled machine operators and manual laborers. Sometimes those were performed by the same guy. Terminator would have a nervous breakdown before he could do that job. The renovators are safe.

Our analyst makes multiple six figures and has a lovely studio apartment in NYC. He's on track to make managing director by his mid-30s, making over a million per year.

The analyst is screwed.

Three other people on his office floor will also be able to use AI to increase output from one to four reports per month. Unless the firm suddenly realizes it needs four times as many reports, then three of those analysts are gone. Joined by laid-off analysts from the firm on the next floor up, analysts in the office across the street, and a bunch of ticked-off former analysts from Boston.

An Economic Revolution Unlike Any Other

The AI revolution won't be like previous economic revolutions. During the Industrial Revolution, many migrated from farms and shops into cities where jobs were plentiful at factories that mass-produced goods. This ultimately led to a manufacturing boom, especially following World War II when America helped rebuild the world that Germany and Japan had bombed to the ground. Prosperity went up, and poverty went down.

For the last 40 years, a combination of globalization and technological advancement created a new economic revolution where millions of manufacturing jobs were lost. Knowledge work became the "it" thing, and it was a troubling era for many. They told us those job losses were due to automation. Yes, some jobs were lost to automation; that was inevitable. But ironically, millions of manufacturing jobs showed up in other countries during that same period. Jobs making the same stuff that was made here decades earlier. That part was avoidable.

Take it directly from the Bureau of Labor Statistics:

In the 40 years since manufacturing employment peaked, the industry has struggled to regain the prominence it once had. Notable job losses occurred within durable goods manufacturing, especially fabricated metals and machinery, and computer and electrical products. Within nondurable goods manufacturing, apparel and textile industries suffered dramatic jobs losses, while food manufacturing was the only component industry to add jobs. Although there were more recessions (seven) during the 40 years prior to peak employment, compared with the number (five) after the peak, manufacturing employment failed to fully recover from any of the cyclical losses after June 1979 and resulted in a 34-percent net loss over the 40 years following the peak.

Why would a loss like that happen during that period? China wasn't even in the global top 10 exporters until 1997.

But look where they are now in comparison to America. . .

The end result: Jobs got shipped overseas to make products that were, in turn, shipped back to us to buy. They told us those high-paying manufacturing jobs would be replaced with high-value service jobs. The knowledge economy would be more prosperous than the manufacturing-based one. The only catch is that you now need to spend $100,000 or more on a college degree to get those jobs — which usually requires opting out of the full-time workforce while you do that. And that price has only skyrocketed over time.

Big expense and lost income. That's a terrible trade-off for people previously making a good living assembling cars, TVs, and furniture for their fellow citizens to enjoy. And they had health benefits and skills that gave them relative job security.

But hey, globalization. It's the future. So we let those jobs go while Silicon Valley's Masters of the Universe told us to "learn to code."

As discussed in The Producing Class, what happened to blue-collar workers during globalization would eventually happen to white-collar workers whenever the elites found a way. And now, with generative AI, they have. (By generative AI, we mean large language learning models like ChatGPT and all its eventual offspring.)

The next economic transition won't be anything like the previous ones. The next economic transition allows us to return power back to regular, hard-working citizens.

The Revenge of Automation

Automation can provide productivity gains that lead to economic growth, especially in environments of low unemployment. Automation can also threaten existing jobs, displacing real humans. I know, I know – "There will be new jobs those people can be trained for." Tell that to the laid-off machinist who must return to school for two years to learn new skills, live off the scraps of their financial aid, and hope to God there's a job waiting for them at the end of the line. I've been in higher education for almost 20 years and have seen these people come through our programs. As their instructor, I sign their Trade Act progress reports. I know what "creative destruction" does to their lives. It's not as simple as economists try to make it sound from their tenured jobs and executive suites. We've had to tolerate quotes like these for years . . .

What a dark, cold vision of the future, expressed almost gleefully by the managerial class. But decades of callous indifference to economic dislocation are coming home to roost, brought to life by the same elites these people worship. Now they get to see what economic survival of the fittest looks like.

Consulting firm McKinsey wrote a study of generative AI's impact on the workforce. They note:

Labor economists have often noted that the deployment of automation technologies tends to have the most impact on workers with the lowest skill levels, as measured by educational attainment, or what is called skill biased. We find that generative AI has the opposite pattern—it is likely to have the most incremental impact through automating some of the activities of more-educated workers

In other words, automation is now taking its revenge on the managerial class. A chart from the McKinsey report shows the automation potential due to generative AI. The dark blue line is automation potential before generative AI. The light blue line is automation potential with generative AI.

First, look at the bottom third of the chart. It's all the dirty jobs and blue-collar work done by the Forgotten Man and Woman. These people have faced threats from automation for decades, mostly from robotics. The introduction of generative AI barely bumps the automation potential for their jobs. This technology revolution will be a light breeze for them.

Now look at the top third of the chart. Jobs that had low automation potential (short dark blue line) without generative AI see a massive increase in automation potential now that generative AI is here. Those bars are a graphical representation of the managerial class's comeuppance. We've been saying all along — the elites will always gravitate toward the lowest cost of labor and highest profits, no matter the human cost. For those managerial, white-collar types who turned a deaf ear to the Forgotten Man and Woman these last few decades, it's your turn. As Bruce Willis says in Die Hard . . .

This chart further illustrates where generative AI will have the most significant impact. It divides work into activity groups.

Again, almost zero impact on physical workers. But automation potential for "managing" triples while automation potential for "interfacing with stakeholders" nearly doubles.

A Goldman Sachs research report confirms these projections:

Once again, notice that physical work is least affected by AI automation going forward. Building, production, food prep, personal care — they'll be fine. White-collar jobs, not so much.

All of this brings mixed emotions. Yes, it's nice when the callous members of the managerial class receive their comeuppance after years of arrogant indifference to the unwashed America First types. But lots of innocent people will also get caught in the crossfire. People who were persuaded to believe that a college degree was the only path to a promising career, regardless of the cost.

At the very least, one can hope that this realignment of the workforce is a wake-up call for everyone in the Producing Class: blue-collar, white-collar. We are ultimately on the same team. It’s time to join together. The real ball game is Main Street versus the Elites.

There are many implications from all this that we'll explore in future articles, including:

• How specifically might the Forgotten Man and Woman prosper again due to all of this – and how can we join them?

• What should you do if you're in a job category ripe for automation?

• How can the elites steal this opportunity away from us and own the future?

These questions aren't easy to answer but are worth exploring. The moves we make now — as individuals and communities — may determine our fortunes for the next generations.

You're fine if you're the veterinarian or the guys who lift houses in the air. For the rest of us, it's go time.

Maybe AI is all hype and nothing's really going to change. Or perhaps AI will create more jobs than it destroys and we'll be more prosperous than ever. (Even so, that transition will be rough for the people involved).

Either way, there's low risk and high reward for getting your head in the game and being prepared.

God bless and God bless America,

- Jeff Perlot