There are two sides to an income statement.
Obviously, any mention of accounting will put many to sleep. I understand this is not the most exciting of topics. That said, it is crucial for people to understand.
Failing to grasp some of the basics of accounting causes an assortment of issues for people. It also leads them to believe in some things that can easily be debunked.
When it comes to technology and its impact upon the future, we have to consider this financial statement when analyzing what is taking place.
At the top of the technological discussion is the anticipated pain that could come from the AI apocalypse. Job losses might skyrocket, sending unemployment past the Great Depression range. We are already seeing signs that job growth is dwindling.
It is a situation that probably will accelerate in the future.
What happens when the jobs go away?
For people who believe in this idea, it is a question of utmost importance. After all, nobody can deny that consumption is a considerable component to the economy. This means that, to consume, people often spend money derived via income generation. For the average household, this is the wages received for work.
If AI disrupts the labor market (eventually being joined by robots), how could people afford anything? This leads to calls for UBI or some other form of distribution.
While not providing a full answer, we can start to ponder the overall impact by looking at the deflationary nature of technology.
Over the last 40 years, communications, images, music, video, and knowledge all saw major deflationary spikes. There was a time when each of these carried a significant cost.
The next decade will see this list expand. What happens when transportation costs are a few dimes per mile?
Technology tends to obliterate that which is not protected. What this means is that government, healthcare, and education are likely not to experience massive job loss. Regulation and projection serves to protect jobs, at least temporarily. It also allows inefficiencies to exist.
Nevertheless, since government is involved, via regulation, change comes slow.
That said, everything else is on the table.
Part of the deflationary equation is the loss of jobs. That is a deflationary activity. Since payroll is often the largest expense, anything that can be done to cut is often undertaken.
Here is where we see the impact upon prices.
There are a few options when this occurs. First, is to add to the bottom line profit. CEOs love this one and will do it for as long as they can get away with it.
Second, is to roll that into the prices and slash costs to customers. The third is a blending of the two.
Competition often drives the decision. While a CEO wants to place things towards that company bottom line, sometimes others get more aggressive in the market, using the gains to grab market share. Aggressive pricing by competitors forces the hand of the first company.
We saw this with telecommunications. As new technologies emerged, price wars took place. This didn't happen at the start but as saturation occurred, companies looked to pillage others' customers.
If we look at the impact of AI across the entire spectrum, there will be massive deflationary pressure. This will not offset 100% of the job loss. It will, however, likely soften the blow. Companies that eliminate 10,000 employees and replace them with robots are saving a great deal of money. Retail often has great gross profits but miniscule net. Their costs are far beyond just COGS.
Labor is naturally a large portion of this. Robotics is already shifting things around. With the agentic age starting, we will see how this will further impact the numbers.
