Who Will Solve Our Real Problem--The US is a Neofeudal Autocracy

So who will solve our real problem: the centralization of wealth and power in a Neofeudal Autocracy?

My essay on America's ten social classes was the appetizer to the main course: beneath the purposefully distracting PR of "democracy" and "free markets," America is a Neofeudal Autocracy, i.e. a system in which real power, control and wealth are concentrated in the hands of the few at the top of a complex neofeudal arrangement of a secular nobility ruling the commoners with monopolistic powers cloaked in the sleight of hand of "democracy" and "free markets" serving up endless dollops of "Progress" and "prosperity."

The Conflicts Brewing in America's Ten Classes

The key to autocratic / totalitarian arrangements is the concentration of power via centralization of control / power. This centralization is not unique to governments; it works just as well in the private sector--the privatized totalitarianism of corporate monopolies and cartels--and in organizations ranging from religious orders to sports.

Centralization has positive and negative features. Centralizing control enables efficiencies and obedience--militaries and global corporations being examples--but it also enables a handful of self-serving incompetents to destabilize vast systems, and the straightforward replacement of the ruling elite with a new elite, as outlined in Edward Luttwak's classic guide Coup d'Etat: A Practical Handbook (1968).

This makes autocratic / totalitarian arrangements tempting targets for overthrow, and fuels the paranoia and palace intrigues that come with highly centralized regimes. In other words, the stability of such structures is illusory.

Behind the happy-story narrative of "efficiencies," the real purpose of autocratic / totalitarian arrangements is to eliminate transparency and accountability so those at the top and the insider-lackeys who serve them can maximize their private gains behind the moats and complexity thickets of centralized power.

The other way to replace autocratic / totalitarian arrangements is the citizenry concludes their interests are no longer being served by the bread and circuses the regime distributes to co-opt and distract the exploited commoners.

Alternatively, in repressive regimes that rely on coercion, the commoners must find sufficient common cause with other classes to rise up as a mass movement that overwhelms the regime's coercive forces.

I summarize such social movements in this way: one by one, people decide that what was previously acceptable is no longer acceptable. That sounds simple, but it's not.

My essay on America's ten social classes sets the stage for a real problem-real solution discussion:

1. The real problem isn't who's currently holding the reins of power: the centralization of power is the core problem. Playing musical chairs--"democracy" swapping out who sits in which chair--won't solve the real problem, which is centralization.

Call it "socialist" or "capitalist," in either case you're missing the point: the choice is between centralization of control and power (i.e. Neofeudal Autocracy) or the radical decentralization of control and power, which translates into the radical decentralization of ownership, capital and agency.

2. Spewing endless paeans to "free market capitalism" in a economy dominated by privatized totalitarian monopolies and cartels won't solve the real problem--centralization of wealth and power--either. The wealth and power that's supposedly held by commoners is counterfeit, illusory, phantom: the "wealth" is an illusory artifact of serial credit-asset bubbles fueled by a relentless expansion of credit "money" chasing tangible assets, not by increases in utility.

The "power" to replace Tweedledum with Tweedle-dummer won't solve the real problem, which is the concentration of power and control, not who's currently holding the levers of power.

The phrase golden handcuffs is bandied about to describe the servitude / loss of agency that is a trademark of neofeudal systems. In classic feudalism, the commoners are bound by law to the estates of the nobility. In neofeudalism, you can't move because you have a 3% mortgage on your house you can't afford to give up, and you can't change careers because you can't afford to lose the healthcare insurance provided by your current employer.

These aren't golden handcuffs; they're gold-painted leg-irons, chains whose ersatz "value" is an artifact of a corrupt, exploitive Neofeudal Autocracy. Control what's affordable, what's "necessary to get ahead" (credentials), healthcare and lower-cost credit, and voila, you no longer need the legal niceties of direct servitude: indirect servitude works even better because it fosters illusions of power, wealth and agency.

So who will solve our real problem: the centralization of wealth and power in a Neofeudal Autocracy? The only source of a solution is the mass of powerless commoners who currently buy into the notion that the system is still serving their interests, or they're frozen by fear of losing what they have.

In other words, we'll lose everything if the truth comes out. This perverse state of denial and fear is the trademark of neofeudalism, in which those who have already lost power and agency now cling to a corrupt, unstable Neofeudal Autocracy because a real solution--radical decentralization, transparency, accountability, competition, agency--would collapse the putrid credit-asset bubbles propping up the illusions of "Progress" and "prosperity."

We've already lost everything of real value and can only regain them if the truth comes out. Each class has cut a deal with the devil, i.e. the Neofeudal Autocracy: I've got X-Y-Z--a low-interest-rate mortgage, healthcare insurance, some form of state-funded welfare, either subsidies for the rich or subsidies for the poor, or subsidies for everyone in between--and I have job security serving one fiefdom or another: either an extractive, venal corporation or an extractive, venal state.

One of the primary points of my essay was to highlight how each class lives in a completely different world than those above it. We're accustomed to regional and cultural diversity in the US. Life in one place is quite different than life in another place.

But amidst this dizzying diversity, we share some common interests: air, water, soil and food that isn't poisoned, a level playing field for every citizen, not of outcomes, but of opportunity, agency and freedom of movement, and a decentralized structure in which transparency and accountability cannot be extinguished to serve the interests of those at the top and their willing insider-lackeys.

Nothing will change until the various social classes find common cause in the most basic fundamentals: rather than fear that the truth will come out because we'll lose everything if it does, we accept the hard truth that we've already lost everything of value by accepting the hidden servitude and obfuscation of Neofeudal Autocracy.

Rather than fear the truth, we must come around to realizing embracing the truth is our only real path to restoring what's been lost to centralization and the concentration of wealth and power that comes with it.

Credit-asset bubbles concentrate wealth and power via concentrating capital which then buys political power. All this "wealth" is illusory. The power is real.



As for "AI will save us"--ahem... oops, AI is just another tool of our Neofeudal Autocracy:




NEW PODCASTS: Charles Hugh Smith on the Risks, Costs and Uses of AI (31:28 min)(host Richard Bonugli)

The Government Created an Ultra-Processed Economy--and It's Destroying America (1:04 min)(host Daniel Horowitz)


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The Conflicts Brewing in America's Ten Classes

What we do know is that things have internal structures with dynamics that operate whether we "like" them or not.

Correspondent Manoj S. recommended an essay from the always-insightful John Michael Greer on the dissolution of unproductive classes behind the smokescreen of AI: A Game of Musical Chairs

"You can sell Americans on anything, no matter how wretchedly unsatisfactory it is, by labeling it as progress. That's what's being done now, with AI being used as a justification for firing useless workers, deleting unnecessary departments, cutting office staff down to scales that actually make sense, and shutting down the classroom-to-cubicle pipeline that once poured new graduates into salary class jobs. We can expect that process to accelerate dramatically in the years ahead."

Greer begins by laying out a compelling taxonomy of class in America, four self-explanatory classes defined by this question: how do different groups in today's America get their income?

1. investment class: income from investments (i.e. capital)

2. salary class: income from a monthly salary with benefits

3. wage class: income from an hourly wage with no benefits

4. welfare class: income from welfare programs

Greer argues that the salary class is now the gravitational center of power in the U.S., absorbing much of the national income in unproductive faux-problem-solving for fabricated problems explicitly devised to justify generous salaries and benefits.

The nation can no longer afford this staggeringly costly unproductive work force and so "replacing cognitive work with AI" is the cover story for the mass evisceration of this class, in a parallel to the previous gutting of the factory work force by automation and offshoring.

I've been addressing the class taxonomy of the US since 2012, and I'd like to add some commentary on the dynamics Greer so succinctly describes. In America's Metastasizing Class Wars (August 27, 2020), I laid out ten classes, based not just on sources of income but on several additional criteria:

Systemic Power: political control of the state's monopoly of force / coercion; financial control of the system's taxation, incentives and optimizations; corporate control of essential technologies - platforms; corporate-state "soft power" control of cultural, social and intellectual belief structures and sources of influence: media, social media, think-tanks, foundations, the Higher Education Clerisy, etc.

The power to protect bureaucratic-institutional fortresses from budget cuts, transparency and accountability.

Agency: the power to leave employment or a locale and change one's life; freedom from debt-servitude / employment bondage.

My ten classes: yes, this is more complicated that Greer's four classes but since power has sources other than income, accuracy demands an accounting not just of income but of power and agency, which is an individual form of power with systemic consequences such as social mobility.

1. The Deep State. Unelected, unaccountable, they wield state power. Call them if you're about to be renditioned. But you need either power or relationships to have their number. Relationships are a form of power.

2. The Oligarchs. Top bidders in the auction for political and financial influence. The top .001%. Able to rig the structures of power to serve their private interests.

3. New Nobility. The super-wealthy class just below the Oligarchs. The top .01%. They have the means to serve their private interests via lobbyists and campaign contributions. $10 million in campaign contributions nets $100 million in tax breaks / subsidies.

4. Upper Caste. The technocrat/professional class that manages the Status Quo for the upper classes. This includes wealthy entrepreneurs and owners of enterprises: rich but not rich enough to rig the structures of power to serve their private interests.

5. State Nomenklatura. Well-paid government administrators with ironclad job security and power.

Together, the Upper Caste and the Nomenklatura comprise the upper-middle class. Owners of enough capital (real estate and stocks) to cheer serial credit-asset bubbles. Since I'm doing well, the system is working great.

6. The Middle Class. Wage-earners and salaried employees, owners of traditional sources of financial security: family home, 401K retirement funds, etc. Due to high debt, many qualify as debt-serfs / wage-slaves with minimal agency despite their ownership of middle-class status signifiers.

7. The Working Poor. Households with earned income but it is not sufficient to secure the basics of middle class life. Many qualify for social welfare programs such as food stamps and Medicaid. Due to high debt, many qualify as debt-serfs / wage-slaves with minimal agency.

8. State Dependents. Though often labeled "poor," those with cash / black-market income often live better than the working poor, due to generous social welfare benefits.

9. Mobile Creatives. Self-employed independents, entrepreneurial sole proprietors with adaptive skills. They may collaborate with other Creatives rather than have employees, and may have part-time conventional jobs. They have mobility between sectors and ways of earning income sufficient to acquire capital / assets. They "own their livelihoods." Their credo is trust my network, not the corporation or the state.

10. Gig economy precariat. May supplement insecure employment (limited hours, no benefits, etc.) with gig work, may combine cash work with rideshare gigs, may juggle several delivery / eBay sales / rideshare gigs. The difference between precariats and Mobile Creatives is precariats are generally in survival mode (high debt, unreliable income, etc.) and are unable to acquire capital / assets. They "rent" their livelihoods rather than "own" them.

Here is a curated list of my essays on the taxonomy of class in the US:

The Three-and-a-Half Class Society (October 22, 2012)

America's Nine Classes: The New Class Hierarchy (April 29, 2014)

What the Global Status Quo Optimizes: Protecting Elites and the Clerisy Class That Serves Them (September 26, 2014)
Explicitly describing what the system optimizes would trigger social instability.

The New Class: Mobile Creatives (May 1, 2014)
The key characteristic of the Mobile Creative class is that they live by this credo: trust your network, not the corporation or the state.

When Belief in the System Fades (March 12, 2008)

Let's distill the key dynamics this structure reveals.

1. This is a neofeudal society passing itself off as a free-market democracy. Power is concentrated in the top state-private sector classes. No one below has any real power. Electing another leader or party changes nothing: life gets more difficult, insecure and expensive for commoners regardless of who's in office. The Imperial project grinds on, regardless of the delusional hope that electing someone else will change anything. Everything else is an illusion of power, not real power.

Try switching the 37% tax rate on labor to capital gains and all income from capital, and see how far you get.

2. Debt and social engineering are the foundations of America's neofeudalism. The essence of neofeudalism is debt penury and wage-slave bondage to the owners of the debt, which is capital that generates income. Commoners have no agency because they have to work for corporations or the state to service their debt. They can't change jobs because they'll lose healthcare insurance, and so on.

Social engineering: as Greer highlighted, Americans can be sold anything, no matter how destructive, unhealthy and exploitive, as long as it's packaged as Progress, especially technological Progress and novelty-as-progress. This is the power of The Mythology of Progress.

3. Beneath the endless marketing of "free market capitalism," few have any real agency. Stripped of PR gloss, the majority of workers have a false choice of servitude: they can serve their current oligarch / state agency / corporation, or they can toil in another noble's domain. Six one way, half-dozen the other.

4. America's neofeudalism now depends on inflating an endless series of credit-asset bubbles that generate phantom wealth, financial claims that are easily inflated without actually creating any real value via increasing income streams by means other than inflation and monopoly extortion.

This has worked so well for so long that recency bias has kicked in and we now believe this is a well-oiled permanent mechanism we can rely on. Alas, credit-asset bubbles are inherently unstable and the current system-wide bet on AI being something that will actually generate value / massive new income streams is an all-in last-ditch bet. When this bubble pops, the conditions enabling a future bubble will no longer exist.

But nobody says that, do they?

5. Here is a chart of the income distribution from owning capital. Note that it follows a power-law distribution: the few collect the lion's share of the income generated by capital. The vast majority don't own any income-generating capital, and the top 20% are delighted by the steady rise in their phantom wealth as the bubble-du-jour inflates the nominal price of the assets they own, setting up the inevitable crash when tulip bulbs revert from "investments" to flowers.

Meanwhile, those collecting 95% of the income from capital look down on the toiling peasantry from their Kafkaesque castles with amusement. Student loans, mortgages, 27.99% interest rate credit cards--it's really quite marvelous, isn't it?



6. Symbolic work versus productive work. Much of the work Greer describes as unproductive is considered highly productive because our exploitation of hydrocarbons and technology has generated such a vast surplus that we could spend it on symbolic work--meetings about meetings, compliance reports, marketing plans, projections, consulting, and so on, work that despite claims to the contrary has little to do with harvesting grain, connecting pipelines, replacing transformers, making beds, performing surgery or any other real-world work.

What If the Work We're Busy Automating Is Needless? (June 19, 2026)

Try telling the priesthood of the temple gods that their work is symbolic. Ours is the most valuable labor, as we're the ones keeping the whole thing glued together. If we stop, the gods will be angered and all will fail. Indeed.

As a result, we have no experience of a way of life stripped of symbolic work based on seeking positions of status, accumulating credentials, and so on.

7. The number of Mobile Creatives is modest. Some years ago I dug into IRS data on types of income and found that only a tiny sliver of the workforce is truly independent / self-employed, i.e. they earn a middle-class income from royalties, ownership of enterprises or professional services. Out of roughly 160 million employed people, around 16 million are self-employed, but only 6.9 million are professional-class with some form of incorporation, and around 3 million others make enough income to live well. So around 6% of the work force is truly independent.

We're inundated with glowing accounts of individuals earning big bucks on "passive income" schemes, just as there are endless posts about how to make six figures using "can't lose" techniques that just so happen to cost $200.

The reality is it's extremely challenging to live outside the peasantry-Nobility arrangement. In my experience, it takes a willingness to constantly absorb risk and failure, and wear an absurd number of hats: accountant, manager, programmer, laborer, creative wizard, psychologist, consultant, student--and even after all that, success is not guaranteed. The difference between living in a shack and "success" is often some form of luck.

8. Something's gotta give. Soaring debt, public and private, rampant corruption, extortion, exploitation, dynamic pricing, unaffordable shelter, utilities and food, tulip-bubble scale euphoria, moated bureaucracies, complexity thickets that stifle competition, neofeudal lords digging bunkers and hiring private armies as they sense the peasantry's distemper--something's gotta give, we just don't know what will break first.

The usual explanations no longer explain anything. Their incoherence is obvious but lacking anything more coherent, we go back to insisting that all will be well if only everyone would wear their Silly Hats. What Once Explained Everything Now Explains Nothing.

What we do know is that things have internal structures with dynamics that operate whether we "like" them or not. I put together this chart of the Lifecycle of Bureaucracies some years ago to illustrate how institutions decay as self-interest replaces the original purpose of the organization. This leads to implosion - collapse. Again, whether we "like" it or not.



Greer's forecast of the end of white-collar symbolic work may well be prescient. Costs are funny things. We can play games with "money" and think we've solved the problem of costs, but costs are weirdly embedded in the real world, and so thinking that we can overcome all those costs by requiring everyone to wear Silly Hats doesn't actually work.

As Peter Drucker observed, enterprises don't have profits, they only have costs. This is also true of governments, households, institutions and, well, everything else. Calling tulip bulbs "wealth" works like magic for a time, and then reality intrudes.


NEW PODCASTS: Charles Hugh Smith on the Risks, Costs and Uses of AI (31:28 min)(host Richard Bonugli)

The Government Created an Ultra-Processed Economy--and It's Destroying America (1:04 min)(host Daniel Horowitz)


My book Investing In Revolution is available at a 10% discount ($18 for the paperback, $24 for the hardcover and $8.95 for the ebook edition). Introduction (free)


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AI Is the Apex of Ultra-Processed Life

We are Superman strapped to a carefully machined chunk of Kryptonite we can no longer detach.

I wrote Ultra-Processed Life to describe a peculiarly perverse structure of control that now dominates our entire culture and way of life: what's presented as marvelously beneficial to both sellers and buyers / leaders and the citizenry is actually only beneficial to the sellers / leaders while it actively degrades and deranges the buyers / citizens.

The essential dynamic of Ultra-Processed Life is to channel us into realms where the choices are limited to whatever benefits the sellers at the expense of the buyers. This artificial, synthetic realm is presented as brimming with authentic choice and agency, when in fact it's purposefully designed to be a choiceless illusion of choice.

What was once authentic has been hollowed out and been replaced by a simulation of what was once authentic, a simulation that mimics what has been hollowed out to persuade us that what's presented to us--an artificial, synthetic simulation--is real, because if we believe this artifice the seller reaps immense profits while we suffer the consequences of an artificial, house-of-mirrors realm of anxiety and distraction.

So the sellers present an orange-dyed confection of potato starch that is devoid of any nutritional value as a "veggie snack" replacement for an actual carrot loaded with nutrients and fiber. The sellers of ultra-processed snacks and glop make billions of dollars in profits while the consumers who were conned into believing the unwholesome snack was a "healthy alternative" become ill, mentally and physically.

Then another set of sellers channels those made ill by Ultra-Processed Life into another false-choice realm in which the sellers reap billions in profits not by curing illnesses but by addicting consumers to meds they must take for life.

In the political realm, no matter who we vote for, life gets more expensive, precarious and totalitarian: protections for consumers and citizens are reduced to benefit the few at the expense of the many, and choiceless choices abound--two insurers that offer the same simulations of actual insurance, two big-box stores filled with the same low-quality products, and two service providers offering the same maddening AI-generated endless loops of misery that's laughably presented as "customer service."

Privatized totalitarianism expands without limits: our data is harvested and sold (you "opted in" by using the platform), we're banned or shadow-banned by black-box-algorithmic private monopolies (you violated the shape-shifting "community standards" that have remarkable overlap with whatever the government is presenting as "the correct choice"), and all this is presented--cue the laugh track--as "free market capitalism" and "individual choice" when it's actually a Kafkaesque facade masking the reality that the entire system is the opposite of what's being sold: it's not authentic, it's fake. It's not progress, it's Anti-Progress. It's not beneficial to us, it's malefic, and it's not actual agency-liberty, it's a profitable simulation that we sense but can't quite identify because it's everywhere.

Which brings us to AI, the apex of technological hype and Ultra-Processed Life. Beneath AI's oh-so-helpful prompts and sickly-sweet affirmations, it erodes our ability to even recognize our own loss of autonomy and independent thinking. The core traits of Ultra-Processed Life--the erosion of authenticity and the substitution of artificial, synthetic simulations that are immensely profitable to those selling the simulations--are the core dynamic of generative AI.

The ultimate totalitarian structure of control isn't a police state; it's the helpful servant who does everything for you so you lose touch with the real world of choices and consequences. Most importantly, we lose the ability to discern that all the servant's choices just so happen to profit the few in control of the helpful servant system at the expense of those delighted by the convenience and ease of the helpful servant doing all the thinking and making all the decisions--not directly, of course, because we might notice that, but by limiting our options to choiceless choices that all yield the same output.

As our mental and physical health spirals into a black hole of addiction, dependencies, anxiety and distraction, we're powerless to discern the spiral because we turn to our helpful servant for answers. The helpful servant assures us all is well, we're remarkably intelligent and grounded, and there's a pat answer for everything.

All of which is false, but it relieves our anxiety to hear these assurances. And so we distract ourselves with dopamine-stimulating media and consumption, buy-buy-buy, as the core mechanism of Ultra-Processed Life is transactional: buyer and seller meet in a faceless, frictionless transaction that triggers some dopamine hit of novelty or illusion of value, selfhood and agency: I'm somebody because I bought something.

Meanwhile, the relationships underpinning a healthy life and society are unraveling. The endless aisles of Ultra-Processed snacks, frozen glop, canned glop and sugar-water beverages are an analogy for the endless aisles of media-slop and the 24/7 "news" which is so ultra-processed that it is now resistant to parody--there's no way to parody what is already a self-parody.

The term social engineering has a disturbing sound, because it suggests that the "free market" and "individual agency" are perhaps more profitable facades than they are real-world experiences. For this is the destructive heart of Ultra-Processed Life: we sense something's off about the constant state of hyper-everything anxiety, precarity, uncertainty and dopamine-receptor exhaustion we experience, and we sense the disconnect from what we experience and what we're told we should be experiencing: the endless bliss of Progress and Prosperity.

This disconnect has a name: the politics of experience. We're constantly bombarded with contexts, prompts, agendas, narratives and signifiers persuading us that the artificial, the fake, the simulated, the facsimile, the mimicry, is all real, and we're the ones who are at fault for experiencing something other than what we're told "everyone else is experiencing."

But this too is misdirection, because in reality, everyone else is experiencing what we're experiencing, the disconnect, the anxiety, the solace of distraction and buying something, but they're trying to believe the artifice because facing the reality of our disconnect from ourselves and the real world is too disturbing, for Ultra-Processed Life has eroded our ability to trust our own experience as superior to what's presented in the house-of-mirrors Mouse Utopia we inhabit.

It's also disturbing for another reason: the only way to return to authentic experience, autonomy and agency is to go Cold Turkey and turn it all off. And of course the ability to do so is what Ultra-Processed Life and its most powerful handmaiden, AI, disables: we are Superman strapped to a carefully machined chunk of Kryptonite we can no longer detach.



NEW PODCASTS: Charles Hugh Smith on the Risks, Costs and Uses of AI (31:28 min)(host Richard Bonugli)

The Government Created an Ultra-Processed Economy--and It's Destroying America (1:04 min)(host Daniel Horowitz)


My book Investing In Revolution is available at a 10% discount ($18 for the paperback, $24 for the hardcover and $8.95 for the ebook edition). Introduction (free)


Become a $3/month patron of my work via patreon.com

Subscribe to my Substack for free

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Offload Risks onto the Bottom 90% and Immiseration Follows

The underlying story of the past 50 years has been the offloading of risk onto workers and consumers.

On my map of how the world works, we start with structures of control that distribute the good stuff--resources, assets, income and power--and the bad stuff: costs, losses and risks. As I explained in The US Economy In a Nutshell: Privatize the Gains, Socialize the Costs, the current arrangement distributes the gains to the top 10% and the costs and risks to the bottom 90% via privatizing the gains and socializing--i.e. dumping them onto the biosphere and the public--the costs and losses.

This follows a power-law distribution: the few at the top reap most of the gains, and the leftovers, scraps and crumbs are distributed in descending order, with most of what's left going to the top 9.5% and a diminishing dribble is scattered over the lower 90%, so that by the time we get to the bottom half of households, 170 million people own a grand total of 2.5% of the nation's financial assets, while the top 0.1% own 16.6%--6.6X the bottom 50%.

A key mechanism in this wildly asymmetric distribution of gains and costs is the system favors capital over wages. As the charts below illustrate, the financial gains go to the owners of capital, and since ownership of capital is highly concentrated, these few owners siphon up the vast majority of the gains.

One way to understand how the current arrangement favors capital over wages is to reverse the tax liabilities of capital and wages. Employers and employees pay 15.3% of every dollar of wages in Social Security / Medicare taxes, plus income taxes that quickly rise to 22%, for a total tax rate of 37.3% on wages. (Note self-employed people like myself pay the full 15.3% ourselves, as we're both employer and employee.)

Capital gains are taxed at 20%, but only when the asset is sold, so the wealthy borrow against their unrealized gains and live off this borrowed money to avoid selling and having to pay tax on capital gains. And since the system depends on debt to survive, the interest on debt is deductible, giving the wealthy borrowers a tax deduction for avoiding capital gains.

Now imagine all capital gains, realized or unrealized, were taxed at 37% and the first $80,000 of wages were tax-free. The median wage is around $80,000, hence my picking that number. As for the hue and cry about unrealized capital gains being taxed, that's easily addressed: unrealized gains in primary-residence owner-occupied homes and retirement accounts would be exempted. Every other gain made playing in the casino would be taxed.

Reversing the asymmetry of tax liabilities would dramatically alter the distribution of gains and costs. Wages have lost ground for 50+ years, and the favoring of capital is a key driver of this decline in the share of the economy that's distributed to wage earners.

Half the nation's households--170 million people own a grand total of 2.5% of the nation's financial assets:



The winner-take-most arrangement favoring capital:



Another key driver is the offloading of risk from owners to consumers and workers, a perverse process that has been obscured by incremental degradation. Risk is a strange phenomenon that defies easy definition. Risk isn't a direct loss or cost; it's the probability of losses and costs arising in what appears on the surface to be a stable arrangement.

Consider the stunning decline in the quality of durable goods such as appliances, and global industry adopting a laughably valueless one-year warranty across the board. Appliances that routinely lasted 30 years before "Progress" took the reins now routinely fail in 3+ years.

In the good old days before "Progress" took the reins, manufacturers absorbed the risk of premature failure of the goods they produced. Now this risk has been offloaded onto consumers, who are now forced to buy "extended warranties" as the only means of mitigating the risk they now carry of premature failure.

This is in effect a form of extortion: "nice refrigerator you got there, too bad it's at risk of breaking." Well, if current manufacturers had the same standards as previous generations, we wouldn't need "extended warranties." Welcome to the Mafia Economy: low quality goods and services force "upgrades," i.e. extortion.

Consider the offloading of risk onto workers. Employment other than casual labor once included healthcare insurance and other basic benefits. In the "gig economy" of contract employment and gigs, the worker is now responsible for paying their Social Security / Medicare taxes, healthcare insurance and retirement contributions.

The decline of hourly wages is another offloading of risk onto the worker. The percentage of workers paid by the hour has declined in favor of salaried positions with open-ended demands on workers: where hourly workers get paid for hours on the job, salaried workers are now on the hook for work beyond a conventional 8-hour work shift.

Then there's the immense mass of risk and labor that's been offloaded onto consumers and workers as shadow work, often the result of having to fix failures in goods and services that were once the responsibility of the provider or employer and have been dumped on consumers and workers. This is a topic I've often addressed.

This Is Why You're Drowning in Busywork: We have been told that A.I. will take people's jobs. What no one mentions is that many of those jobs are landing on us. The A.I. revolution involves a huge transfer of labor-- not from worker to machine but from worker to consumer. (nytimes.com, paywalled)

Another source of risk is the dependence on debt to fund the lifestyles we deserve: as the purchasing power of wages has declined, the easy "solution" is to fill the gap between what earnings can buy and what we want / need / expect / deserve with borrowed money.

As we all know, debt comes with risk, as falling behind greases the slide to default, bankruptcy and ruin. 27% interest rates on credit cards steepen the slide into a cliff: one missed payment can trigger a cascade of events that cannot be reversed. This is why I often observe that fewer bad things can happen if you have no debt.

Last but far from least, is the current arrangement's dependence on serial credit-asset bubbles as the sole driver of "growth", a dependence that has led to a casino economy in which wage earners lose ground and in desperation turn to gambling as their last-ditch hope of gaining ground.

But despite 24/7 assurances that "this isn't a bubble," all bubbles pop with devastating consequences for those who believed the assurances of those operating the casino.



The underlying story of the past 50 years has been the offloading of risk onto workers and consumers, with the inevitable consequences being higher costs and losses leading to impoverishment and immiseration. We're frogs in water that's getting measurably hotter, and it's getting harder to muster the means to jump out of the simmering pot.


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Without Subsidies, AI Is Unaffordable

Let's pull all this into an undeniable conclusion: AI is based on massively subsidizing users' costs.

What's already abundantly clear but verboten to say as it would pop the bubble of AI valuations and triumphalism is that AI is unaffordable once the direct and indirect subsidies are withdrawn. Nothing that consumes this much electricity and requires such an immense scale of costly processing and memory capacity can be low-cost, never mind free.

The major AI platforms and vendors are subsidizing corporate and individual users in the hopes that they can achieve AI sector dominance --and the pricing power that comes with it--via the network effect, the dominance generated by having the majority of users bound by habit or dependence to your platform or tools.

This battle for network effect dominance is playing out in full view:

AI Giants Are Handing Out Tons of Free Computing Power to Grab Startup Share: (wsj.com) Pitched battle for business users comes as AI companies seek lasting streams of revenue.

Hans Ibarra, a founder building an AI-voice startup, has found himself on the receiving end of a big opportunity: Top artificial-intelligence companies such as OpenAI, Anthropic and others desperate to win his business are ramping up discounts.

Across Silicon Valley, startup founders like Ibarra are enjoying a wave of computing credits and fielding competing offers from AI-model makers racing to land new enterprise customers. Cursor, the AI-coding company bought by Elon Musk's SpaceX, offered a 75% discount through July 5.

"If I'm choosing between a really cheap Chinese model that I actually have to pay for, and a very expensive Anthropic model that I don't have to pay for, I'm going to pick the Anthropic model," Acker said. "I'm always going to pick the one for which I have free credits."

Meanwhile, back in the real world of costs, AI Costs More Than The People It Replaced (forbes.com)(via Tom D.)

It turns out that experienced human workers doing the work right in the first place is cheaper than having AI run a probability distribution process that needs vetting and corrections. And remember, AI isn't actually "intelligent," it's just a probability distribution using natural language.

As management guru Peter Drucker observed, enterprises don't have profits, they have costs. Purveyors of AI platforms and tools have costs, and so do their customers. Those costs are currently being funded by investors, who are in effect subsidizing the AI companies' "free" giveaways of horrendously costly "tokens" in a manic, desperate attempt to grab the brass ring of network effect dominance before their cash runs out.

This raises a question: Is this any way to run a railroad? In other words, is this actually a viable business model, burning billions of dollars in cash to lock in network effect dominance in a field that is rapidly obsoleting every iteration of an innately limited mode of computation? Is claiming that a probability distribution is "intelligent" in the same way humans are intelligent a viable business model when there is ample evidence this simply isn't true?

AI and human intelligence are drastically different--here's how (scientificamerican.com)

What happens when enterprises have to pay the unsubsidized costs of AI is they immediately curtail their AI spending because the customer-facing / financial benefits of AI are at best elusive and often negative. Peter Drucker was onto something that is currently being lost in the PR-propaganda push of those trying to cash in on the AI euphoria: enterprises don't have profits, they have costs, and the real-world costs of AI are extraordinarily high while the payoffs are ambiguous.

There are many other hidden subsidies within the AI machinery. There are corporate tax write-off subsidies, energy subsidies, tax credit subsidies for building data centers, and so on. If these were stripped out, what would the real unsubsidized costs of AI be? No one knows, but they would be higher than what's presented as the cost now.

Then there's the if it's legal, it's moral, and what's legal is for sale subsidy: AI is built on the systemic theft of copyrighted content. Last month alone, AI scrapers gorged on 246,000 pages from my Of Two Minds server, and hundreds of thousands of pages of my copyrighted works on my mirror site and other sites posting my work.

This is legal, but is it moral? Nobody asks such questions because the important thing is to avoid saddling AI users with the real costs. So if all those content creators get nothing--in effect, subsidizing both AI companies and the users of their AI platforms and tools--well, so what, because if it's legal, it's moral, and what's legal is for sale.

Well that's just peachy, but let's do a thought experiment where every creator of copyrighted work got paid for supplying AI with its database, and every user of AI had to pay us content creators. How about a penny a page / image / sound clip? so 246,000 pages per month (again, only a fraction of the total volume of my work that was scraped by AI companies for their "free" use in a single month) would be $2,460 a month paid to me by AI users benefiting directly from my copyrighted work. Wouldn't that be fair, i.e. moral?

Recall that US copyright law is explicit: all creative content is copyrighted upon completion, period.

How many current users of AI are willing to pay the full unsubsidized costs for their use of AI? We can safely say far fewer than are using the tools for "free" due to subsidies both direct and indirect.

Let's pull all this into an undeniable conclusion: AI is based on massively subsidizing users' costs. Once those subsidies end, what's left are costs, not profits. Play that any way you like, but massive subsidies are not sustainable, though they generate a temporary illusion of viability that can be exploited by those selling a fantasy of future profitability to credulous investors and enterprises.

Left unsaid is a lot of money is being gambled on the illusion that subsidies are sustainable. They're not. Enterprises don't have profits, they have costs.




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