“Those that don’t study historical past are doomed to repeat it.” So stated George Santayana, the Spanish-American thinker who was a star Harvard professor earlier than resettling in Europe and turning into an influential public mental. Santayana’s writings served as a guiding mild throughout a few of the darkest days of two World Wars and the close to cataclysm of the mid-Twentieth century—a destiny that none apart from Ray Dalio sees repeating itself within the close to future.
So possibly it’s time for a fast historical past lesson in regards to the first couple industrial revolutions, with the labor pressure going via what leaders similar to Nvidia’s Jensen Huang have described as one other one: the AI increase.
Within the early 1800s, as innovations just like the spinning jenny and the steam engine reshaped Britain and quickly the world, previous mills had been all of a sudden in a position to produce extra items than ever. Productiveness soared in a method that historians are nonetheless grappling with measuring. In the meantime, employee pay remained stagnant for greater than 50 years—a phenomenon that financial historian Robert Allen referred to as “Engels’s pause,” named after Friedrich Engels, the German industrialist and thinker. Allen named this accordingly as a result of that “pause” in employee wages led to, amongst different issues, a widespread mental disillusionment with how capitalism was evolving. This aligned with concepts within the e book that Engels was coauthoring together with his affiliate Karl Marx. It was referred to as The Communist Manifesto.
And this pause could also be taking place once more, nearly precisely 200 years later.
A historical past lesson
For many years, the economic system expanded with out delivering a lot enchancment to the folks really working the machines; industrialists grew fabulously rich whereas new factories stretched throughout the panorama, however staff nonetheless toiled for 14 hours a day in crowded situations, unable to discover a higher job. The features from technological progress accrued overwhelmingly to the house owners of capital. Solely later—as soon as brand-new industries, like typing and manning telephones, demanded extra expert labor, and political establishments shifted to fulfill that demand—did wages lastly begin to rise alongside productiveness.
Now, economists are seeing echoes of that very same sample within the U.S. economic system. Analysts on the Financial institution of America Institute have warned that latest productiveness features are accumulating on the revenue facet of the ledger, whereas wages and salaries steadily take up a smaller slice of GDP. “Profits are gaining floor vs. wages,” the economists wrote, explaining that “latest productiveness features have been piling as company profits, with labor earnings steadily falling as a share of U.S. GDP.”
“It stays to be seen whether or not wages and salaries recoup a few of their misplaced floor relative to company profits,” the researchers wrote.
This development corresponds with what Albert Edwards—the cult analyst for Societe Generale, famed amongst finance nerds for his quotability and perma-bearish doomsday takes on markets—predicted in 2022 might be “the tip of capitalism.” In November, he advised Fortune that he stood by this take, significantly on company profits surging throughout the “greedflation” period, and warned {that a} “day of reckoning” was upon us on the center of the last decade.
That shift is occurring at a second when the headline economic system seems blended. The U.S. added solely 181,000 jobs in 2025, in accordance with revised Bureau of Labor Statistics information, a mere blip within the information that could be a margin of error away from zero, far under the 1.46 million jobs added in 2024. But financial progress held up. Financial institution of America economists say they are monitoring roughly 2% annualized GDP progress for the fourth quarter, a tempo that implies output is rising whilst hiring cools.
Put these two developments collectively, and the mathematics factors in a single path: larger productiveness per employee.
It’s unclear if the productiveness features are completely from AI; BofA notes that the productiveness surge began across the pandemic, years earlier than ChatGPT was first launched. Elements like distant work, elevated digitalization, and slimmed down workforces could have contributed to the early surge in productiveness. Many consultants stay skeptical over AI’s revolutionizing impression within the workforce, three years on.
Nevertheless, over the previous few weeks, analysts have actually shifted their tone, with warnings of an AI “takeoff” going viral, and markets promoting off practically $1 trillion in software program shares over fears that AI would exchange engineers quicker than anticipated. Over the weekend, main Stanford researcher Erik Brynjolfsson argued in an essay that the U.S. is starting to maneuver out of the heavy funding section of synthetic intelligence and right into a “harvest section,” the place years of spending begin to translate into measurable productiveness features. His estimates recommend U.S. productiveness progress roughly doubled in 2025 in contrast with the prior decade’s development.
“The productiveness revival is not only an indicator of the ability of AI,” Brynjolfsson wrote. “It’s a wake-up name to concentrate on the approaching financial transformation.”
An economic system of resentment and revenue hoarding
But that financial transformation will not be welcome by all—the truth is, fairly the alternative. What started as skepticism towards AI has curdled right into a palpable AI hatred throughout the American workforce. Most People are frightened of AI, and few report being excited in regards to the expertise, even amongst self-described optimists. Employees resent being compelled to make use of a expertise that may then copy their concepts and processes, solely to exchange them in a number of years’ time. A Gallup ballot discovered that six in 10 People mistrust AI, and most individuals agree that laws prioritizing AI security and safety are essential.
In the meantime, company leaders—who are, as a complete, thrilled by the alternatives—do not know how unfavourable worker sentiment has turn into. A Harvard Enterprise Assessment survey discovered that 76% of executives report their staff are feeling captivated with AI adoption, when in actuality, solely 31% of particular person contributors had been enthusiastic about it.
The disconnect that BofA analysts discovered of their analysis might need one thing to do with it. Most staff haven’t but felt the advantages of the AI increase within the inventory market, however as a substitute have grappled with a stalled labor market and larger costs from tariffs all year long. In the meantime, higher-income shoppers stay secure, insulated by inventory features and homeownership, whereas spending progress for everybody else is slowing.
“For now, larger profits relative to wages are yet one more driver of a Okay-shaped economic system,” BofA wrote.
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