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Will AI Make Us All Rich (Or Poor)?
Will the future improvement of AI increase or decrease our ability to earn a living? And how might it affect financial markets?
Daniel Lancaster
March 03, 2025
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“The world creates new, different and better jobs that require a whole lot less onerous, brutish reality than the agricultural worker in 1900 had to undergo. AI will just extend that same process again.”
-Ken Fisher (founder of Fisher Investments)
NEWS
What Happened Last Week
The sentiment of US consumers has fallen in recent weeks, particularly due to increased expectations of inflation, rising unemployment and lower expected pay raises.
This sentiment is also reflected in the AAII Sentiment Survey, which shows a significant increase in expectations of downward market movement within the next six months. Extreme fear is the result of the Fear & Greed Index.
The fear of stagflation has driven markets into volatile territory, due to the uncertainty surrounding tariff talk (expected to go into effect for Canada and Mexico tomorrow on March 4).
The Conference Board’s US Consumer Confidence Survey dropped below 80 in February, which triggers their warning of possible recession.
The yield curve inverted, meaning the 3-month Treasury yield has just surpassed the 10-year yield.
Inflation data showed prices increased as expected, with the core Personal Consumption Expenditure (excluding volatile food and energy prices) rising 0.3% for February.
How I See It
Markets have been trending sideways since November.
We’re bordering on what might be called a “pullback” in the markets. And they never happen in a vacuum.
Essentially the drop is due to this fear: that tariffs will cause out-of-control inflation at the same time that unemployment is rising.
While there’s no easy answer to forecasting future economic realities, the intensity of this fear appears to be the result of investors imagining possibilities that aren’t all that likely, in my view.
Total US imports only make up about 11.2% of US GDP. Accordingly, consumer’s expectations for inflation rose from 5.2% to 6% for the next twelve months.
But I think it’s important to remember that, when pricing stocks, investors typically consider what’s most likely to occur over the next 3 to 30 months. When markets become fearful, they focus on the lower end of that range.
President Trump’s tariffs on China, which Biden left in place, didn’t cause a spike in inflation. Companies found ways to work around it and find new suppliers. And Trump has made it clear that he is using tariffs as negotiating tools, which leaves an open question as to just how long they would actually be used (at least at the proposed levels).
Finally, the Federal Reserve predicts 2.5% average annual inflation over the next ten years, which is similar to levels predicted throughout 2022-2024. While that affects stock prices a bit, the recession fears are not as dramatic when viewed from this broader lens.
What is clear is that investors are taking this seriously, which helps to keep markets efficient before they spiral into a bubble.
In summary, I don’t believe a recession is likely at this point. But a correction in the markets (-10% to -20% from the high point) is an increasing probability.
The increasing uncertainty over Ukraine’s future may also swing sentiment in the days ahead. Local wars very rarely impact the stock market in a serious way long-term. A world war is a different story, but one which appears unlikely as America continues to seek a diplomatic and economic solution rather than a military one. And Europe is unlikely to make military moves without the backing of the US.
Sentiment swings markets over months. Fundamentals cause months to turn into years.
Right now, this looks largely like sentiment driven by uncertainty and not necessarily by likelihood.
PARADIGM SHIFT
Will AI Make Us All Rich (Or Poor)?
It’s the question on everyone’s mind: Will artificial intelligence make human work obsolete?
If so, will that reduce our earning capacity? If not, will it improve our earning capacity?
Feifei Li, CFA, offers her insight in the podcast from Enterprising Investor, specifically pertaining to the investment world.
In her perspective, the present development of AI will improve our earning capacity.
Why?
Because AI is nowhere near the point of being unquestionable. It still suffers from “hallucinations” and from occasionally misunderstanding the relevance of certain information.
In other words, a human expert still needs to confirm whether the outputs are accurate.
That’s good news for experts. But what about those just starting out in entry level positions?
It’s true that certain entry level tasks will be replaced, mainly in the realm of data entry or data consolidation. But that should be good news, because this frees up the newcomer to focus on more useful experience that is less busywork and more likely to advance their potential faster.
For investment research, AI still outputs what it’s programmed to do. It can learn, but it won’t be privy to this or that specific investment strategy that is proprietary to a company’s strategic edge. So it won’t remove the ability to strategize, but it will speed up the investment research process.
But machines can learn, right? So no one knows exactly where the limits of their use will be. Elon Musk speculated last week that AI will be smarter than all humans combined by around 2030. He also gives this an 80% chance at having extraordinarily positive benefits.
Doing more with less is a positive for every economy. That’s efficiency driving economies higher in spite of a declining birth rate.
In a theoretical world driven largely by machines, this would mean greater earnings for less work. This is much like the way that other machine, transportation and communication advancements have radically improved the lives of the whole world over the last century.
In short, on the economic front, AI can be a tremendous asset to future wealth across every social standing. But, as with the basic internet before it, great responsibility and intentionality needs to accompany the shift toward this new way of doing things.
The human touch will never be replaced. No matter how advanced a machine can become, the knowledge of a reciprocal human mind and emotion in our daily interactions will always be in some demand. But like the internet, phones and social media before it, we as humans may simply need time to experiment and learn how best to maintain AI as a net positive tool while staying true to our human selves along the way.
FINANCIAL TOOL
Capitalization-Weighted Index
A market index tracks a subset of the total stock market, based on its pre-defined parameters.
The most popular indexes for the US stock market are the S&P 500, the Dow Jones and the NASDAQ-100. But not all are weighted the same way. The Dow Jones is price-weighted, whereas the S&P 500 and NASDAQ-100 are cap-weighted.
What does that mean?
There are different ways to track a group of stocks.
For example, should all stocks make up an equal percentage of the total index? That might give too much influence to smaller companies and be less indicative of the total US economy.
Or should the bigger companies take up more space within the index, since they clearly are driving greater economic activity?
Or should we make things simple and just include the equivalent of one stock per company in the index, therefore giving more influence to the highest priced stocks (which is somewhat arbitrary due to the ability for stocks to split).
There’s no right or wrong way to do this. All have their own weaknesses and strengths.
But it’s important to know how an index is weighted in order to manage risk appropriately to your intended outcome.
The S&P 500, the NASDAQ-100, and the Russell 3000 are popular capitalization-weighted indexes on the US market. That means mega companies with the highest market capitalization (calculated as price x outstanding shares) drive the majority of the index’s returns.
That can be important to know, because early bull markets often see strong returns in only a handful of stocks (often mega cap stocks), whereas the returns spill over into broader sectors of the market as investor confidence resumes and FOMO (fear of missing out) kicks in.
But because cap-weighted indexes concentrate significantly in the few largest companies, an investor in such an index tracker could easily miss out on the growth of small- and mid-sized companies that are riding the new wave of economic activity.
Unless there’s reason to make bets on these largest companies, then spreading the risk a bit more evenly across companies could reduce concentration risk (unsystematic risk) without significantly impacting expected return.
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