Third question on AI. A question that also remains unasked is whether the AI boom can continue without leading to a massive increase in inequality. A recent paper by Stijn Van Nieuwerburgh runs the numbers on how much revenue the AI industry needs to generate to recover its massive investment (summary and a link to the paper can be found here: Van Nieuwerburgh’s arithmetic should make us more concerned. AI investments will average about 3.6% of GDP annually between 2025 and 2032. Van Nieuwerburgh calculates that, using a 10% rate of return, the industry would need to generate annual revenues of about $3.7 trillion by 2032 to recover these costs (growing from its current levels of about $200 billion or so). That is significantly more than 10% of current US national income, and will likely remain around 10% of national income by 2032, even if GDP growth rose from its current level. A large fraction of this revenue will go to capital income. That means a massive increase in the share of capital in national income, which has already risen substantially over the last 25 years or so – now standing at an all-time high of about 47% ( Capital income is much more unequally distributed than labor income, so a massive increase in the capital share of national income will translate into a very sizable surge in inequality. The rise in inequality may not stop with the capital share. My work with Pascual Restrepo documents that (automation-driven) increases in the capital share of national income are typically associated with rising labor income inequality as well (see, for example, The same may happen in the next several years, boosting inequality further. What is missing from our current debate is any discussion of a fundamental dilemma these numbers pose: can the AI boom avoid both an economically costly crash and a huge increase in inequality? If the industry reaches these revenues, inequality surges. If the industry does not become profitable, a crash, with substantial costs in terms of lost output and jobs, becomes likely. My assessment would be that the industry is unlikely to reach levels of revenue Van Nieuwerburgh calculates. First, diffusion has been and will likely continue to be slow. Second, competition from open-weight models, which are getting better, will limit how much proprietary models can charge. Third, despite important advances, I still believe that AI models will not be able to automate entire occupations anytime soon, thus limiting their value to businesses as cost-saving devices. Whether this leads to a crash or not is more complicated and will depend on whether various AI companies are bailed out and what kind of support they receive. Nevertheless, even if revenues fall short of these gargantuan amounts and we avoid a dramatic surge in inequality, I expect that the diffusion of AI will push up inequality between capital and labor and within labor. If inequality does surge, a further question becomes central: can our democracy survive such astronomical levels of inequality?