Most jobs are going away There’s an old concept called “derived demand” that says most labor is incidental to the outcome you want. That is bad. Essential demand for human labor is tiny. That means most jobs have no moat. I (and many others) have been circling the concept of “essential demand” for a long while. Essential demand for human labor is when the human is part of the product or service. Removing the human fundamentally alters the market offering. Otherwise, the demand for human input is derived; meaning it is secondary, incidental, or merely instrumental to the output. Consider RDJ as Tony Stark. Why does he sell movies? Couldn’t they just animate it with CGI or AI? Yes, but fans want to see RDJ specifically. There’s a reason that Disney is bringing RDJ back to the MCU. This is a prime example of essential demand. The essence of RDJ is nonfungible. But what about your house? You probably have no idea who built your house and you likely do not care. That means that all the labor that went into your house is derived demand. The humans who framed and plumbed your house are secondary (or incidental) to the actual economic outcome. To put that another way; you could remove all human labor inputs from your home and the product remains the same (in terms of value). But if robots and AI built your house, it would probably be cheaper, as human labor accounts for 30% to 50% of the final cost of construction. The Four Food Groups of Essential Demand So far, I have identified four types of essential demand. They are presence, provenance, liability, and affinity. Essential Demand Type 1—Presence This is where you are paying for a human to physically do a thing. Think: massage therapy, trip sitters, strippers, musicians, and performing arts. You might not care about the specific name of the service provider, and they are interchangeable (under many circumstances) but at the same time, your demand is that you will pay for a human to do a thing. This is either because machines cannot or you are willing to pay a premium for the pleasure of a human. The cute barista at your favorite coffee shop is an example where you’re probably willing to pay an extra 50 cents for the experience of seeing a cute girl behind the bar. There are massage robots out there, but most people might prefer human massage, assuming they can afford it. Essential Demand Type 2—Provenance Sometimes we value something expressly because a human made it. I am writing this blog by hand, therefore it likely has higher value than one that was AI generated. To be transparent: the attached whitepaper was heavily assisted with AI, even though I directed the research and used my noodle to make sense of everything. In the online and artistic space, many people have expressed an intense preference for human-made stuff. That is because we are biologically wired to appreciate real human experience and production more than automated production. Human stories and effort will always be more valuable to us. Luxury, handmade goods, as well as artisanal crafts, will likely always command some premium. Essential Demand Type 3—Liability This class exists because you want to be able to fire or jail someone. Think POTUS and SCOTUS and mayors and governors. Even if they use AI extensively to discharge their duties, you want a human on the hook for those decisions. That might also apply to CEOs, lawyers, judges, and doctors. This is what I used to call the “statutory economy”—clusters of jobs that exist for legal and social reasons i.e. we express a preference as a society that “we want a human doing that job so that we have a throat to choke if something goes wrong.” You can impeach and remove a president. You might not be able to fire Skynet. Essential Demand Type 4—Affinity This is what I originally called the “nominal economy”—where value is attached to a specific name. If you read my Substack and watch my YouTube, it is likely because you specifically want to know what David Shapiro is thinking and saying. You might listen to or read other AI and social commentators, but you value my input specifically. I have also called this the Taylor Swift Effect. There is only one Taylor Swift and she, like RDJ, is nonfungible. I have no idea why Taylor is so popular. All her music sounds the same to me. She is a good human, and rather attractive, and extremely hard working, though. The bottom line is that essential demand is a relatively narrow slice of the economy, and always has been. Even when Derived Demand was articulated by Alfred Marshall way back in 1890 (yes, over 130 years ago), he observed that most labor was already derived—meaning that people were rarely paying for the privilege of human presence, provenance, liability, or affinity. Even worse, while essential demand is likely somewhat elastic, it is not nearly as elastic as the entirety of discretionary spending category. For instance, if you are a billionaire, you do not consume 10,000x as many massages as a millionaire. You might buy a bigger house and a bigger yacht, which does not automatically entail more human labor input. Link to full article and free white paper below.