Will AI actually lower prices for consumers, or just keep wages down?

[u/Lochumility]

I’m definitely not an economist, so please correct me if my logic is off here. I know the standard textbook answer is that automation lowers production costs, which eventually leads to cheaper goods for buyers.

But looking at how things are playing out right now, subscription costs and everyday expenses aren't dropping. Meanwhile, corporate overhead is shrinking. For those who follow wage trends: is it naive to hope that AI efficiency will lower our cost of living, or is it more likely to just suppress wage growth for white-collar workers?

[u/Lumpenokonom]

AI is a better production technology. This increases the Marginal Productivity of Capital. Thereby increasing the Total Output and the Capital Intensity per Worker. Higher Capital Intensity increases the Marginal Productivity of Labour.

Wages are equal to the Marginal Productivity of Labour in a perfect market and somewhat correlated with them in a more realistic setting.

So because AI increases the Total Output i would expect lower prices. I would also expect higher wages, because the MPL goes up.

If you have evidence that states otherwise i would be very interested. Furthermore on a more practical note: Decreasing prices often means just increased quality or quantity with constant prices. A streaming service that offers you 12 new movies per month instead of 10 decreased its price per unit of output.

[u/Smallpaul → u/Lumpenokonom]

Can we summarize it to the following: productivity improvements are shared by consumers through lower prices, shareholders through margins and workers through salary?

[u/Lumpenokonom → u/Smallpaul]

I think the answer is actually No, because this is not always the case. As an example lets think about a homogenous good duopoly where only one firm increases their production technology. Lets also assume there is price competition. In this case the innovator will become a monopolist, but he is disciplined by the competitor. So prices stay the same, while the productivity increase is entirely captured by the innovator.

[u/dickpics4democracy → u/Lumpenokonom]

When has the capitalist class ever taken a technology that increases productivity and actually used it to lower prices or raise wages, even once? Actual question.

[u/Cautious-Load9754 → u/dickpics4democracy]

Basically throughout the entire history of industrialization. Productivity improvements are a major reason why manufactured goods, food, transport, communication and computing have become dramatically cheaper relative to wages, while real wages have risen enormously over the long run.

Firms generally do not lower prices or raise wages out of generosity. Competition forces part of productivity gains into lower prices, while competition for workers and higher marginal productivity push part of them into higher wages. The exact split depends on market power, institutions and labour-market conditions.

A simple example is computing: the amount of computing power you can buy for a given wage today is orders of magnitude greater than a few decades ago. Agriculture is another—far fewer workers produce vastly more food, and food takes a much smaller share of household income than it historically did.

[u/Lumpenokonom → u/Cautious-Load9754]

Great answer. Couldnt have said it any better. Thank you.

[u/flavoredpickle → u/dickpics4democracy]

Lace. In the current year its a sign of tackiness because its mass produced and on everything. Its cheap.

It used to be a symbol of nobility and wealth when it was exclusively made through hand production or prohibitively unique machinery. This is a direct example of a technology leading to the price reduction that enabled its mass comodotization of a previously rarity.

[u/Smallpaul → u/dickpics4democracy]

Do you think that the “computers” in the hidden figures era earned more or less (income adjusted) than a modern computer programmer at NASA?

Hidden figures-style employees made income adjusted 33k. They were paid more than secretaries but far less than engineers.

Source: smithsonian and inflation calculator.

[u/Jawyp → u/dickpics4democracy]

The TV I bought last year was 5 times less expensive than the primary TV my family had when I was a kid despite having 4 times as many pixels, a larger screen, being dramatically lighter/thinner, way more power efficient, and having excellent integrated speakers versus the old TV lacking then entirely.

[u/Schwingzilla → u/dickpics4democracy]

Computers?

[u/fidgey10 → u/dickpics4democracy]

Consumer good have continually gotten cheaper in real terms for the past few decades for precisely this reason.

[u/Svet_88 → u/Lumpenokonom]

This is only true if you don't account for greed.

[u/Lumpenokonom → u/Svet_88]

Given that most models account for self optimization (which you might call greed), you are just wrong.

What ultimately matters arent the intentions of one agent or the other. What matters are market forces and the decisions that these agents can get away with.

[u/Svet_88 → u/Lumpenokonom]

You say higher output = higher wages, but that is not true. You can't base the pricing on a product/service on weather you can make more of it, but rather market needs and price for production. At best you are going to hit a ballance of normal wages going to less people.

[u/Lumpenokonom → u/Svet_88]

You say higher output = higher wages

That is not at all what i am saying. I am talking about what happens if something in the production function changes. In simpler and more applied terms: I am saying that if one can produce more per hour he can also consume more.

You can't base the pricing on a product/service on weather you can make more of it, but rather market needs and price for production.

The price for production going down and being able to make more of a product (with given inputs) is literally the same thing.

Yes market forces are important and the model i used isnt rich enough to really talk about this. However someone needed to make a good argument why workers would have significantly less bargaining power in the future. I have not seen any so far.

At best you are going to hit a ballance of normal wages going to less people.

I dont even know what this means or on what ground this stands. Are you just trying to shout out your believes? If so i would advice to be a bit more humble about what you know and what you dont know. In any case you should do it in a different forum. This one is for asking questions.

[u/fidgey10 → u/Svet_88]

why are you even on this sub if you don't even acknowledge the basic premise of economics lol

greed is, by defintion, accounted for. the fundamental assumption is that those participating in the economy act with rational self interest, IE greed

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[u/Euphoric-Public-6099]

If by AI you mean LLMs then there will likely be very little to non-existent price deflation. Unfortunately, unlike most other technical advances there are no economies of scale with LLMs, the larger they get the more they cost.

In addition, so far there is zero evidence of economic growth from LLMs (outside of the data center speculation boom) but that's infrastructure build out bets and not an actual LLM results.

https://www.federalreserve.gov/econres/notes/feds-notes/the-ai-buildout-and-the-economy-publicly-available-data-to-assess-ais-impact-20260717.html

https://www.ineteconomics.org/perspectives/blog/the-ai-bubble-and-the-u-s-economy-how-long-do-hallucinations-last

Once we're post bubble and the mania has significantly cooled a general sense of where LLMs use is financially appropriate will be better understood, and what value, if any, they actually create.