“Those who do not learn history 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 changing into an influential public mental. Santayana’s writings served as a guiding mild throughout a number 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 drive going by means of what leaders reminiscent of Nvidia’s Jensen Huang have described as one other one: the AI growth.
Within the early 1800s, as innovations just like the spinning jenny and the steam engine reshaped Britain and shortly the world, previous mills have been immediately capable of 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 guide that Engels was coauthoring along 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 individuals 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 positive factors from technological progress accrued overwhelmingly to the homeowners 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 current productiveness positive factors are accumulating on the revenue facet of the ledger, whereas wages and salaries step by step take up a smaller slice of GDP. “Profits are gaining ground vs. wages,” the economists wrote, explaining that “recent productivity gains have been piling as corporate profits, with labor income steadily falling as a share of U.S. GDP.”
“It remains to be seen whether wages and salaries recoup some of their lost ground relative to corporate 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 may very well be “the end of capitalism.” In November, he informed Fortune that he stood by this take, significantly on company earnings surging in the course of 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 combined. The U.S. added solely 181,000 jobs in 2025, in keeping with revised Bureau of Labor Statistics knowledge, a mere blip within the knowledge that could be a margin of error away from zero, far beneath the 1.46 million jobs added in 2024. But financial development held up. Financial institution of America economists say they’re monitoring roughly 2% annualized GDP development for the fourth quarter, a tempo that implies output is rising at the same time as hiring cools.
Put these two tendencies collectively, and the mathematics factors in a single route: greater productiveness per employee.
It’s unclear if the productiveness positive factors are solely 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 specialists 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 change 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 part of synthetic intelligence and right into a “harvest phase,” the place years of spending begin to translate into measurable productiveness positive factors. His estimates recommend U.S. productiveness development roughly doubled in 2025 in contrast with the prior decade’s development.
“The productivity revival is not just an indicator of the power of AI,” Brynjolfsson wrote. “It is a wake-up call to focus on the coming economic transformation.”
An economic system of resentment and revenue hoarding
But that financial transformation isn’t welcome by all—actually, fairly the other. What started as skepticism towards AI has curdled right into a palpable AI hatred throughout the American workforce. Most People are scared of AI, and few report being excited in regards to the expertise, even amongst self-described optimists. Staff resent being compelled to make use of a expertise that may then copy their concepts and processes, solely to switch them in a number of years’ time. A Gallup ballot discovered that six in 10 People mistrust AI, and most of the people agree that laws prioritizing AI security and safety are essential.
In the meantime, company leaders—who’re, as a complete, thrilled by the alternatives—do not know how destructive worker sentiment has change into. A Harvard Enterprise Evaluate survey discovered that 76% of executives report their workers are feeling passionate about AI adoption, when in actuality, solely 31% of particular person contributors have 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 growth within the inventory market, however as an alternative have grappled with a stalled labor market and better costs from tariffs all year long. In the meantime, higher-income shoppers stay steady, insulated by inventory positive factors and homeownership, whereas spending development for everybody else is slowing.
“For now, higher profits relative to wages are yet another driver of a K-shaped economy,” BofA wrote.
