US economist: AI-driven investment is inflating consumption that wages don’t support

A new analysis warns that outsized capital flows into AI infrastructure, specialized compute and related ventures are propping up headline consumer demand in ways wage income does not justify. The paper documents a steady decline in labor’s share of spending from its pre‑pandemic norm to a level that implies roughly $1 trillion a year of consumption is not backed by wage income — about 3% of U.S. GDP. That gap has been financed by rising asset values, venture capital injections and large capital projects rather than broad‑based pay gains. Market data show global AI infrastructure commitments reached roughly $1.5 trillion in 2025, concentrating procurement and delivery through a small set of hyperscalers and suppliers — a dynamic that amplifies capital intensity, vendor lock‑in and execution risk. Company behaviour mirrors the shift: some leading AI developers are trading rapid headcount growth for long‑horizon, capital‑heavy bets on data centers and chips, compressing near‑term payroll while locking in fixed costs. These capital deployments create demand for goods and services now, but rest on optimistic assumptions about future revenue and steep cost declines per model‑inference; if those assumptions fail, spending and valuations could reprice quickly. Policy debate in the U.S. and across the Atlantic is already turning to how best to protect households: small guaranteed‑income pilots and stipend programmes (including early experiments in Britain and an artist stipend in Ireland) have produced early evidence of gains in recipients’ financial stability and creative output, suggesting modest transfers can provide immediate relief and enable retraining. At the same time, advocates and some economists caution that cash alone will not alter the institutional channels that concentrate AI returns; practical policy packages therefore pair demand supports with supply‑side remedies — public investment in open infrastructure, standards to reduce vendor lock‑in, stronger competition policy, progressive taxation or shared‑ownership models to broaden who benefits. Market actors — earnings analysts, private lenders and corporate strategists — are treating capital intensity and supplier concentration as central risks, demanding clearer timelines for how investments translate into durable revenue. The piece argues a rapid unwind would be painful but not necessarily catastrophic if accompanied by deliberate policy to protect workers and reallocate resources toward wage‑backed demand; unmanaged reversals risk amplifying unemployment, inequality and a sharper recession. Monitoring corporate profit margins, hyperscaler capex cadence, venture deployment, and supply‑chain bottlenecks is recommended as an early‑warning toolkit to guide calibrated fiscal and industrial responses.