Here is Dwarkesh’s tweet, based on his recent paper with Trammell, raising the issue of whether wealth taxes will become desirable in the future. A few points:
1. I think quality homes in good locations will be extremely valuable. Those could be taxed more. You could call that a wealth tax, but arguably it is closer to a “housing services tax.”
2. You could put higher consumption taxes on items the wealthy purchase to a disproportionate degree. Paintings and yachts, and so on. Tom Holden argues: “In a world in which capital is essentially the only input to production, taxing capital reduces the growth rate of the economy. Whereas at present capital taxes have only level effects. So if anything, capital taxes will become less desirable as the labour share falls.”
3. I think the amount of money spent on health care will go up a lot. And people will live much longer, which will further boost the amount spent on health care. Taxing health care more is the natural way to address fiscal problems. Some people will fly abroad for their knee surgeries, but for a long time most health care will be consumed nearby, even in a strong AI world. If the way we keep the budget sane is to have people die at 95 instead of 97, there may be some positive social externalities from the shorter life spans. We also could use some of that money for birth subsidies.
4. As a more general point, capital will not be a perfect substitute for labor, or anything close to that, anytime soon.
5. Final incidence of the AI revolution is not just about the degree of substability of capital for labor. It is also about supply and demand elasticities in goods and services markets. For instance, to the extent AI makes various services much cheaper, real wages are rising not falling. That may or may not be the dominant effect, but do not assume too quickly that wages simply fall.
5b. It is not an equilibrium for capital to simply “have all the goodies.” Let’s say that Simon Legree, using advanced AI, can produce all the world’s output using a single watt of energy. And no one else with an AI company can produce anything to compete with that (this already sounds implausible, right?). If Simon simply hoards all that output, he has no profit, though I guess he can cure his own case of the common cold. The prices for that output have to fall so it can be purchased by someone else. The nature of the final equilibrium here is unclear, but again do not assume all or even most of the returns will stay with capital. That is almost certainly not the case.
Addendum: Here is some follow-up from Dwarkesh. I think he is talking about a world very different from our own, as there is talk of ownership of galaxies. That said, many other people wish to implement his ideas sooner than that.