The economic models predicting AI-driven job losses share a common flaw: they treat human labor as a fixed, fungible input. It is not. And that error has real consequences.
Every consumer economy runs on a loop. Industry creates a market. The market attracts buyers. Buyers need income. They trade their time and talent to businesses in exchange for wages. Those wages become consumption, which generates demand, which creates more jobs, and which sustains the loop. It is a self-reinforcing system, elegant in its circularity and remarkably durable across two centuries of industrialization.
AI threatens to break that loop. Not because it automates a task here or a job category there, but because it targets the two fundamental levers of human labor that keep the loop spinning: knowledge and time. If a system can process information faster than a human analyst and access a broader body of facts than any MBA cohort, the human’s remaining function becomes genuinely unclear. The question worth asking is where human capital goes next.
I want to challenge the framing most economists bring to this question and argue that both AI’s capabilities and its limitations are being systematically misread.
I. The problem with how economists think about labor
The dominant economic framework for analyzing automation treats work as a collection of separable tasks. Machines take over certain tasks; humans retain others or migrate to new ones. The underlying assumption is that demand for labor, while it may shift, ultimately regenerates. New industries emerge, new roles appear, and the loop continues.[1]
This task-based model has real explanatory power, but it rests on an assumption that AI now makes fragile: that technology creates new human tasks at a pace and scale comparable to what it displaces. Acemoglu and Johnson, in their 2023 book Power and Progress, argue that AI as currently deployed is heavily biased toward automating labor without generating equivalent new categories of work. This represents a break from the historical pattern that previously kept wage growth and automation in rough balance.[2]
More critically, the framework treats knowledge and time as finite, fungible, and measurable inputs. They are not.
II. What is knowledge, actually?
The standard definition covers facts, information, and skills acquired through experience or education. That definition is technically correct and practically insufficient. If knowledge were simply a well-organized archive of facts, then every MBA graduate from a top program would produce identical strategic outcomes regardless of geography, culture, or context. We know that is not true. A product strategy that works in suburban Ohio fails in São Paulo. A go-to-market motion that closes enterprise deals in Singapore requires fundamental rethinking for Munich. The knowledge that matters is contextual, relational, and socially embedded.[3]
AI is trained on facts and information. It is extraordinarily good at retrieval, synthesis, and pattern-matching within its training distribution. But consider this scenario: if windshield wipers had never existed, would an AI system, given the problem of driving safely in heavy rain, invent them?
“The emotional need that drove Mary Anderson to patent the windshield wiper in 1903 was not a knowledge gap. It was a friction between lived sensory experience and a system that had no solution.”
Technically, the AI would face what we might call a cosine similarity problem. Asked how to keep a car’s windshield clear in rain, the model searches its embedding space for the nearest known solution. Without the concept of a wiper in its training data, the nearest neighbor is likely “do not drive in heavy rain,” or perhaps a robotic arm mounted externally. Both answers are impractical, dangerous, and beside the point. The correct answer requires not just lateral thinking but a kind of embodied frustration with an inadequate status quo. It requires the capacity to feel a problem before conceptualizing a solution.
This distinction between knowledge and task is fundamental. Even recursive self-improvement in AI systems operates within the bounds of the task being optimized. The feedback loops that improve a model’s performance at chess do not spontaneously generate insight about urban planning. Improvement is bounded by the objective function. The assumption that connecting disparate knowledge sources through recursion yields genuinely novel insight is one of the more significant overestimates in current AI discourse.
III. Time is not just speed
The second lever is time. AI’s most unambiguous advantage is speed: it can query multiple data sources simultaneously, identify patterns across vast corpora, and return synthesized recommendations in seconds. This is genuinely valuable. Speed toward the wrong outcome, however, is not progress. It is efficient failure.
The implicit claim in most AI-and-labor analysis is that faster information processing translates directly into better decisions and greater value creation. That claim conflates throughput with judgment. A system that processes 10,000 market signals per minute still requires someone who understands which signals matter, what the organization is capable of acting on, and what the customer actually cares about. It still requires someone who can channel the output of accelerated tasks toward a tangible, impactful outcome.
I am not arguing that AI cannot improve decision-making. It clearly can, and it will. The argument is that speed without directionality produces noise at scale. The human function in this new architecture is not to perform the tasks AI handles more efficiently. It is to set the direction, interpret the output, and bear responsibility for the consequences. That is a fundamentally different function from the one most economic models are measuring.[1],[2]
There is also a category of jobs that genuinely should not exist: roles that process information, generate reports, and relay recommendations without creating any discernible value. AI eliminating those roles is not a crisis. It is a correction. The crisis would come from conflating the elimination of low-value roles with the end of meaningful human work.
IV. The hard problem of experience
The third dimension is experience, and here the gap between human and machine capability is widest and least well understood.
The standard definition of experience covers practical contact with and observation of facts or events. That definition is reductive. Experience is not just observation. It is embodied, emotionally inflected, and socially interpreted. When a nurse reads a patient’s affect and adjusts her communication, she draws on years of pattern recognition that includes facial micro-expressions, vocal tone, and the accumulated weight of having sat with frightened people before. No sensor array currently captures all of that. No training corpus represents it fully.
Recent mathematical work has begun to formalize the emotional dimension of experience. Ambrosio (2020) proposes treating emotional phenomena as analogous to electromagnetic waves, allowing for quantitative modeling of intensity and qualitative modeling of feeling states.[4] It is a genuinely novel approach. The paper itself acknowledges that our instruments cannot yet directly detect or record emotional perception. The mathematical model does not account for sensory, somatic information: the data that arrives through the body before the mind has processed it.
Experience, properly understood, is not a knowledge store. It is a calibration system. It tells you not just what you know, but how much to weight what you know in a given moment, with these people, in this context. That calibration is not currently learnable from text/image/video body of information alone.
V. So where does human capital go?
The economic loop described at the start of this piece does not break because AI exists. It breaks if we fail to find new ways to inject human agency, judgment, and creativity into the loop at points where they generate compounding value.
Three conclusions follow from this analysis. First, the human roles that survive and grow will be those that require exactly what AI cannot replicate: the ability to feel a problem, to read a room, and to channel accelerated outputs toward outcomes that serve real human needs. Second, the economic distribution question of who captures the value from AI productivity gains becomes the defining political challenge of this decade. Acemoglu and Johnson are right that the productivity gains from historical technology waves required countervailing labor power to ensure workers shared in those gains. That countervailing power is currently weak.[2] Third, the danger of learned helplessness is real. If AI handles enough of the cognitive scaffolding through which people develop expertise, we risk producing a generation that is fluent at prompting but thin on judgment. That is exactly backwards from what the next economy requires.
The question is not whether AI will take jobs. It will, unevenly, with significant transitional pain across many sectors. The better question is whether we are building an economy in which the things humans do distinctively, including feeling, connecting, inventing from frustration, and bearing responsibility, remain economically valued. That is a design question, not a technology question. And right now, we are not designing for it.
References
[1]Acemoglu, D. and Restrepo, P. (2018). The race between man and machine. American Economic Review, 108(6), 1488–1542.
aeaweb.org (publisher) · nber.org (free working paper) · PDF (MIT)
[2]Acemoglu, D. and Johnson, S. (2023). Power and Progress: Our Thousand-Year Struggle Over Technology and Prosperity. PublicAffairs. Also: Acemoglu, D. and Restrepo, P. (2019). Automation and new tasks. Journal of Economic Perspectives, 33(2), 3–30.
hachettebookgroup.com · MIT News summary · JEP 2019 (publisher) · nber.org (free paper)
[3]Susskind, D. (2020). A World Without Work: Technology, Automation, and How We Should Respond. Metropolitan Books.
danielsusskind.com (author page) · Amazon
[4]Ambrosio, B. (2020). Beyond the brain: Towards a mathematical modeling of emotions. arXiv:2009.04216.
arxiv.org (abstract) · PDF (direct)