How will capitalism stop AI from ruining everything

A version of this article first appeared on TKer.co

(AI) is right now. they are bullish on the promise of taking mountains of data, processing it, and producing cost-effective goods and services that are what people could make.

. And it’s expected to boost profit growth for companies as well, which is good news for the stock market.

But all this talk focuses mainly on the financial benefits and conjures up images of a place where the human touch has disappeared after its intangible value has been taken for granted.

The good news is that history tells us that emerging technologies do not mean the end of what they were intended to improve.

“As the ubiquity of technology increases and individuals increase their reliance on technology as they communicate through networks, the value they place on ‘authenticity’ and human connectivity – which can evoke a nostalgic image of a simpler, pre-digital life – is likely to increase,” wrote Goldman Sachs’ Peter Oppenheimer. “This is true for many product categories, including food.”

In a research report exploring artificial intelligence, Oppenheimer highlights examples of low-tech, handmade “retro” goods and services that have survived technological progress. From his note:

You might assume that widespread adoption of the wide range of ride-sharing options means that demand for the modes of transportation you own would fall apart. That was not the case. From the note:

The story continues

As the world moves forward, it is interesting to think about the value consumers place on the past. From the note:

Intangible value is a type of value. And people find it in goods and services that have probably been improved.

It is not easy to explain why we value these things. But the point is we do.

And we ask for these things.

And when enough people ask for something, there will be companies to provide that thing. It’s just basic economics and capitalism at work.

Review of macro cross currents

There were some notable data and macroeconomic developments from last week to consider:

Inflation is cooling. (CPI) in August rose 2.5% from a year ago, down from July’s 2.9% rate. This was the lowest pattern since February 2021. Adjusted for food and energy prices, core CPI rose 3.2%, unchanged from the previous month’s rate.

Month-on-month, CPI rose 0.2% as energy prices fell 0.8%. Core CPI rose 0.3%.

If you annualize the monthly figures – a reflection of the short-term trend in prices – the CPI rose by 1.1% and the core CPI rose by 2.1%.

Inflation rates have moved closer to the Federal Reserve’s target rate of 2 percent, which is why the central bank has signaled that rate cuts could be around the corner.

Inflationary expectations remain cool. From the New York Fed’s September survey of consumer expectations: “Average one- and five-year inflation expectations were unchanged in August at 3.0 percent and 2.8 percent, respectively. Median inflation expectations over the three-year horizon rebounded somewhat from July’s low, rising to 2.5% from 2.3%.

“Inflationary expectations for the coming year fell for the fourth consecutive month to 2.7%. The current reading is the lowest since December 2020 and is well within the 2.3-3.0% range seen in the two years prior to the pandemic. Long-term inflation expectations were little changed, rising from 3.0% last month to 3.1% this month. Long-term inflation expectations remain modestly elevated relative to the range of readings seen in the two years pre-pandemic.”

Consumer vibes are improving. From the University of Michigan: “Consumer sentiment rose to its highest level since May 2024, up for the second month in a row and up about 2 percent from August. The gain was driven by an improvement in purchasing conditions for durable goods driven by more favorable prices as perceived by consumers. Expectations for personal finances and the economy for the year ahead have also improved despite a modest weakening in views of labor markets.”

Wage growth is cooling. According to , the average hourly wage in August increased by 4.6% compared to the previous year, down from the 4.7% rate in July.

Oil prices are falling. Brent crude futures fell below $70 a barrel on Tuesday for the first time in more than two years, closing at their lowest level since December 2021. fears about oil demand in the top two consumers, adding on concerns that a surplus will appear next year and is fueling record bearish positioning. This is compounded by rising production in non-OPEC producing countries.”

Gas prices are falling. From: “The national average for a gallon of gasoline has maintained its torrid pace of decline, falling six cents since last week to $3.24. The main culprits behind the decline are weak demand and falling oil costs.”

Real incomes have increased. From: “Real median household income was $80,610 in 2023, up 4.0% from the 2022 estimate of $77,540. This is the first statistically significant annual increase in real median household income since 2019.”

Meanwhile, poverty has decreased. From the Census: “In 2023, the official poverty rate fell by 0.4 percentage points to 11.1 percent. There were 36.8 million people in poverty in 2023, not statistically different from 2022.”

The card spending data is stable. From Bank of America: “Bank of America’s aggregate credit and debit card spending per household rose 0.9% year-over-year (YoY) in August, rebounding from a 0.4% decline YoY from July. In August, spending fell 0.2 percent after rising 0.3 percent in July. In our view, this reflects a normalization in consumer spending, as opposed to a weakening. Overall, the pace of spending on services remains stronger than goods.”

Jobless claims rose. rose to 230,000 in the week ended September 7, from 228,000 the previous week. This metric continues to be at levels historically associated with economic growth.

Mortgage rates are falling. According to , the average 30-year fixed-rate mortgage fell to 6.2%, down from 6.35% last week. From Freddie Mac: “Mortgage rates have fallen by more than half a percentage point over the past six weeks and are at their lowest level since February 2023. Rates continue to fall on the back of more subdued economic data. But despite the improving mortgage rate environment, potential buyers remain on the sidelines as they negotiate a combination of high house prices and persistent supply shortages.”

There are in the US, of which there are 86 million and of which there are . Of those with mortgage debt, almost all do, and most of those mortgages before rates rise from their 2021 lows. All of this means that most homeowners are not particularly sensitive to movements in home prices or mortgage rates.

Small business optimism is deteriorating. In August it fell.

Importantly, the more tangible “hard” components of the index continue to hold up much better than the more sentiment-oriented “soft” components.

Note that during times of perceived stress, soft data tends to be more exaggerated than actual real data.

Short-term GDP growth estimates remain positive. Real GDP growth will increase at a rate of 2.5% in Q3.

Putting it all together

We continue to get evidence that we are facing a level where inflation is falling to manageable levels.

This comes as the Federal Reserve continues to use very tight monetary policy within its framework. Although, with inflation rates past 2022 highs, the Fed has taken a less shocking tone – even signaling it.

Monetary policy would be considered loose, meaning we would have to be prepared for relatively tight financial conditions (eg, higher interest rates, tighter credit standards, and lower stock valuations) to persist. All this means for now, and the risk of going into a recession will be relatively high.

At the same time, we also know that stocks are reduction mechanisms, that is, .

It is also important to remember that although recession risks may be elevated, . The unemployed are , and those with jobs receive salary increases.

Similarly, as many corporations . Even as the threat of higher debt service costs looms, give corporations room to absorb higher costs.

At this point, any given that .

And, as always, you should remember that they are precisely when you enter the stock market with the goal of generating long-term profits. While, the long-term outlook for stocks.

For more on how the macro story unfolds, see