A rising tide raises all rents

2026-10-25

• audience—everyone

• ai

• economics

• futurism

You're a rent seeker. It's an economist insult. It's devastating. You're devastated right now.

Imagine, for a second, that AI really does become too cheap to meter. What happens next?

I've heard hype that says there'll be a productivity boom to rival the internet, electricity, and spinning loom. That ideas and skill and taste will become the new currency, that 5 people can do the work of 500. Maybe. I think this is directionally correct but a bit exaggerated.

But here's a more interesting question: Who benefits from that productivity?

If software is no longer scarce, what still is? Where are the bottlenecks? How does that shape the world, and what emergent behaviors result?

I posit that it partly goes to the people building, partly goes to incumbents, mostly goes to landlords and other rent-seekers, and hardly any of it goes to everyone else.

To avoid that situation, we need an equivalent of Land-Value-Tax that works for scarce resources other than land. I propose some potential approaches towards the end of this post.

In our baseline, AI doesn't do anything useful, or it works but it doesn't do that much. Maybe it has about as much impact on the world as the invention of the mobile phone; culture changes around it, but the world is fundamentally the same place. Let's call this a "status quo world". I personally think the status quo is quite unlikely, but maybe you feel differently. If so, and you hate AI, you can stop reading right here, the rest of the post will just make you mad.

For this and all future worlds, let's assume AI really does work and really does result in greatly increased productivity that revolutionizes the economy. Not only that, but also that we get at least a limited form of "recursive self-improvement" where improvements in AI get faster as AI itself gets better. 1 What next?

Will AI take our jobs? We're already seeing this to some extent in markets that are "AI-exposed", such as programmers, translators, and people just entering the job market. But that doesn't necessarily mean they can't get other jobs. The National Bureau of Economic Research published a paper about exactly this possibility in 2019:

[…] the displacement effect of automation has been counterbalanced by technologies that create new tasks in which labor has a comparative advantage. Such new tasks generate not only a positive productivity effect, but also a reinstatement effect—they reinstate labor into a broader range of tasks and thus change the task content of production in favor of labor. The reinstatement effect is the polar opposite of the displacement effect and directly increases the labor share as well as labor demand.

History is also replete with examples of the creation of new tasks and the reinstatement effect […]

In this world, there are a lot fewer programmers, but a lot more UI designers, sales engineers, and HCI researchers. There is significant short- and mid-term displacement, but in 10 years things shake out mostly ok. Labor has less influence over capital than today; wealth inequality gets worse; careers and jobs become more unstable. Overall though, people can still make rent 2. Let's call this a "messy transition world".

What happens if the reinstatement effect fails? What if jobs change faster than people can retrain, and long-term employment becomes more and more unstable? What if nearly all jobs become automated?

Well, first we're going to see labor lose out power against capital. As this spreads to other industries and demographics, we'll start seeing more and more unemployment. People and organizations who were lucky enough to catch the automation wave start accumulating more and more wealth; an ever-narrowing fraction goes to people who work for a living. Eventually, a small plutocracy controls the majority of the world's wealth.

This is possible on an economic level, but also on a geopolitical level. Not every country has its own GPU foundries; not every country is part of the global supply chain for those foundries. We could see a post-modern version of colonialism, mediated through markets rather than force.

This plutocratic world is not stable. It's the nature of plutocrats to try and accumulate more and more power, and to automate more and more of the labor that generates their income. Unlike today, they will actually have the power to do so, and unemployment spreads like wildfire. An increasing portion of the population is simply unable to find a job.

If this gets bad enough, I see one of three possible political reactions, in the sense of an action taken by a country's government.

If a government takes no action at all in response to increasing unemployment, people get more and more desperate until there is violent revolution. One possibility is that the revolution is crushed, and the country becomes a North Korea-like autocracy (hopefully we can all agree this is bad). Another possibility is that the revolution succeeds.

Now, I have friends who think that Revolution Is The Answer, and will usher in the Fully-Automated Post-Scarcity Luxury Gay Space Communism of the future. I, unfortunately, am not so hopeful. Looking at history, and at small-scale upheavals in my own communities, I just don't think this is going to happen. You have to remember: someone who's been unemployed for years due to AI is angry. They're not going to care whether you were using AI to build solar panels, to automate driving a truck, or to build military drones; they're just going to see someone who has contributed to their helplessness.

Instead, I think revolution would look more like Frank Herbert's Butlerian Jihad, or Walter Miller's A Canticle for Leibowitz: Indiscriminate destruction; mass pogroms; loss of human knowledge; book burnings. It's much easier to destroy things than to rebuild them.

Revolution is not inherently liberatory! If it doesn't completely destroy the institutions that maintain our society, the most likely outcome is "the same as always, with someone else in charge". Even Robespierre was in favor of property rights. At a bare minimum you need a plan for self-correcting systems that react to changing events.

A government could react earlier. The most likely reaction I foresee is to extend existing welfare and unemployment programs, in effect resulting in Universal Basic Income (UBI).

This is good! I am in favor of UBI! However, UBI does not guarantee a good life for the people receiving it. Eliezer Yudkowsky, as much as I hate to give it to him, has a good article about this called Universal Basic Income and Poverty:

it only takes a life lacking in one resource needed to survive, to produce some quality that I think ancient poor people would also recognize as 'poverty'.

It's the quality of working yourself until you can't work any longer; of taking on jobs that are painful to do, and require groveling submission to bosses, because that's what it takes to get the few scraps to hang on.

[…] somehow there is a Poverty Equilibrium which beat a 100-fold increase in productivity plus everything else that went right over the last thousand years. […]

I do not understand the Poverty Equilibrium. So I expect that a Universal Basic Income would fail to eliminate poverty, for reasons I don't fully understand.

I think what Yud is missing here is very simple: rent-seeking and incumbent effects. A world where everyone has, say, a guaranteed minimum of 50k annual income, is a world where rental housing costs about 25k a year and the rest goes to food, utilities, transport and healthcare. Above a certain point, making food/utilities/transport/healthcare cheaper doesn't help in the long term, because it just results in housing swallowing an ever-increasing proportion of income.

Don't just take my word for it. Henry George, Enrico Moretti, and Richard Hornbeck all predict near-total capture of productivity increases by landlords and economic rent-collectors when housing supply is sufficiently limited. Their findings are pretty bleak!

This world is explored further in "Manna", a fictional dystopia where all service jobs are automated down to the minute by an AI "manager" that whispers tasks into everyone's ear. The end result is a permanent underclass, half of whom work precarious jobs with extreme hours, and the other half of whom are permanently unemployed and live in government-sponsored housing.

Let's call this a "rentier world", for the plutocracy that makes their money through rent and capital, not through innovation. Here, people can rent enough to survive, but scarcity is everywhere, and almost no one owns anything that would give them power.

"Manna" explores another world, one where automation improvements are captured by the whole population, not just plutocrats. Scarcity is, essentially, a thing of the past. There is no real-estate mogul extracting rent, because there is no land ownership. There is no one working themselves to death, because everyone has plenty. Instead, the land and production are split equally between everyone in the society.

Now, I think Manna has a lot of funny ideas (constant surveillance sounds a lot like a dystopia to me), but its ownership model is quite interesting. The catch, of course, is that we have to get there somehow.

Let's call this a "post-scarcity world", for the abundance that's present throughout the society. This is the world I want to see. This is the world I want to build together.

How do we build a post-scarcity world? How do we distribute the enormous amount of material wealth in our society to everyone within it?

In economics, there is a concept called deadweight loss. Most taxes are "inefficient" in a broad sense. For example, when you tax food, you cause people to buy less food or cheaper food, with negative health outcomes. This inefficiency is called "deadweight loss". A tax is "efficient" if it does not introduce deadweight loss.

Lars Doucet, writing on Scott Alexander's blog, talks about Georgism and Land Value Tax:

George argues that poverty paradoxically advances alongside progress because, as material conditions improve, landowners can charge more rent for locational benefits they didn’t create. […]

Henry George’s remedy is the land value tax, or LVT. In its ideal form, this tax would capture and redistribute the annual rental value of land; that is, the recurring value of the land excluding the value of any buildings or other improvements on top of it. In practice, this looks a lot like a conventional property tax paired with a “universal building exemption.” Notably, George isn’t simply in favor of a land value tax; he’s also opposed to taxes on both labor and capital.

[…earlier…] Keep in mind also that the Georgist Land Value Tax is pair [sic] with a "Citizen's Dividend" or what we see as UBI, so that it's not the government claiming land rent, rather the land rent is taxed and split up equally for all men.

Land-value tax is efficient! I said above that UBI doesn't help much because demand-side interventions just raise housing costs. Conversely, LVT does help because the supply of land is fixed: landlords are already charging as much as their tenants can afford, so when taxes go up, landlords have no choice but to pay the tax out of pocket.

Not only that, but I think this is conceptually the right model: There's a difference between a landlord who owns the property and does nothing to work on it and a property-management company who's responsible for fixing issues. The property-management company is doing useful work; the landlord is not. We should pay people for the work they've done (improvements built on land, and maintenance of those improvements), while not allowing them to capture value from the underlying shared resource (the land itself).

So how do we figure out the value of land?

LVT is generally measured using appraisals which distinguish "improvement value" from "land val