The Corporate Benevolence Fantasy

A few weeks ago, I wrote a piece called Who Buys What We Build? that asked a straightforward question: if AI eliminates the jobs that give people purchasing power, who’s left to buy the products that AI-optimized companies are selling? The piece traveled further than I expected — LinkedIn reported 50,000+ impressions and lots of comments, along with one counterargument that kept coming back.

The counterargument comes mostly from the people building and funding the technology. Sam Altman, CEO of OpenAI, calls AI “massively deflationary”[1] and promises that things will get “radically cheaper.” Marc Andreessen, whose venture capital firm invests in dozens of AI companies, goes further: “everything that costs $100 will sell for a penny”[2] in what he calls a “hyper-deflation era.” They’re selling a vision of abundance: AI eliminates jobs, yes, but it also makes everything so cheap that it doesn’t matter. Prices drop, purchasing power holds, nobody needs to worry.

It’s a comforting story. It also rests entirely on one assumption — that corporations will voluntarily pass along their productivity gains to consumers. Not because they’re required to. Not because any mechanism compels it. But because, in this telling, the market will work it out. Even Altman seems to sense the problem. Right after the abundance pitch, he adds: “As long as we don’t screw up the policy around it in a big way, which could happen.” The man making the promise doesn’t fully believe it himself.

This week, Bank of America’s own analysts weighed in on whether that’s happening.

It’s not.

Wall Street Sees It Too

I want to be clear about what makes the BofA research significant. This isn’t a labor union, a think tank, or a retired web developer connecting the dots. This is Bank of America telling its investors[3] — the people who own the stocks, who benefit from the buybacks, who sit on the winning side of this equation — that productivity gains since the pandemic have been “piling as corporate profits, with labor income steadily falling as a share of U.S. GDP.” They’re calling it a K-shaped economy[4]. The upper arm of the K is asset owners riding productivity gains upward. The lower arm is everyone else.

BofA economist David Tinsley put a finer point on it. The divergence between high-income and low-income Americans, he said, is “beginning to look more like the jaws of a crocodile”[5].

He’s not wrong. Labor’s share of GDP fell to 53.8%[6] in the third quarter of 2025 — the lowest level in the 78 years[7] since the Bureau of Labor Statistics started tracking it. That number deserves a moment.

In nearly eight decades of measurement, American workers have never received a smaller share of the economy they produce.

PIMCO followed[8] days later with a note from economist Tiffany Wilding warning that “in 2025, workers as a group captured very few, if any” of the benefits from AI-driven productivity. Her conclusion: “AI might not be a productivity tide that lifts all boats.”

Fortune drew[4] a direct parallel to the early Industrial Revolution — a period economic historian Robert Allen called “Engels’s pause,” when productivity soared for over fifty years while worker pay flatlined. The gains went overwhelmingly to capital owners. It was, incidentally, during this pause that Friedrich Engels and Karl Marx wrote The Communist Manifesto. Only decades later, after workers organized and governments legislated, did wages start to rise alongside productivity.

Meanwhile, the labor market continues to deteriorate. In January 2026, 108,435 jobs were cut[9], the worst January since 2009. Hiring plans hit their lowest on record[10]. And the economy added just 181,000 jobs[4] for the entire year of 2025 — revised down from an initial estimate of 584,000.

So when someone tells me the market will sort this out, I want to know which market they’re looking at because the one I see has been sorting gains toward capital and away from labor for a very long time.

The Forty-Year Pattern

The optimists who argue that AI savings will flow to consumers are asking us to believe that this time will be different. The record says otherwise, and it’s not ambiguous.

The Economic Policy Institute[11] has tracked the relationship between productivity and worker pay since the end of World War II. For three decades, they moved in lockstep — productivity went up, wages went up. Then, in the late 1970s, they decoupled. Between 1979 and 2019, productivity grew 3.5 times faster[12] than median worker pay.

Where did the money go?

EPI’s language is precise: the growing wedge represents income going “everywhere but the paychecks of the bottom 80% of workers”[11]. That bottom 80% isn’t a fringe — it’s production and nonsupervisory workers, nearly the entire private-sector workforce. The gains went to executive compensation and to capital — to shareholders and wealth owners. Since 2000, over 80%[13] of the growing gap has come down to one thing: rising inequality.

If you want to know where the money is going right now, the Federal Reserve Bank of St. Louis has published it in April 2025. Corporate profits hit $4 trillion by the end of 2024. The increase was “entirely driven by domestic nonfinancial industries” — retail, wholesale, construction, manufacturing, and healthcare. The everyday industries where most Americans work and shop.

And here’s the number that should put the deflation argument to rest: 76% of that profit growth[14] went directly to dividends, rewarding shareholders. Fifteen percent was retained as corporate savings. Nine percent went to taxes. Employee compensation as a share of national income didn’t rise. It fell.

This is a forty-year pattern that has survived every new technology — PCs, the internet, software automation. Each one was supposed to lift all boats. Each one widened the gap instead. The Groundwork Collaborative found[15] that, from April through September 2023, corporate profits accounted for 53% of inflation. Over the prior forty years, profits had driven just 11% of price increases. Companies weren’t passing savings through. They were padding margins — and bragging about it on earnings calls.

The Dress Rehearsal

If you want a controlled experiment for whether corporations pass windfalls to workers and consumers, the 2017 Tax Cuts and Jobs Act[16] provides one.

The logic was trickle-down economics — the argument that refuses to die, no matter how many times reality kills it. Give money to the top, and it trickles down to everyone else. It didn’t work under Reagan, nor did it work under Bush. But in 2017, the pitch came back in a fresh suit: cut the corporate tax rate from 35% to 21%, and companies would invest the savings in expansion, hiring, and wages. The projected benefit was $4,000 per household[17]. Paul Ryan promised the savings would flow “directly to the creation of new jobs, and not to corporations redistributing the newfound cash to shareholders”[18].

What happened? 84% of corporations reported no change in investment or hiring plans. Workers earning under about $114,000 saw “no change in earnings”[17]. Firms increased dividends and buybacks by nearly three times as much as capital investments. Buybacks hit a then-record $806 billion in 2018. Brookings concluded the whole thing “substantially reduced federal tax revenues — on the order of $1.9 trillion over 10 years — with no clear positive effect on GDP, wages, or investment”[19].

The most telling moment came before the law even passed. Bank of America-Merrill Lynch surveyed 300 executives about what they’d do with a corporate tax cut. The top responses: pay down debt, stock buybacks, mergers. Not wages. Not hiring. When Trump economic advisor Gary Cohn asked a roomful of CEOs to raise their hands if they’d increase capital investment, almost nobody did. The moderator turned to Cohn and asked, “Why aren’t the other hands up?”

They told us what they would do. Then they did exactly that. Then every major research institution — the Congressional Research Service, Brookings, the IMF — confirmed it.

This matters for the AI argument because the structure is identical. The TCJA was a trickle-down tax cut. The AI deflation argument is a trickle-down through labor cost savings: same promise, same mechanism, same beneficiaries, just a different input. Give the gains to corporations first, trust them to pass it along. It has never worked. Not once, in any version, under any administration. But it keeps coming back, because the people making the promise are the same people who benefit when it fails.

Where the AI Savings Are Actually Going

We don’t have to speculate about this. S&P 500 companies spent a record $942.5 billion on stock buybacks in 2024 alone[21]. Add dividends, and they returned $1.6 trillion to shareholders[22] in a single year, which Oxfam calculated is triple the total income of the poorest 27 million American households. As Oxfam put it: “Corporate tax savings aren’t being passed on to workers or consumers. They’re being funneled to wealthy shareholders and executives”[22].

That’s where the money went! $1.6 trillion, in one year, going in one direction.

The Poster Child

I wrote about Salesforce in the first piece, and they’ve only made the case stronger since.

In September 2025, CEO Marc Benioff confirmed[23] that customer support had been cut from 9,000 to roughly 5,000. “I need less heads,” he said. AI agents handled half of all customer conversations[24] with satisfaction scores equivalent to those of human agents. Support costs dropped 17%. He called it “eight of the most exciting months of my career.” In February 2026, hundreds more were cut[25] from marketing, data analytics, and even the AI product teams themselves.

Now, if the deflation argument held, this is exactly where you’d see prices fall. A company cuts its support staff in half, automates half its interactions, and significantly reduces costs. The textbook says the savings flow to consumers.

On August 1, 2025, Salesforce raised prices 6%[26]. Not lowered. Raised. Across Enterprise and Unlimited editions. The company’s contracts include built-in annual escalators of 5–7%. Price increases drove roughly 72%[27] of total revenue growth in 2025.

Fire half the support staff. Automate half the interactions. Cut costs 17%. Raise prices 6%.

Salesforce isn’t an outlier. Microsoft cut 15,000[27] while raising prices across its product lines. Amazon cut 16,000[9] in January on top of 14,000 the previous October. None of them lowered prices. Not one.

There’s a telling detail that reveals just how much room exists in these margins. In May 2025, Salesforce agreed to give federal agencies a 90% discount on Slack[27]. Ninety percent. That discount exists because the federal government has the purchasing power to demand it. Regular customers don’t. And no market mechanism compels Salesforce to extend it voluntarily. So it doesn’t.

The Mechanism That Doesn’t Exist

This is the core problem with the deflation promise. The argument assumes that competition will force prices down — that if one company cuts costs with AI, a competitor will undercut it, and the savings cascade to consumers. In a textbook with perfect competition, maybe. But that’s not the economy we have.

A UCLA study[20] found that when a handful of companies dominate an industry, consumers lose, paying roughly 13% more than they would in a genuinely competitive market. And that penalty has grown as industries have become more concentrated. When three or four companies control an industry, and all cut labor costs with AI simultaneously, none has an incentive to lower prices. They all pocket the savings.

There is no competitive pressure in concentrated markets to lower prices. There is no regulatory framework requiring profit-sharing. There is no historical precedent of companies voluntarily lowering prices because their costs went down. And there is an existing mechanism — the buyback — that channels savings directly to shareholders, amounting to $1.6 trillion a year.

The deflation argument isn’t an economic model. It’s trickle-down in its third or fourth reincarnation — a bet on the generosity of monopolists.

The Question Remains

Fortune’s Industrial Revolution parallel is worth sitting with. During Engels’s pause, productivity gains flowed to capital owners for over fifty years before political and institutional changes forced a redistribution. It didn’t happen naturally. It didn’t happen because factory owners woke up feeling generous one morning. It happened because workers organized, governments legislated, and political movements made the status quo untenable.

We are not there yet. If anything, we’re moving in the opposite direction.

Every optimistic scenario for AI-driven displacement depends on corporate benevolence — the assumption that companies will lower prices they’re currently raising, reinvest in workers they’re currently firing, and share gains they’re currently funneling to shareholders. The forty-year productivity-pay gap says they won’t. The TCJA dress rehearsal says they won’t. The Salesforce playbook says they won’t. Bank of America, PIMCO, the St. Louis Fed, and the Bureau of Labor Statistics all confirm that they aren’t.

So I’ll ask the question again, because nobody has answered it yet: if the gains from AI don’t flow to workers as wages, and they don’t flow to consumers as lower prices, and they do flow to shareholders as buybacks and dividends — who, exactly, is going to buy what we build?

This is a follow-up to Who Buys What We Build?. If you’re new here, that’s where the argument starts.

This essay was also published on SubStack

Sources

[1] Futurism — with the article Sam Altman Says AI Will Make Things 'Massively' Cheaper.

[2] Yahoo Finance — with the article Billionaire Marc Andreessen Says AI Will Make 'Everything That Costs $100 Sell for a Penny'.

[3] TheStreet — with the article Rising Corporate Profits, Falling Wages Drive K-Shaped Economy.

[4] Fortune — with the article Why Your Boss Loves AI and You Hate It.

[5] InvestorPlace — with the article Danger Lurking Behind Strong GDP Number.

[6] CNBC — with the article Wealth Inequality and the K-Shaped Economy.

[7] PIMCO — with the insight Why US Productivity Gains No Longer Reach Workers.

[8] PIMCO — with the insight The AI-Driven Productivity Tide May Not Lift All Boats.

[9] Challenger, Gray & Christmas — with the report January Job Cuts Surge; Lowest January Hiring on Record.

[10] CNBC — with the article Layoff and Hiring Announcements Hit Their Worst January Levels Since 2009.

[11] Economic Policy Institute — with the research The Productivity-Pay Gap.

[12] Economic Policy Institute — with the blog post Growing Inequalities Reflecting Growing Employer Power.

[13] Economic Policy Institute — with the publication Understanding the Historic Divergence Between Productivity and a Typical Worker's Pay.

[14] Federal Reserve Bank of St. Louis — with the analysis What's Driving the Surge in US Corporate Profits.

[15] Groundwork Collaborative — with the report Corporate Profits Driving More Than Half of Inflation.

[16] Wikipedia — with the article Tax Cuts and Jobs Act.

[17] Center on Budget and Policy Priorities — with the research The 2017 Trump Tax Law Was Skewed to the Rich.

[18] University of Chicago Law Review — with the article Corporate Behavior and the Tax Cuts and Jobs Act.

[19] Brookings Institution — with the collection The Tax Cuts and Jobs Act of 2017.

[20] ProMarket — with the study The Cost of America's Oligopoly Problem.

[21] PR Newswire — with the report S&P 500 Q4 2024 Buybacks Increase and 2024 Expenditure Sets New Record.

[22] Fast Company — with the article Stock Buybacks by Biggest US Companies Enrich Wealthy Shareholders.

[23] CNBC — with the article Salesforce CEO Confirms 4,000 Layoffs Because 'I Need Less Heads' With AI.

[24] Fortune — with the article Salesforce CEO Marc Benioff on AI Agents, Jobs, and Layoffs.

[25] TheStreet — with the article Major Tech Firm Quietly Lays Off Hundreds in AI-Related Shakeup.

[26] Salesforce — with the announcement Pricing Update 2025.

[27] SaaStr — with the article Salesforce, Microsoft, Google, and Atlassian All Raise Prices Again in 2025.