AI, Prosperity, and the Cost of Land

For AI to Ensure Prosperity for All People, We Need to Better Manage Land

Podcast Audio Overview of this post from Notebook LM. The statistics cited in the podcast are rough values and the authoritative source on which the podcast’s statistics are based is this article.

There is a lot of discussion of artificial intelligence (AI) ushering in an age of prosperity, but technological advancement has somehow failed to solve the problem of poverty. In agricultural societies, there were poor people in the rural areas of the society. When industrialization occurred, people moved to the cities and worker productivity dramatically increased with the steam engine and other technologies. Yet, somehow, poverty again appeared in industrialized cities. Then people invented computers, transistors, chips, the Internet, software, and more, ushering in the Information Age and knowledge workers. Upward mobility skyrocketed because education could now increase productivity, and the Internet gave more people the opportunity to be educated. Incomes went up, and economies around the world grew. Yet, in Silicon Valley - the heart of the Information Age - poverty and economic struggles are rampant. San Francisco has a strong tech economy, but people struggle to pay for housing, a basic need. Society in general has become more productive and more prosperous, but a portion of society keeps falling into poverty. What is going on?

“The poor you will always have with you,” (Matthew 26:11, NIV). So said Christ, so said Moses (Deuteronomy 15:11), and yet poverty is not necessary (Deuteronomy 15:4). There do not have to be poor people in our societies, yet there have been for thousands of years and will continue to be. The reason why poverty reoccurs has multiple reasons - oppression, laziness (Proverbs 10:4), misfortune, etc. These reasons are ancient and still occur. Yet, we observe that in societies with welfare systems to redistribute income to the poor and even in Silicon Valley with its tremendous productivity, poverty again reoccurs. There is another factor that needs to be discussed.

Land (and natural resources more generally) is limited, and as incomes go up due to increasing worker productivity, the price and rent of land goes up even though the amount of land is still the same. Consider a city with a fixed land area. Originally, the city is all farmland. Then, the city starts building factories and people move in and build houses and apartments. The price of land and rent for housing go up in the city. Real estate developers build more houses to increase the supply of housing, so the rent stabilizes or even goes down, but land prices keep going up because the demand keeps increasing. Eventually, the city is fully populated and developed. Now suppose the city becomes a tech hub. Out go the factories, and in come the even more lucrative data centers and tech workers. Tech workers have high wages, so they bid up the prices of housing units. People often want to live in single-family homes if they can, but the city has space for only so many single-family homes, so eventually the housing supply reaches a limit. The city could densify, but people don’t want a large supply of compact apartments, condos, or high-rise apartment buildings. They want nice suburban homes. The tech sector continues to boom, and incomes of workers rise, but the housing supply no longer increases. People are no longer paying so much for living in buildings or the data centers’ infrastructure: people are now paying primarily for the land, the right to be in that specific city.

But not everyone can pay the high rents to live on that city’s land, so people start falling into poverty. They become “rent burdened.” Those with lower incomes start to leave, if they can. People may fall into homelessness, living “rent free” - on the streets. Those with lower incomes who, for whatever reason, can’t leave fall into desperation, as they can barely make ends meet. When rents go up, the price of workers go up, which makes the price of everything go up. So, rising rents result in higher prices overall, which further burdens workers - not only are they having a hard time paying their own rent, they also have to pay more to get the services of someone else having a hard time paying their rent, too. The consequence is that people fall into poverty with rising rents, those who cannot afford to stay try to leave the city, those with higher incomes stay and even move into the city, and prices in general (especially for housing) rise. This repeats the cycle of economic growth from rising incomes, economic strain from rising rent, prosperity from having more productive workers, and poverty among those who can’t afford to pay more.

This is not a new phenomenon: Henry George noted this issue in his book Progress and Poverty in 1879. The effects are known. Essentially, we need land to produce goods and services but we can’t make more land. Capitalism can make things more efficiently, but no matter how much you invest, you can’t increase the amount of land (strictly speaking, you can build islands in the ocean, but this would a capital improvement because the government would have “improved” the area of ocean it owned by adding soil - things like this have happened, but they do not contradict the point being made here). So the more income society has, the more everyone has to pay for the limited supply of land. Henry George advocated for distributing the income that goes toward the unimproved portion of properties (which would be the land) through a “land value tax” that is used to fund public services, including social spending for the poor and needy. These kinds of land rent distributions could be part of the solution, but the situation is complex.

The primary point here is that AI, although it has tremendous benefits to offer to society, cannot by itself usher in a utopian age due to social and economic causes in addition to personal choices and misfortune. Sadly, as the Bible says, there will be poor people, and AI will unfortunately not change that fact. An AI utopia in which all are prosperous is not in humanity’s future.

To ensure a prosperous future with AI, we need to better manage land use in cities and suburbs, including the income that accrues to land. Perhaps it can be used to fund public services, or provide relief to those falling into rent burdened status, or used in some other way to benefit the public. But land use and rent management is critical to get right to ensure a general prosperity in the age of AI.

Some takeaway points:

• There will always be poor people, even in the age of AI. The Bible will be proven again to be right, even though it also says that poverty is unnecessary. Hopefully, some of the poverty can be prevented and all of it addressed.

• Rising tech worker productivity and incomes necessitate thinking about land use and rent management. People should think about how land in their cities are currently being used and how it could be used better and whether public assistance is warranted (or not) to help the poor in their communities.

• The Biblical solution to poverty - apart from working hard and not being lazy (if one is able to work - not everyone is able to work for money, although everyone is able to do some good for others, even if it’s only praying for them) - is giving (Luke 6:38, 12:33; Matthew 6:1-4; 1 Timothy 6:17-19; Proverbs 19:17; James 2:15-16). This ancient commandment continues to hold as a way forward today. If people who have more than enough voluntary give to those in need, poverty can be addressed, and the economic dislocations caused by increasing incomes due to AI can be smoothed over. Society will not be perfect, but it would be more just.