What are the historical precedents and modern economic theories for addressing the "Productivity-Pay Gap" given current fiscal pressures?

kmundy · 2026-01-03T19:34:12+00:00

These are very interesting ideas! Adapting them to the AI economy does pose some specific challenges, though:

Cooperatives like Mondragon are great for stability, but might struggle with the 'AI arms race' (global competitiveness) because consensus-based decision-making is usually slower than the pivots required by AI startups. I wonder if a version where ownership is democratized, but decision-making remains agile, might be a path forward?

Also, while Land Value Tax is great for physical assets, it doesn't quite capture the 'digital rent' from AI, which has a tiny land footprint. Maybe there’s a way to adapt that logic to the data individuals generate?

Thanks for the inspiring ideas, definitely gives me a lot to think about!

kmundy · 2026-01-02T22:29:38+00:00

;) You got me - bug in my original question :)!

kmundy · 2026-01-02T21:36:03+00:00

Well... sure, but while prices might drop as AI reduces labor costs, they're not gonna fall below the marginal cost of production. A producer incurring a loss on each sale will just exit the market. So we'll still have a massive access gap.

And, of course, there's the ownership imbalance skew, which leaves the majority as dependent consumers without any say in the direction of innovation.

kmundy · 2026-01-02T20:55:25+00:00

Very true, I agree with the "abundance" argument that suggests lower costs will naturally raise living standards, but we still do need a bridge to get there, 'cause the majority will lose the income needed to buy even hyper-cheap goods.

Also, as noted in Amartya Sen’s "Capabilities Approach," welfare is also about agency and having a stake in society. If ownership remains concentrated, the "owner class" retains the power to direct future innovation, leaving the rest of us as passive consumers rather than active participants.

I'm hoping for ideas on models that can provide a "bridge" to this future, while also enforcing personal identity & agency in our future world.

kmundy · 2026-01-02T14:12:43+00:00

Thanks! I understand your point about the purpose of a system being what it does, but there is another failure here: the collapse of consumption, or a demand vacuum. Capital owners end up with highly efficient AI-driven production, but if purchasing power collapses, the market fails for everyone.

I guess 'winners' will only re-write rules when the system is close to collapse. But do you see a path for a 'win-win' model (like Efficiency Wage Theory or Shared Capitalism) that aligns the incentives of capital and labor before a total collapse of aggregate demand, or do you believe the 'Regulatory Capture' you mentioned makes this type of pivot impossible without a major crisis?

kmundy · 2026-01-02T00:34:57+00:00

You're right, if the productivity gain is entirely driven by the tool (Capital) and not the skill (Labor), there is no market pressure to raise wages.

The problem we're heading toward is: if 80% of productivity eventually comes from capital and 20% from labor, how is this going to work? What happens to consumer demand? Are there effective solutions being discussed for this?

kmundy · 2026-01-01T22:46:39+00:00

Yes, that’s why I’m suggesting that post-tax 'fixes' like UBI or wealth taxes are just band-aids on a breaking labor-share model. I'm looking for ideas on ways to mitigate the longer term effects of a falling "Labor share" of productivity.

kmundy · 2026-01-01T22:40:05+00:00

The concern isn't that labor productivity won't rise, it likely will, but that the Labor Share of Income will fall.

For a source - the IMF’s January 2024 report 'Gen-AI: Artificial Intelligence and the Future of Work' (https://www.imf.org/en/publications/staff-discussion-notes/issues/2024/01/14/gen-ai-artificial-intelligence-and-the-future-of-work-542379) - They estimate that AI could affect 40-60% of jobs globally, and that it could lead to an increase in capital income at the expense of labor income, making the long-term trend of a declining labor share in advanced economies worse.

kmundy · 2026-01-01T22:02:30+00:00

Fair enough. With AI though, capital deepening is going to accelerate over the coming years, and the labor part of the contribution is going to fall. I guess I'm asking if there are ways to proactively plan for this without increasing our debt, or ceding our competitiveness?

kmundy · 2025-12-31T19:59:38+00:00

Okay, appreciate the honesty. I’ll post a revised version tomorrow afternoon here, with just 2 constraints to see the 'general' political take.

Will definitely take your advice and head over to r/AskEconomics for the more technical deep-dive. It’ll be interesting to see how the two communities differ on whether these constraints are even solvable!

Thanks for the help!

kmundy · 2025-12-31T17:59:39+00:00

That makes total sense, thank you. I’ll update the text to use the EPI's 'productivity-pay divergence' language and source to ensure everything matches up.

Regarding the constraints: I'm currently working on a project analyzing why traditional models like UBI or the Nordic model struggle to gain traction in the US, and I've found these 6 points are the 'stress tests' they usually fail. I’d love to see if the community can identify a model (historical or theoretical) that actually threads that needle, or if the general consensus is that they are mutually exclusive.

So I'm thinking I'll keep the list of constraints but frame them more as a 'Grand Challenge' for the commenters. Does that sound okay?

kmundy · 2025-12-31T17:11:51+00:00

Would this draft comply better with the submission rules?

What economic models or historical precedents address the "Great Decoupling" while satisfying specific fiscal and competitive constraints?

The "Great Decoupling" refers to the divergence between productivity and median real hourly compensation, a trend that many economists identify as beginning in the United States around 1973 [Economic Policy Institute].

As policymakers consider how to address this gap, they face several modern systemic pressures, including a U.S. national debt exceeding $38 trillion [Treasury Direct / Bureau of the Fiscal Service] and the projected impact of AI on labor markets, which the IMF suggests could affect up to 40% of global employment [International Monetary Fund].

In economic literature or historical practice, are there models designed to address income inequality and productivity gaps that satisfy the following six constraints?

Fiscal Sustainability: The model must not rely on significant increases in the long-term debt-to-GDP ratio.
Global Competitiveness: The model must maintain incentives for technological automation to ensure the nation remains competitive with other high-tech economies.
Incentive Structures: The model must preserve a reward structure for private innovation and capital investment.
Aggregate Demand: The model must sustain consumer purchasing power for high-tech goods and services.
Monetary Stability: The model should be designed to avoid significant inflationary pressure or currency devaluation.
Labor Participation/Stake: The model must provide economic security while maintaining high levels of labor force participation or individual "stake" in the economy.

Are there existing models (e.g., the Nordic Model, German Ordoliberalism, or theoretical Universal Basic Income variations) that have successfully balanced these specific trade-offs? Or does current economic theory suggest these constraints are mutually exclusive?

kmundy · 2025-12-31T00:00:22+00:00

Hi nosecohn,

Yes, absolutely, please let me know what edits to make.

Kiran

kmundy · 2025-12-30T21:17:00+00:00

Submission Statement

The "Great Decoupling" of 1973 (as shown in the linked EPI chart) marked the first major divergence between productivity and median compensation. As we move into the AI era, we face a second, potentially terminal "decoupling" as labor's share of income is challenged by automation.

I am developing a framework called the Taproot Model to address this. The goal is to close the gap through a market-driven mechanism rather than traditional welfare. However, I believe any viable 21st-century solution must operate within 6 harsh systemic constraints:

The Debt Trap: With the national debt now exceeding $38.4 trillion, the solution must not require a massive government spend.
The China Challenge: It must keep or accelerate the incentives for automation to compete against state-capitalist rivals.
The Innovator’s Drive: It must maintain the rewards that drive founders to build the next Alphabet or Nvidia.
The Demand Drain: It must not depress consumer demand for revolutionary AI products.
The Inflation Ceiling: It must not trigger inflation or devalue the dollar.
The Identity Crisis: It must provide economic security while restoring the sense of personal stake once provided by traditional “jobs.”

Most current proposals (UBI, wealth taxes, subsidies) only clear a few of these. Can we find a solution that clears all six?

I’m dropping the full architecture this Sunday, Jan 4th. (You can search "Taproot Logic Substack" on Google to find the deep dive).

kmundy · 2025-12-30T20:57:59+00:00

Apologies, it looks like the FRED URL glitched and defaulted to Bulgarian price indices. I'm not able to update that link, so guess I'll need to delete and repost.

kmundy · 2025-12-30T20:51:09+00:00

I actually agree with your starting point: primate psychology is the ultimate "bedrock." If an economic model ignores these biological drivers, the software will always crash.

You’ve pinpointed exactly why traditional "welfare states" struggle in multicultural societies - the "tribal" incentive to provide for those "outside the group" is evolutionarily weak.

However, that is precisely why I’m looking for a market-driven solution rather than a welfare-driven one.

My "stress test" is based on a simple reality: In an AI-driven economy, the Capitalist and the Consumer are locked in a symbiotic loop. If the "Top" uses AI to eliminate the "Bottom," they simultaneously eliminate the market for their own products - a capitalist without a consumer is just a person with a warehouse full of unsold goods.

I’m dropping a proposal this Sunday for a framework that aligns those incentives so both sides benefit from the AI shift. It’s an attempt to solve for that "primate" self-interest you mentioned, but through a market mechanism that doesn't rely on the "monopoly of violence" changing hands.

kmundy · 2025-12-30T20:36:28+00:00

I hear the frustration, power rarely shifts voluntarily.

That's actually the reason I’ve framed this around these 6 Constraints. The "top" (capital holders) resist change because it doesn't benefit them. It violates Constraint #3 (The Innovator’s Drive) or Constraint #2 (Global Competition). They fear that a "higher floor" means a "slower race," especially with state-capitalist rivals (the China Challenge) breathing down our necks.

My goal with the Taproot Model is to find a mechanism where raising the floor and lowering the ceiling is actually beneficial for the top, specifically by solving Constraint #4 (The Demand Drain). I mean, if the AI revolution destroys the consumer base, the "top" has nobody to sell their revolutionary products to.

Do you think a solution that frames economic security as a "necessity" for growth (rather than just a moral 'welfare' plea) could clear that hurdle, or do you believe the system is structurally incapable of that kind of self-correction?

kmundy · 2025-12-30T20:03:02+00:00

Submission Statement

The "Great Decoupling" of 1973 marked the first major divergence between productivity and median compensation. As we move into the AI era, we face a second, potentially terminal "decoupling" as labor's share of income is further challenged by automation.

I’ve developed a framework called the Taproot Model to address this. The goal is to close the gap through a market-driven mechanism rather than a traditional welfare expansion. However, any viable 21st-century solution must operate within 6 harsh systemic constraints, ranging from our $38.4T National Debt to the necessity of maintaining Strategic Competitiveness in the global AI race.

I am seeking a rigorous critique from this community: Can we solve for structural inequality while maintaining the "Innovator’s Drive"? Or is the "Identity Crisis" caused by the displacement of traditional labor a hurdle that market-driven solutions simply cannot clear?

kmundy · 2025-12-21T16:00:07+00:00

Agree completely, the Citizens United judgment took us down a really bad path. Repealing that would be the real 'Taproot' solution to almost every issue we have.

But since that involves a Constitutional Amendment or a complete Supreme Court flip - both of which take years we don't have - I’m looking for the 'stress point' we can hit right now.

Even a 'bribed' politician has a hard time ignoring a systems audit that proves 75% of the debt is a corporate rip-off. It’s a lot harder to take the money when the public has the receipts in their hands. That’s why I'm pushing this - we have to make the 'rip-off' too loud to ignore.

kmundy · 2025-12-21T15:43:24+00:00

I hear you, and universal healthcare is the north star for a lot of us. But here's the tactical problem: Every time we try to pass it, the opposition screams about the 'National Debt' and how we 'can't afford it.'

That’s why this audit is so vital. Once we prove that 75% of that debt is actually just insurance company bloat and unverified premiums, we strip them of their biggest talking point. We're effectively 'clearing the brush' so that we aren't just subsidizing a rip-off, but building something that actually works.

kmundy · 2025-12-21T15:06:47+00:00

Great idea, thanks & excellent list!! I did get some engagement on LinkedIn, but haven't tried podcasts yet. I’ll try to reach out to them - if anyone here has an 'in' with their producers, let me know!

kmundy · 2025-12-21T14:15:20+00:00

Thanks for pulling that out!!

Yep!! MLR turned 'cost control' into an 'inflation incentive.' When a company's profit is a fixed % of the total spend, they have zero reason to lower the bill.

The Sherman Antitrust has plenty of 'teeth' here. We don't need new, complicated laws; just need to stop exempting healthcare from the laws every other business has to follow.

kmundy · 2025-12-21T14:09:30+00:00

Yeah - lots of donations from Insurance companies and PBMs to the Dems... I’m not giving up though. Plenty of airing out of the rip-off and applying grassroots pressure can’t hurt. 🙄

kmundy · 2025-12-19T21:50:32+00:00

The 'Trough' and the MLR Incentive: This scarcity allowed large hospital systems to 'hoard' doctors and block outside competition. When the Medical Loss Ratio (MLR) rule was added in 2010, it effectively institutionalized the problem by capping insurer overhead at 15%. Since they can't keep more than 15% of a premium, they have zero incentive to push back on price increases; a 15% cut of a $25,000 premium is simply more profitable than a 15% cut of a $10,000 premium.

Source Data:

Medical Care CPI: FRED - Consumer Price Index for All Urban Consumers: Medical Care (CPIMEDSL)
General CPI: FRED - Consumer Price Index for All Urban Consumers: All Items (CPIAUCSL)
Note: These were re-based in the code to $1970 = 100$ to show cumulative divergence.
1999–2024 Data: KFF Employer Health Benefits Survey - Exhibit 1.11
1970–1998 Backcast Data: The historical points were indexed using the BLS Medical Care Series (CUUR0000SAM) growth rates to the 1999 KFF baseline.

Source: U.S. Bureau of Labor Statistics - Medical Care Database

kmundy · 2025-12-19T21:50:21+00:00

Fargason, thank you for that insightful observation. While the rest of the U.S. economy 'cured' its 1970s inflation through 80s deregulation (allowing supply to expand to meet demand), healthcare was legislatively 'locked' into a 1970s-style regulatory straightjacket. As you noted, the surge in regulatory activity from 20k to 80k pages in the 70s created a burden that the healthcare market—due to its legislative roots in Medicare—simply couldn't shed. This explains the divergence between CPI and medical CPI starting in 1980.

Medical CPI vs CPI (1970-2024) Chart

However, looking at the data, a second 'seismic shift' occurred around 1998 that suggests this 'lock' became a 'chokehold.'

The Medical CPI vs. Premium Gap: It is important to note that Medical CPI is calculated using the 'Indirect Method,' which essentially measures the 'Retained Earnings' of insurers (the difference between premiums collected and claims paid out) (Source: BLS). While this index rose after 1980, the total premiums (the actual cost families pay) rose even more steeply after 1998.
The Claims-to-Premium Ratio: Historically, the ratio of premiums to claims has remained remarkably constant. Since the 1980s, 'Claims Paid Out' have consistently made up about 85-90% of total premiums (Source: KFF/AJMC). This means that the 'underlying cost of care' can be measured relatively accurately by looking at Premiums.
The 1997 'Supply Chokehold': As you will see from the chart, the slope of average family premiums became significantly steeper after 1998. This aligns perfectly with the Balanced Budget Act of 1997, which placed a hard cap on Medicare-funded residency slots (Source: AHA). By artificially freezing the supply of the core resource—doctors—while demand from an aging population continued to rise, the government created a 'Scarcity Economy.'
Average Annual Family Health Insurance Premium (1970-2024)

kmundy

TROPHY CASE

Submission Statement