Sunday thought: It's Still Capital vs. Labor, Stupid

Friends,

It’s impossible to understand American politics without also understanding the American economy (and vice versa). Politics and economics may be different disciplines but they’re two sides of the same coin.

This came home to me again when I saw Thursday’s report on the U.S. gross domestic product.

Numbers can be pretty boring but bear with me. Worker compensation—wages and benefits — grew 0.8 percent from the fourth quarter of 2025 to the first quarter of 2026. Corporate profits grew 2.7 percent.

When you adjust for inflation, hourly wages have risen 3 percent since the end of 2019. Corporate profits have risen 50 percent.

Worker’s share of the nation’s income has now dropped to the lowest it’s been since records began in 1947. Profits’ share is the highest since 1950.

Most people who depend on wages for a living are struggling, while a small minority at the top who own most shares of stock and private equity — that is, people who rely on capital gains — have never had it as good.

The trend toward lower wages and higher profits began in the 1980s, increased in the 2000s, picked up speed after the pandemic, and is about to explode as Artificial Intelligence takes over.

In coming months three companies centered on AI will go public — Space X, OpenAI, and Anthropic — with expected valuations of around $1 trillion each (reflecting the gargantuan profits investors expect). But what about workers?

This is not just morally wrong. “Income from capital risks replacing income from labor,” Pope Leo wrote in Magnifica Humanitas, his encyclical letter devoted to the effects of AI, released this week.

It also threatens the future stability of our economic and political system.

What accounts for the increasing shift of the American economy from wages to profits, even before AI?

One big reason is monopolization. The economy has become concentrated in a few giant corporations with the power both to raise prices and keep wages down.

Sure, there are still lots of small businesses and mom-and-pop operations. But the gravitational center of the U.S. economy is now Amazon, Alphabet (Google), Apple, Microsoft, Nvidia, Meta, Walmart, Costco, Home Depot, Kroger, United Health, Cigna, CVS, AT&T, Verizon, ExxonMobil, Chevron, JPMorgan Chase, Bank of America, Citigroup, Vanguard, Fidelity, Blackstone, Apollo, and KKR.

These giants control large swathes of the economy. They also exert significant political power. They’re like black holes in space, sucking in vast sums of money.

Their political power makes it impossible to know whether government policy is based on the public interest or private gain.

Consider Trump’s war in Iran and its resulting surge in energy prices. The energy-price rise has caused after-tax disposable income to drop and the profits of energy companies to soar. Did Trump decide to go to war because he thought it necessary, or because Big Oil nudged him into it?

Workers, meanwhile, no longer have any countervailing power. In the 1950s, over a third of workers in the private sector were unionized. That gave them enough bargaining power to claim a significant share of the total economy. Now, only 6 percent of workers are unionized. Their bargaining power has been further eroded by their easy replacement by lower-wage workers in Asia and by software. AI will further erode it.

This trend is not sustainable. It feeds growing anger at the system, which demagogues like Trump exploit for their own ends.

What should be done? Let me list five steps (I’ll go into each in greater detail in coming months).

1. For one thing, we’re going to need a new era of antitrust. Giant corporations will have to be busted up.

2. We’ll also need to tax those at the top, especially on the value of their ownership of capital. (California voters will likely be asked to vote on a billionaire tax in November.)

3. We’ll need regulate AI and simultaneously provide a universal basic income to cushion those who lose their jobs because of it.

4. Universal health care will be a necessity (perhaps via Medicare for all) along with subsidized childcare and eldercare.

5. Finally, we’ll need to distribute capital far more widely, so that the broad American public has a palpable stake in the rip-roaring stock market and the AI tsunami.

None of these fixes will be easy. Even if all are implemented, they may still be insufficient.

But, my friends, we have no choice but to try. We’ve already witnessed what mass anger can do to America, in the form of Trump. Unless we act soon, we’re likely to have Trumps, or worse, as far as the eye can see.

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