Labor is an input into the cost of virtually everything, throughout the entire supply chain. Because of this the price of any good is built up from accumulated layers of human work from extracting and processing the raw materials, to manufacturing the product, transporting it, stocking it, and selling it. The same is true of services. Even the parts of production that look purely mechanical embed labor, because the machines, the energy, and the buildings were all designed, built, and maintained by people. As the cost of labor falls toward zero across all of those layers, the cost of everything built on top of it falls too. Because labor is woven through the entire economy rather than confined to one corner of it, the downward pressure on prices is economy-wide, not sector-specific.
The reason this matters, and the reason the claim is all products and services rather than just some, becomes clear when you look at what happened in previous waves of automation. They only cheapened the things they could actually reach, which was mostly manufactured goods. Meanwhile, labor-intensive services such as healthcare, education, childcare, legal help, construction, and live performance stubbornly resisted falling in price, and many of them grew steadily more expensive. This happened because those sectors still depended on human hands, and the one thing earlier technology could not do was replace the human labor at their core. As long as a service needed people to deliver it, automation elsewhere could not bring its price down.
That is precisely the constraint humanoid robots and AI remove. For the first time, the labor-intensive sectors that escaped earlier automation are exposed to it. A robot can give a haircut, help staff a classroom, frame a house, assist a patient, and cook a meal. So the very categories of spending that stayed stubbornly expensive for a century, the ones that consume the largest share of a typical household's budget, are exactly the ones now positioned to fall dramatically in price. The disruption reaches the parts of the economy that previous disruptions could not, which is why the effect is broad rather than partial.
The effect also compounds as cheaper labor makes the robots, the energy, the raw materials, and the transport cheaper, and each of those reductions lowers the cost of labor and production again, in a reinforcing cascade. When robots build the robots, the cost of robots falls, which drives the cost of all labor down, which drives the cost of nearly everything down once more. The savings ripple through the whole economy instead of staying trapped in a single industry.
It is worth being precise to avoid overstating the case. This is supply-driven deflation, the benign kind, where falling production costs allow prices to drop while output and quality rise, which is very different from the demand-collapse deflation that signals a recession. And not literally everything falls toward zero. Some costs are not labor at all, including genuinely scarce resources like prime land and rare materials, positional and status goods, authentic one-of-a-kind originals, and things people value precisely because a human made them. Regulation, taxes, and concentrated market power can also keep prices high even when underlying costs fall, which is one more reason the distribution of the gains matters.
Explore the evidence...
- The historical record shows why only some things got cheaper before now. As Bloomberg reported on the widely shared "chart of the century," since 1997 the prices of food, clothing, cars, and electronics fell while healthcare, childcare, and education soared relative to wages. The explanation is Baumol's cost disease where productivity gains continually lower the cost of manufactured goods, while labor-intensive services such as education, legal services, and healthcare, where productivity growth is persistently slow, tend to rise. Humanoid robots remove exactly that productivity barrier from the service sectors. Read the Bloomberg piece here and a plain-English explainer of Baumol's cost disease here.
- The compounding effect is amplified by the parallel energy disruption, since a solar, wind, and battery system produces a large surplus of near-zero-cost electricity, another economy-wide input cost falling at the same time. Read about SWB Superpower here.
Witness the transformation
In the span of just fifteen years, the working horse went from providing the vast majority of road travel to a tiny fraction of it. The automobile had arrived, and the fate of the horse was sealed. We are now on the cusp of a disruption every bit as swift and complete, except this time, we humans are the horses.
A convergence of sensors, computing, actuators, and batteries now gives humanoid robots the capability to perform both cognitive and physical work. AI is already taking on cognitive tasks once reserved for people, and humanoid robots are bringing the same capability to physical tasks. For the first time, the supply of available labor can expand as fast as machines can be built and trained. These systems are already approaching cost parity with human labor across much of the global economy, and their cost will keep falling while their capability keeps rising.
This is about far more than cheaper labor. Robots will create an entirely new and vastly larger labor system in which the marginal cost of labor approaches zero. The result will be a sweeping tide of falling costs, rising quality, and explosive productivity that forms the foundation of an era of superabundance. The nations, industries, and individuals who recognize this early, and who choose to protect people rather than jobs, will be best positioned to navigate the transformation and capture its extraordinary benefits.
Learn more about the disruption of labor and its implications for jobs, society, and the economy.
