AI, Costs, and the Rebooted Engels’ Pause

AI’s economic impact may rely more on price-driven demand rationalization and investment in capacity than on an immediate productivity surge: frontier models fetch higher prices to fund capex, potentially unlocking new use cases, but Engels’ Pause warns living standards could lag as capital captures a larger share of gains. The main risks to the AI boom are sociopolitical—labor wage pressure and diverted non-AI investment—pointing to a gradual path to broad productivity gains rather than a sudden explosion.