Some Problems Can’t Be Negotiated Away

“This Labor Day, sh*t’s too expensive.” That’s how AFL-CIO President Liz Shuler decided to open her Labor Day message to union members.

“This economy isn’t working for working people, so how do we build a better one? The answer is growing the power workers have, joining together, building our numbers so we can demand more.” What a shock. A union president thinks complex economic problems can be solved by… expanding the union that pays her salary.

The union theory of wage growth is all about bargaining power and negotiation, and at any particular moment in time, it’s not wrong. If my employees unionize and demand my salary be cut to zero and redistributed among them, that could be a successful negotiation.

The problem is that the union approach is a zero-sum game. Negotiation can redistribute a fixed pie, but it can’t make the pie bigger. My newly-unionized employees would still be limited by the income constraint of the firm. The same problem exists at the scale of an economy. A society can’t internally negotiate its way into wealth. Somebody has to actually produce more for there to be more to go around.

The Zero-Sum Debt Spiral

A side effect of this zero-sum thinking is the normalization of transfer payments as go-to public policy. If someone sympathetic is getting help from the government, the money must be coming from someone else who can spare it, right?

Our national debt, recently surpassing $40 trillion, tells a different story. The federal government spent $6.81 trillion so far in fiscal year 2026, up 2% from this time last year. Social Security is the largest line item in the federal budget, with Medicare and interest on the debt battling it out for second place.

The whole premise of old-age entitlement programs is that there will be a lot more people paying into than withdrawing from the system. Social Security was established not long before the Baby Boom, and Medicare came just after its peak years. Population growth was necessary for any of this to work longterm, but fertility rates were rapidly declining through the 60s and 70s and have never recovered since. Now we’re stuck with a growing population of retired and elderly Americans, funded by a shrinking population of working ones.

There’s a striking way to see how this has played out geographically. In 1970, only a small handful of the poorest counties in America relied on government transfers for more than 25% of local personal income. The vast majority of counties were under 15%. By 2022, a majority of counties relied on transfers for a significant share of income. Counties with low transfer dependence have gone from the norm to nearly extinct.

If this were about poverty, you wouldn’t see dependence spread from very specific areas to the whole country. This is the disastrous combination of old-age entitlements and fertility collapse playing out in real time.

The Debt-Based Burrito Economy

There’s a key difference between borrowing to consume and borrowing to invest. Let’s say I borrow $20 to buy a burrito. I eat the burrito. The burrito’s gone. The $20 is with the person who sold me the burrito. How am I going to pay back my debt?

I haven’t gotten better at anything by eating the burrito, so if I had to borrow money to buy the burrito in the first place, I sure don’t have any spare money to pay back my debt, plus interest. I guess I’ll have to borrow more money, at a higher interest rate, to pay back the original lender.

Now imagine that instead, I invent a machine that cuts out 90% of the cost to make a burrito and borrow $20 to build it. I can sell burritos for $3, undercut everyone else, pay the loan back with my profits, and enjoy a cheaper burrito myself as well. I’ve increased my productivity by using technology to increase the overall supply of burritos.

That is what investment looks like, and it is the only mechanism that’s ever made humanity wealthier. Fire, the wheel, the printing press, the tractor, the assembly line. Every leap in living standards came from figuring out how to produce more with less.

The first method of eating a burrito is how our system of debt-funded transfer payments work.

Is There Any Way Out?

We had a chance to build some of that investment logic into Social Security when President Bush tried to reform the program in 2005. Letting workers direct a portion of their contributions into productive assets would have helped dismantle the pay-as-you-go Ponzi scheme and replace it with something that could actually grow in value over time. It did not happen and now seems even more politically implausible in the current landscape.

The only other option, and the one President Trump and Treasury Secretary Bessent have been advocating for a while now, is to outrun the debt through unprecedented economic growth. It will require a large dose of optimism, but it’s not as unrealistic as it may seem.

OpenAI’s latest model, GPT-6 Astra, has jumped from roughly 8% to nearly 100% on a key benchmark for artificial general intelligence. I am not going to pretend I know exactly how this all shakes out, and I understand why people are unsettled by it. But if the fundamental problem is that we are not producing enough to support the fiscal obligations we’ve written into our laws, the smoothest way out is to radically upgrade our technology to allow us to make more with less.

This transition won’t be costless. Every leap in productivity has come with real disruption for real people and pretending otherwise is its own kind of dishonesty. But discomfort is baked into our current predicament, one way or another. We can either aggressively cut spending, which is politically impossible, let the inevitable debt crisis play out, which will force those cuts on even worse terms, or brave the AI revolution.

There may yet be some hope for fiscal sanity. Florida has four million more residents than New York and still runs on less than half of New York’s budget, with one of the lowest per capita tax burdens in the country. It has paid down more than half of its state debt and has a smaller government today than when Governor DeSantis took office, proving it can at least be done on the state level. Canada did something similar in the 1990s when its bond market forced the issue, before backsliding under Trudeau.

However, the reality is that our federal government is a different beast, with unmatched bargaining power in the global economy. Let’s hope that innovation will come to the rescue before our bills come due and we lose that privilege.