Silicon Valley's Strange New Obsession

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0:05 Silicon Valley is no stranger to a lot of goofy

0:08 insider terminology for what are really some pretty basic concepts.

0:11 Move fast and break things building

0:13 in public minimum viable personality vibe coding 10x

0:17 AI native cloudnative cryptonative post scarcity postabundance

0:20 postnut pre-revenue pre- idea Uber for aentic software

0:24 as a service with taste and trust as a moat is all more or less

0:27 the same way of saying we are out

0:30 of capital runway and we need another funding round.

0:32 Now, as fun as it is to joke about all of this, the reality is that most

0:37 of the people actually inside this industry are

0:39 aware of how silly this all really sounds.

0:41 And as a former finance bro,

0:42 I can't exactly throw too many stones in the glass house of dumb buzzwords.

0:47 But there is one new buzzy phrase that is generally being

0:50 taken a lot more seriously and is also a lot less funny.

0:54 How do you think you can escape the permanent underclass?

0:57 fear of being stuck in the permanent underclass and you

1:00 and I will get left in the AI underclass forever.

1:04 Escaping the permanent underclass has become a warning

1:07 that your value as a human being is

1:10 on a strict depreciation schedule and that these next

1:12 few years may be the last opportunity we have left before society is forever

1:16 split between the people who own enough assets

1:19 to support themselves independently in a fully automated

1:22 utopia and everybody else who has no further value.

1:25 At least as far as the market is concerned

1:27 because their labor has been entirely undercut by machines.

1:31 It's pretty grim stuff.

1:32 And putting aside the small little technicality that this is

1:35 the future they are working hard to create,

1:37 this idea is being taken seriously enough that it's worth understanding why.

1:42 Why does Silicon Valley think they are going to create a permanent underclass?

1:46 What steps are they taking to make sure they

1:48 are on the right side of the widening demographic gap?

1:50 And why are they treating this like it's an inevitability?

1:53 It's hard to say exactly what that moment is,

1:55 but there will come a point where no job is needed.

1:58 You can have a job if you want to have a job for sort of personal satisfaction,

2:02 but the AI will be able to do everything.

2:05 AI is the biggest technical thing ever in my lifetime.

2:08 I mean, it is so profound and therefore it's influence is hard to overstate.

2:14 You graduated.

2:15 I was told by a lot of people that I was going to get

2:18 a job right out of college and then all of a sudden there's no jobs.

2:22 Okay, so like most of the best Silicon Valley creations,

2:25 this permanent underclass started out as a well,

2:28 let's call it a joke that ended up being taken a bit too seriously

2:32 and ultimately just put a Silicon Valley spin on an idea that already existed.

2:37 And that idea is social mobility, or in plain English,

2:40 how easy it is for a poor person within

2:42 an economy to become wealthy if they work hard,

2:45 make smart decisions, and don't waste their money.

2:47 The other side of the same equation is how easy it is

2:50 for a wealthy person to end up poor if they make bad decisions,

2:54 don't work hard, and do waste their money.

2:56 But that part is generally left out.

2:59 Anyway, the point is,

3:00 if moving up and or down between economic classes is really easy,

3:03 your country has good social mobility.

3:05 Even the term underclass is not new.

3:08 It comes from the 1960s when an economist Gunnar

3:11 Mirall used it to describe people who were long-term unemployed,

3:15 underemployed, or outright unemployable to the point

3:17 where they were cut off from general society.

3:20 This was primarily in reference to communities

3:22 that had gone through rapid de-industrialization.

3:25 So when tech bros say these are

3:26 the last years to escape the permanent underclass,

3:29 what they are really saying is that social mobility is about to get so

3:32 bad that if you are not financially

3:34 independent before the machines take your job,

3:36 you are going to be in this underclass forever with no way to escape.

3:40 Again, this idea is most popular amongst tech workers

3:43 who are in many cases the people building this future, which we will get to.

3:48 But first, there are really three reasons

3:50 why this way of thinking has taken off.

3:52 The first is that even without widespread AI adoption,

3:55 it's kind of already happening.

3:57 In 1940, roughly 90% of American children earned

4:00 more than their parents did at the same age.

4:03 By the time millennials entered the workforce,

4:04 that number had fallen to just 50%.

4:07 According to a study from economist Raj

4:09 Shetty and his team at Harvard's Opportunity Insights,

4:11 productivity, GDP, corporate profits, all of that kept going up.

4:15 The gains just stopped being distributed the way they used to be.

4:20 The mechanisms behind this are not exactly a mystery.

4:23 Union membership, which once covered about a third of American workers,

4:26 has fallen to around 10% according to the Bureau of Labor Statistics.

4:30 The median home price in America is

4:32 now roughly 5 times the median household income,

4:34 according to Harvard's Joint Center for Housing Studies.

4:37 Between 2019 and 2024 alone, home prices rose 48% while household incomes rose

4:43 just 22% according to data from the Fed.

4:46 So, the single most common wealth-b

4:48 buildinging tool available to most Americans,

4:49 owning a home, is increasingly out of reach for the people who need it most.

4:54 Education, which was supposed to be the other ladder,

4:58 has risen 312% in inflationadjusted terms since 1963,

5:01 according to the Education Data Initiative.

5:03 The average federal student loan balance per borrower is now $39,633.

5:07 according to the Department of Education, which means the very tool that was

5:13 supposed to help people climb the income ladder

5:14 now starts them off in a financial hole that takes years to dig out of.

5:18 And all of these trends had been true well

5:21 before LLMs became as mainstream as they are today,

5:23 leading to the reasonable fear that widespread automation is

5:26 only going to make an existing trend significantly worse.

5:29 According to a report by McKenzie and company,

5:32 over a third of someone's lifetime,

5:33 realizable wealth is tied up in their human capital,

5:36 which is just a very clinical finance bro way

5:39 of saying that unless you are already very independently wealthy,

5:42 your greatest asset is all of the future hours

5:44 of your lifetime you can trade in exchange for money.

5:47 Sure, you can reinvest those earnings or make

5:49 those hours more valuable by acquiring marketable training,

5:52 but your financial foundation is still tied up in being able to sell that time.

5:56 The problem is that if a viable competitor

5:58 enters the market for hours of human work,

6:01 natural market forces dictate that those hours will simply be less valuable.

6:05 This is especially bad for young people who statistically have more future hours

6:08 to sell and have had less time to build up alternative sources of cash flows.

6:13 Now, all of this is clearly pretty grim, but to a lot of people,

6:16 the solution is to just make sure that they

6:18 have enough saved and invested as early as possible

6:20 to ensure that they can afford to keep living

6:23 their desired lifestyle before the value of their hours is undercut.

6:25 As far as this point goes, it's really just the financial independence movement

6:29 with a dystopian cyberpunk spin on it.

6:32 And look, individually, these people might actually have a point.

6:36 Recent historical trends have overwhelmingly

6:38 favored existing asset owners over workers.

6:40 And new technology is only pushing this further in that direction.

6:43 But it's also worth asking why this way of thinking is so

6:47 popular with the very same people working to actually make that technology.

6:50 So, it's time to learn how money works to find out why

6:53 the people closest to building the future are the most desperate to escape it.

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8:26 Okay, so there's a very good reason why

8:29 this idea has become so popular in Silicon Valley specifically,

8:33 and that's because even before modern generative AI presented itself

8:36 as such a threat to the latter of social mobility,

8:39 Silicon Valley was kind of already where

8:41 people went to escape the permanent underclass.

8:44 Social mobility is not the same everywhere in America.

8:46 Depending on where you grow up,

8:48 your chances of moving from poor to wealthy can vary by a factor of three.

8:53 Ros Shett's Opportunity Atlas,

8:54 which maps economic mobility across every neighborhood in America,

8:57 found that San Jose, the heart of Silicon Valley,

9:00 has one of the highest rates of upward

9:02 mobility of any metro area in the country.

9:04 A child born in the bottom fifth of the income distribution in San Jose,

9:08 has a 12.9% chance of reaching the top fifth by the age of 30.

9:12 In Charlotte, North Carolina, that number is just 4.4%.

9:16 Additionally, for what it's worth, the top fifth of income earners in San Jose

9:20 are also on average taking home a lot more.

9:22 So, Silicon Valley is already seen as one of the last

9:25 places where the economic ladder still kind of works,

9:28 which makes the people living there

9:29 or more likely moving there especially receptive

9:32 to the idea that time for up or out is coming to an end.

9:36 For a long time, this was the place where smart

9:38 people could come and earn truly life-changing amounts of money.

9:41 even if they didn't come from a wealthy background.

9:44 Tech was arguably even more meritocratic than finance or big law or medicine,

9:48 which all had their own gatekeeping mechanisms that favored

9:50 people from the right schools or the right families.

9:53 And a lot of the people who moved here had a similar plan.

9:57 Work hard, save aggressively, vest some shares, and get out before you burn out.

10:01 Now, I know this is a generalization and things have changed recently,

10:04 but for a long time,

10:06 tech in particular also promoted a less ostentatious lifestyle

10:08 than a similar high-end career in finance or law.

10:11 People were earning genuinely ridiculous money

10:13 in the valley and still wearing company

10:16 hoodies while primarily getting their entertainment

10:18 from going on hikes and playing video games.

10:20 Instead of buying ludicrously expensive housing,

10:22 the culture of Silicon Valley workers was more paired back and focus

10:26 on just watching number go up in their vesting and brokerage accounts.

10:29 I know it's anecdotal and I personally didn't work in tech,

10:32 but when I lived and worked in San Francisco,

10:35 I had three roommates who did work in tech and were all making more

10:38 than enough money to live an extremely

10:40 comfortable lifestyle anywhere else in the world.

10:42 But the housing situation and the save everything you can culture in the area

10:46 meant that we were all living between three bedrooms and one bathroom.

10:50 And this kind of arrangement was considered completely normal.

10:53 Someone spending all of their money to live in the valley,

10:55 even if they could comfortably afford it, would be genuinely unusual.

10:58 Again, at least in my own experience,

11:01 they were doing this because most of them had a plan to make money and get out.

11:06 Financial independence was already really popular amongst tech workers.

11:08 The idea being save enough, invest everything,

11:11 build a portfolio large enough that you can live off the returns permanently,

11:14 and then go do whatever you actually want to do with your life.

11:17 The math behind it is pretty simple.

11:19 A study from the 1990s found that if you

11:22 withdraw about 4% of a diversified portfolio each year,

11:25 it should last you indefinitely.

11:27 So, if your annual expenses are $100,000, you need $2.5 million invested.

11:32 At $200,000 a year, you need $5 million.

11:35 The target is 25 times your annual spending.

11:38 Now, for most Americans, saving $2.5 million is a fantasy.

11:43 The median household income is around $80,000.

11:46 After taxes, housing, food, transportation,

11:48 and the average $39,633 in student loan debt, there's not a lot left over.

11:53 But for a senior software engineer in San

11:55 Jose making $400,000 a year at a company

11:58 that also gives them restricted stock units

12:00 that have been appreciating at 30% annually, it was clearly possible.

12:04 And for a lot of people who came from humble backgrounds,

12:06 it really was just one of the last escape hatches left to financial security.

12:10 Even for the people that didn't want to go and retire

12:12 on a ranch in Colorado at the age of 35,

12:15 a lot of techworking culture is still built around getting

12:18 experience and saving up what is charmingly known as you money.

12:21 The idea is that once you have this, you can

12:24 leave the big companies and go work for a startup

12:26 or start your own business without being destitute

12:28 in the very likely scenario that it doesn't work out.

12:31 So yeah, already before the whole AI fear andor hype cycle came around,

12:35 tech bros were already fully on board with the idea of jumping social classes.

12:39 Additionally, this idea of living off your investment to either

12:42 live a good life or double down into a startup

12:44 feeds in really naturally to the third reason why

12:46 tech bros have become so obsessed with this idea.

12:49 It's just really good marketing.

12:51 Sam Alman has said publicly that AI

12:53 will create the first oneperson billion-dollar company.

12:56 He even reportedly has a betting pool

12:58 with his CEO friends about what year it will happen.

13:00 Now, of course, we all know that Sam Alman would

13:03 never say something just to hype up his own products.

13:06 But if this is possible, it is probably going to happen in the tech

13:10 sector where valuations are well generous and a single

13:13 person isn't going to be constrained by their physical

13:16 limitations to produce tangible goods and services.

13:18 Now, in response to statements like this, people working

13:20 in this field either don't believe their own hype,

13:22 in which case they might want to make

13:24 as much money as they can before the bubble implodes,

13:26 or if they do believe this narrative,

13:28 then they think that business equity is about to become a lot more valuable.

13:32 And this is the perfect time to be going out alone,

13:35 of which the first step is gaining some level of financial independence.

13:38 No matter which way you interpret the leaders in the space,

13:42 they are basically just saying don't be poor or get rich and die trying,

13:46 depending on what take you prefer.

13:47 Either way, the nerdy tech bros that we have

13:49 grown up with are kind of going through something.

13:52 The culture in Silicon Valley has noticeably changed

13:54 over recent years to become far more serious.

13:57 It's gone from bean bag chairs and salad bars to 80 hour weeks,

14:01 biohacking, and token maxing with a sprinkle of 10x productivity,

14:04 whatever that means.

14:05 The threat of being stuck in the permanent underclass,

14:08 especially in a time of sweeping layoffs,

14:10 is just a great narrative to keep tech workers on their hashtag grind set.

14:14 So far in 2026, over 108,000 tech workers have been laid off.

14:19 That is on top of roughly 122,000 in 2025 and 150,000 in 2024.

14:24 Companies are naturally framing many of these cuts as AI related restructuring.

14:29 But Deutsche Bank analysts wrote in January that AI

14:32 redundancy washing will be a significant feature in 2026,

14:34 which is a polite way of saying that a lot of companies

14:37 are just using AI as an excuse to fire people they already wanted

14:41 to get rid of because it sounds better in investor letters than

14:44 we massively overhired post pandemic and are now spending too much on capex.

14:48 Entry-level tech job postings specifically have dropped 50%

14:51 at major tech companies compared to prepandemic levels.

14:54 and hiring of new graduates by the 15 largest tech firms has

14:58 fallen by more than half according to an analysis by the SF standard.

15:01 If your employees genuinely believe

15:03 that the window for financial security is closing,

15:05 they are going to work harder, demand less, and be less likely

15:09 to push back on that optional weekend deployment.

15:11 Now, I know this isn't exactly shocking to anybody

15:14 that's been watching Silicon Valley for the past 3 years,

15:16 and it's certainly not surprising to people actually on the inside, but again,

15:20 the logical response to this is using the time that they do have to make sure

15:24 that they can escape the permanent underclass before

15:26 they get smited off the last ladder up.

15:29 Outwardly, it's also clearly a marketing spin

15:31 to make their companies look all powerful.

15:33 Who wouldn't want to invest in the company that's

15:35 going to define permanent halves and have nots, right?

15:38 If these companies promote the idea that their technology is going to reshape

15:42 the social fabric like the steam engine did during the industrial revolution,

15:46 it goes a long way to rationalize

15:48 their extreme investments into this technology,

15:50 especially as the industry lines up to take two and a half

15:54 AI companies through particularly public initial public offerings this year.

15:57 And of course, it's worth pointing out that if these listings go well,

16:01 the tech workers themselves will probably have everything

16:03 they need to escape the underclass for good.

16:05 So there is something of a perverse incentive to play along.

16:09 And well, yeah, this is objectively the most sensible

16:11 course of action for these people to be taking individually,

16:15 but it's still really hard to ignore the irony of escaping the permanent

16:18 underclass by riding the investment returns

16:20 of creating that underclass in the first place.

16:22 It sounds dumb, but it's also not anything new.

16:25 And if you don't believe me,

16:26 go watch this next video to find out why tech bros in particular seem

16:29 to never learn any of the lessons from the works of fiction they hold so dear.

16:33 And don't forget to like and subscribe to keep on learning how money works.