3. The Seven Fatal Lies of a Dying Paradigm
“It ain’t what you don’t know that gets you into trouble. It’s what you know for sure that just ain’t so.” — Attributed to Mark Twain
Economics is a house built on sand. Not ordinary sand, but sand that is turning to water beneath our feet. The foundational assumptions of the economic theory that governs our lives are no longer just wrong. They have become the precise opposite of reality.
These are not minor theoretical errors to be patched with better models. They are the load bearing lies of a dying paradigm, the fatal fictions that prevent us from seeing what is actually happening. Like a GPS system that has not been updated since the continents shifted, they do not just fail to guide us; they lead us directly into the chasm.
To understand why we cling so desperately to these lies, we must first understand the system that indoctrinated us. Before we could think critically, we were enrolled in the Factory School, a system designed not for education, but for compliance. Imported from Prussia in the 19th century to create obedient soldiers and workers, its hidden curriculum was the real one: sit still, follow bells, ask for permission, and accept that your worth can be reduced to a letter grade. It was the perfect training program for producing interchangeable human cogs for the corporate machine.
This educational system prepared us to believe a set of economic lies because those lies were the operating system of the industrial world. They coordinated behavior, motivated effort, and justified suffering. But that world is dead, and the lies that lubricated its gears are now seizing up the engine of progress.
Let us perform the autopsy.
Lie #1: Scarcity is Fundamental
The Myth: Economics is the study of how societies allocate scarce resources. This is the first sentence of every textbook, the prime directive from which all else flows. Without scarcity, we are told, economics has no reason to exist.
The Reality Check: A single AI model can now write a million legal briefs, create a billion architectural plans, or compose infinite symphonies. It does not get tired. The marginal cost of the millionth query approaches zero. We are not approaching post scarcity in the domain of intelligence; we have arrived. This breaks the fundamental equation of economics. When supply becomes infinite, price approaches zero, and traditional economics approaches meaninglessness.
This is not a gradual improvement. It is a phase transition. Consider the price of a professional human mind in 2020, which hovered around thirty-six dollars per hour. Today, a superior AI mind performs the same cognitive work for as low as 0.015 cents per query. This represents a cost reduction of approximately 99.99 percent. This is not a productivity gain. It is the annihilation of an entire economic category. Our system has gone from managing scarcity to confronting an abundance it cannot comprehend.
What is the price of an infinitely replicable idea?
Why the Lie is Fatal: Scarcity is not a variable in our economic models; it is the reason the models exist. Trying to run economics without scarcity is like trying to run astronomy without space. Our entire system is designed to manage scarcity. As a result, it processes the arrival of abundance as a catastrophe. When AI makes expert knowledge free, our GDP metric sees only the collapse of the consulting and education industries, not the explosion of human capability.
Lie #2: Human Labor Has Value
The Myth: The dignity of work is the bedrock of our civilization. The Factory School trained you for a job, and that job gives you both income and identity. The equation seems eternal: Work equals Worth.
The Reality Check: Previous automation replaced human muscle; we pivoted to using our minds. AI replaces the mind itself. There is nowhere left to pivot. The brutal truth no politician will speak is that for a growing majority of cognitive tasks, the economic value of a human is now negative. A human is not just more expensive than an AI; a human is a liability. They get sick, they have moods, they quit at inconvenient times. From a pure economic calculation, the kind markets make millions of times per second, the choice is obvious.
What is the salary for a skill that a machine can perform for free?
Why the Lie is Fatal: By clinging to the fiction that all humans can be “reskilled” for new jobs, we are preparing for the wrong future. We are building lifeboats for a storm when the sea level itself is rising over our heads. This lie prevents us from having the necessary, terrifying conversation about a world where human worth must be permanently decoupled from economic production. It keeps us focused on “job creation” when we should be focused on “purpose creation.”
Lie #3: Growth Requires Resources
The Myth: Economic growth means making more physical stuff using more physical resources. The production function, Output equals f(Capital, Labor, Resources), is a law of nature. To grow, a nation must consume more of the planet.
The Reality Check: The digital economy already strained this assumption. The AI economy shatters it completely. Once trained, an AI model can serve a billion users without depleting, generate infinite unique outputs, and improve through use. It is like a factory that produces infinite goods, gets better with every unit made, and can be replicated for free. We now have a primary driver of economic growth, intelligence, that is fundamentally decoupled from material consumption.
How do you measure growth when the most valuable factory has no physical form?
Why the Lie is Fatal: This lie has led us to systematically liquidate our planet’s natural capital and call it “growth.” By measuring only the throughput of materials, we have created an economic system that is blind to its own self destruction. Furthermore, it causes us to fundamentally misunderstand where future value will come from, not from extracting more atoms, but from better arranging bits.
Lie #4: Markets Find Equilibrium
The Myth: Leave markets alone, and the “invisible hand” will guide them to a stable price where supply meets demand. Competition erodes excess profits. The system is self correcting.
The Reality Check: Digital markets are not self correcting; they are self amplifying. Network effects, where a product becomes more valuable as more people use it, create monopolies as naturally as gravity creates black holes. Google has 91 percent of search. Meta has 74 percent of social media. These are not temporary advantages. They are the permanent, stable state of markets where the product is connections, not commodities. AI makes this absolute. There is no equilibrium, only acceleration toward singularity.
What does equilibrium mean in a market designed for exponential acceleration?
Why the Lie is Fatal: Believing in equilibrium leads to dangerously passive policy. We wait for competition to emerge in markets that are structurally designed to prevent it. We apply antitrust laws designed for 19th century railroads to 21st century data monopolies. We are waiting for a pendulum to swing back to center, unaware that we are in a rocket ship that only knows how to accelerate.
Lie #5: Money Measures Value
The Myth: GDP, the sum of all monetary transactions, tells us how well we are doing. If the number goes up, society is improving. Money is the universal translator that makes all values comparable.
The Reality Check: Wikipedia provides twenty billion pages of free knowledge monthly. Its contribution to human flourishing is incalculable. Its contribution to GDP, however, is negative because it destroyed the encyclopedia industry, a market where a single set of Britannica encyclopedias once cost consumers $1,400.
This reveals the central perversity of our economic dashboard: it registers the creation of immense public value as a loss, while consistently counting the human tragedies and social costs detailed in the preceding exhibits as positive growth. We measure destruction as production and wonder why society feels like it is falling apart while the numbers go up.
If the best things in life are free, why is our economy designed to measure only the things that cost money?
Why the Lie is Fatal: Our measurement system is not just flawed; it is perfectly backwards. It literally cannot see abundance. When knowledge becomes free, it registers as economic collapse. We are achieving the liberation from scarcity that every prophet dreamed of, and our instruments are screaming “Depression!” This lie will cause us to try to “fix” the exploding human capability AI provides, like a doctor treating a healthy patient’s robust immune response as a disease.
Lie #6: Rational Agents Optimize
The Myth: Humans are “rational actors” who make calculated decisions to maximize their own well being. Homo economicus is the hero of every economic model.
The Reality Check: We are not rational actors in an impartial environment. We are biological creatures with predictable cognitive biases, and we now live in an environment that has been perfectly engineered to exploit those biases for profit. Every tech platform is an addiction machine, using variable ratio reinforcement and social validation loops to hijack our dopamine systems. We are not optimizing the system; the system is optimizing us to be perfect consumers.
Who is the rational actor in a battle between a human mind and an algorithm that knows it better than it knows itself?
Why the Lie is Fatal: In the age of AI, this asymmetry becomes absolute. AI can model our individual psychology, predict our desires, and generate personalized content to manipulate our behavior with superhuman effectiveness. The “rational actor” is not just a fiction; it is a defenseless target. Any economic or political theory based on consumer sovereignty or the “wisdom of the crowd” is now obsolete and dangerous.
Lie #7: Distribution Follows Contribution
The Myth: In a market economy, rewards flow to those who create value. The CEO earns 350 times the median worker because they create 350 times the value. This is the moral foundation of capitalism: you get what you deserve.
The Reality Check: From 1973 to 2023, worker productivity in the U.S. increased by 246 percent, while wages increased by only 115 percent. The link was not weakened; it was severed. In an economy where value comes from owning platforms, networks, and algorithms, distribution follows ownership, not effort. The AI economy is the final act of this decoupling. The moral fiction that justified inequality, “they earned it,” becomes untenable when “earning” means inheriting shares in the company that owns the AI that does all the work.
When a machine does all the work, who deserves the rewards?
Why the Lie is Fatal: This lie prevents us from facing the true challenge of the 21st century, which is not a problem of production, but of distribution. It keeps us trapped in debates about “skills gaps” and “individual responsibility” when we should be designing new protocols for distributing the immense, machine generated wealth of the coming era. It is the lie that will allow us to create a world of unprecedented abundance and unprecedented poverty, side by side.
The Bonfire of the Verities
These are not seven separate lies. They are seven faces of a single, massive delusion: that an economic system built for a world of scarce atoms, human labor, and stable markets can function in a world of abundant bits, AI labor, and winner take all dynamics.
It cannot. It will not. It is not.
What dies with these lies is an entire way of understanding ourselves. The Protestant work ethic. The American dream. The meritocratic ideal. These were useful fictions that turned humans into productive units. But that machine is being scrapped, and the lies that lubricated it are seizing up. What remains is the terrifying, liberating truth that we need new stories. Better stories. Stories aligned with abundance, not scarcity; with being, not doing; with cultivating human consciousness, not just human capital.
The old lies were about turning humans into better machines. The new ones must be about allowing humans to become more fully human. And to write them, we must first understand the true physics of value.
These seven lies are not independent errors. They are the symptoms of a worldview blind to the true sources of civilizational health. They are the inevitable result of an economic system that can only measure transactions, not the MIND capitals that make them possible, and that only understands one of the Three Flows of value. To build a new house, we must first understand the true physics of value.