Tech scholars speculate that AI will destroy the economy

[Ladle Ghoulash 55,099]

TEXT:

Two economists mathematically proved that AI will destroy the economy.

Researchers from Wharton and Boston University published a terryfiying paper called "The AI Layoff Trap."

They mapped out the economic end-game of the AI transition, and it exposes a fatal flaw in competitive capitalism.

When a company replaces a worker with AI, it captures 100% of the wage savings.

But that displaced worker is also a consumer. When they lose their job, they stop buying things.

The company gets all the savings, but the loss of consumer demand is spread across the entire economy.

If there are 20 competitors in a market, a CEO only absorbs 1/20th of the economic damage their layoffs just created.

So every single rational CEO has a mathematical incentive to automate as fast as possible.

They can literally see the cliff approaching, and they still step on the gas.

It triggers an unavoidable Prisoner’s Dilemma. If you don't automate, your competitors will, and they will crush you on price.

It doesn't just hurt workers. It destroys the businesses, too.

The economy gets trapped in an automation arms race. Companies fire their workforce to stay competitive, until the entire consumer base is completely hollowed out.

At the limit, the paper concludes: “Firms automate their way to boundless productivity and zero demand.”

And the scariest part?

The researchers mathematically tested every popular fix.

Universal Basic Income? Fails. It raises the living standard but doesn't change the corporate incentive to cut jobs. Retraining? Fails. Worker equity? Fails.

The paper proves that more competition actually makes the collapse happen faster. And "better" AI makes the damage worse.

The only thing that mathematically stops the collapse is a targeted automation tax, forcing companies to pay for the purchasing power they destroy before they automate the job.

Edited August 18 by Ladle Ghoulash

[Auralegends 8,944]

Are they also considering the cost of AI?

What we see now is that companies start to rehire people that they previously layed off because of the rising cost of AI usage. Tokens get more expensive than the people, so next to Labor and Capital as economic inputs, Technology can be considered a third parameter that will be in the equation for balancing economics.

 

[Controversiaga 16,885]

[Republicanne 7,944]

Is AI rise a threat to @Economy? 

Edited August 16 by Republicanne

[Nessun Dorma 10,236]

27 minutes ago, Auralegends said:

Are they also considering the cost of AI?

What we see now is that companies start to rehire people that they previously layed off because of the rising cost of AI usage. Tokens get more expensive than the people, so next to Labor and Capital as economic inputs, Technology can be considered a third parameter that will be in the equation for balancing economics.

 

But isn’t the general trend for the cost of using and processing AI via APIs and tokens to become cheaper?

[Bronco 26,989]

2 minutes ago, Nessun Dorma said:

But isn’t the general trend for the cost of using and processing AI via APIs and tokens to become cheaper?

That's what should happen overtime. But its not happening yet because of 2 main reasons - large AI companies are massively in debt and building that debt in the arms race to constantly improve atm & cheap alternatives aren't in abundance yet because we've not hit stability with the technology yet. 

What we're actually seeing is companies continually upping the costs like DeepSeek who just moved from a cheaper flat rate to a more demanding variable pricing system this month.

https://tokenpriceindex.com/ and as this industry tracker shows, while there's a little up & down the costs have been trending upwards all year. 

This is why the likes of Altman have started talking down the "revolutionary" impact of AI in terms of jobs etc - if they don't, investors would have class action suits lined up against them for misleading shareholders. 

[Nessun Dorma 10,236]

13 minutes ago, Bronco said:

That's what should happen overtime. But its not happening yet because of 2 main reasons - large AI companies are massively in debt and building that debt in the arms race to constantly improve atm & cheap alternatives aren't in abundance yet because we've not hit stability with the technology yet. 

What we're actually seeing is companies continually upping the costs like DeepSeek who just moved from a cheaper flat rate to a more demanding variable pricing system this month.

https://tokenpriceindex.com/ and as this industry tracker shows, while there's a little up & down the costs have been trending upwards all year. 

This is why the likes of Altman have started talking down the "revolutionary" impact of AI in terms of jobs etc - if they don't, investors would have class action suits lined up against them for misleading shareholders. 

Thank you the clarification. So it seems like before it gets better, it’s going to get even worse. 

“Get’s better” from the processing costs point of view, because I imagine the infrastructure costs will increase, right?

I briefly read something about the subject attributing Altman’s shift in tone to IPO preparations, so I think it adds to the factors you mentioned.

[TaylorSwift 163,197]

we will miss you  @Economy

[Nagini 4,259]

**** AI

[Nagini 4,259]

It's insane. The number of layoffs, the amount of people who are Open To Work on LinkedIn... I absolutely think there should be a tax for companies pursuing these large layoffs. If you need to cut employee cost constantly to hit profit goals, build a better business. Change and transform how people work, don't eliminate them. 

[Nagini 4,259]

But also **** these companies. We need a day of national anti-AI reckoning. 

[zevthepaparazzo 2,549]

but it'll be able to bounce back right

Right

RIGHT

[Economy 53,019]

6 hours ago, Ladle Ghoulash said:

TEXT:

Two economists mathematically proved that AI will destroy the economy.

Researchers from Wharton and Boston University published a terryfiying paper called "The AI Layoff Trap."

They mapped out the economic end-game of the AI transition, and it exposes a fatal flaw in competitive capitalism.

When a company replaces a worker with AI, it captures 100% of the wage savings.

But that displaced worker is also a consumer. When they lose their job, they stop buying things.

The company gets all the savings, but the loss of consumer demand is spread across the entire economy.

If there are 20 competitors in a market, a CEO only absorbs 1/20th of the economic damage their layoffs just created.

So every single rational CEO has a mathematical incentive to automate as fast as possible.

They can literally see the cliff approaching, and they still step on the gas.

It triggers an unavoidable Prisoner’s Dilemma. If you don't automate, your competitors will, and they will crush you on price.

It doesn't just hurt workers. It destroys the businesses, too.

The economy gets trapped in an automation arms race. Companies fire their workforce to stay competitive, until the entire consumer base is completely hollowed out.

At the limit, the paper concludes: “Firms automate their way to boundless productivity and zero demand.”

And the scariest part?

The researchers mathematically tested every popular fix.

Universal Basic Income? Fails. It raises the living standard but doesn't change the corporate incentive to cut jobs. Retraining? Fails. Worker equity? Fails.

The paper proves that more competition actually makes the collapse happen faster. And "better" AI makes the damage worse.

The only thing that mathematically stops the collapse is a targeted automation tax, forcing companies to pay for the purchasing power they destroy before they automate the job.

I dont know that id call it mathematical "proof"

 

Just because its top economists who shared this doesnt mean anything. Top economists disagree with eachother all the time and opposing sides from equally intellectual people have their own compelling arguments and ive heard a lot of non stop doom and gloom (great depression level collapse) for the past 15 years always with arguments that sound irrefutable at the time and year after year it doesnt happen

 

Personally I do think AI will get ugly for a lot of people absolutely, I am not opposed to that opinion

 

But I think we also forget that the top 10% now account for over half of consumer spending in this K shaped economy. We dont actually need the average middle class person to be doing well or for unemployment to stay low for overall spending and corporate profits to stay up. Theres a reason wages are stagnant, fuel and food is going up and average people are on the bring yet GDP, consumer spending, corporate profits and other traditional data sets while not great are not as awful as one would expect. The economy has shifted to depend on the top quintile of earners and wealth holders more than ever before which also means when the bottom 70% of people cut back on spending a bit the overall measurable impact is modest at best.

 

As such i dont share the opinion that rising unemployment or middle class struggle automatically has to self implode companies. This does of course also depend on how quickly the wave comes. I am not saying it cant trigger a collapse as much as I am saying its not really a guarantee

 

If anything the AI investment bubble, debt bubble (also in AI), and sovereign debt crisis to me i think pose higher immediate risks for causing a world wide collapse (energy and food crisis as well from Iran)

 

I think AI related job losses will be more tragic for individuals themselves who loose jobs, not necessairily the economy as a whole (and certainly not the corporations)

Edited August 17 by Economy

[Economy 53,019]

6 hours ago, Auralegends said:

Are they also considering the cost of AI?

What we see now is that companies start to rehire people that they previously layed off because of the rising cost of AI usage. Tokens get more expensive than the people, so next to Labor and Capital as economic inputs, Technology can be considered a third parameter that will be in the equation for balancing economics.

 

Nuances like this matter. There will be hiccups in adopting something so revolutionairy... and every industry and sector is slightly different so some positions will be easier and simpler to automate than others. Other companies still (such as the one i work for) so far are using it to increase productivity per worker and hiring less as they grow but not outright fire people

 

So this means theres offsets and the layoffs are not guaranteed to come all at once. Likely some positions in some companies go much sooner and others take more time if they end up going at all. I think that reality alone puts into question the whole "absorbtion rate" argument because i keep hearing the predictions as if the layoffs will come all at once but I dont know if im convinced of that. 

 

Theres a lot of sensationalism out there but if theres one thing ive learned over the last 15-20 years of closely following economists, commentaries, predictions etc is that 19 out of 20 both the best case optimistic scenarios and the worst case catastrophic scenarios dont happen. Theres always multiple forces pulling in opposing directions that partially offset eachother and the actual result ends up being somewhere in the middle of the extremes

 

Of course once in a while if u get a perfect storm all at once, the worst case scenario does happen. Thats how we got 1929 depression and 2008 financial crisis... but for 2 or 3 major collapses of the last century there was at least 50 collapses that could have occured according to some

 

We need to stop acting like we know exactly whats going to happen and that someone "mathematically proved it". Literally no one can predict the future. Theres literally wild cards everywhere

Edited August 17 by Economy

[PartySick 173,812]

It's kind of common sense. No jobs means no money means no purchasing means a stagnant and dying economy.

AI could be incredible. A tool for employees to use to supplement their own work rather than for employers to replace employees with.

We'll either learn the value of humans (lmao) or go down