Top economists mathematically prove that AI will destroy the economy

[Ladle Ghoulash 54,312]

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.

[Auralegends 8,935]

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 16,561]

[Republicanne 7,916]

Is AI rise a threat to @Economy? 

Edited 59 minutes ago by Republicanne

[Nessun Dorma 10,169]

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 26,239]

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.