All good points.
But I’d like to reiterate that the crucial issue is that more and more people of lower intelligence will be redundant to the real market.
The challenge is how to provide meaningful lives for people for whom there is no economic role. Past and present examples of societies with this issue (see Indian reservations, etc.) are not reason for comfort.
IMO there is a distinct possibility that capitalism and the free market, with its creative destruction, will eventually creatively destroy itself. Capitalism has had a hell of a run, 300 years or more now, depending on how you define it.
But functioning of markets is not a law of nature, it’s a law of human nature. And if the parameters within which the market must function change sufficiently, the market system may break down. At least insofar as its ability to provide for human needs other than material.
Or they will substitute intelligence provided by technology for what they lack. Just like drivers who aren't good at spatial logic and map reading use GPS devices to get them to their destination, or most of us use spell checking software to reduce our need to remember how to spell infrequently used words, or tax software to figure out our taxes.
A lot of jobs that are considered "unskilled" actually have gotten easier over time with automation and technology. The mistake many in our government and pundit class make is assuming that the future job is, for example, writing software.
The challenge is how to provide meaningful lives for people for whom there is no economic role. Past and present examples of societies with this issue (see Indian reservations, etc.) are not reason for comfort.
The example you cited, Indian reservations, is indicative of what can happen when a social structure changes rapidly and the culture fails to respond, or responds in a dysfunctional way. Other examples of cultures facing similar dysfunction and challenges exist, including groups that are highly dependent on government in inner cities, refugee camps, etc.
But there are other contrary examples as well. Many primitive cultures existed in stable equilibrium for long periods of time due to a surplus of resources. In the particular situations they had most people were able to get by with limited work, and the structure of the society was able to support everyone.
Technology and increased productivity may well have similar effects in a more modern society. If automation reduces the cost of goods enough, then those who are unable to generate much themselves are still able to live a meaningful life. Put more bluntly, if productivity increases enough, then even a lazy bum will be able to afford more luxury than we have today. Just like the poor American of today has more stuff, better healthcare, and a much easier life than most Americans did 100 years ago.
The problem is not the impact of improved productivity, so much as the burden of short term thinking and a governmental and pundit class pushing the ideas of dependency on people, and blocking market opportunities.