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Posted on 04/13/2026 5:47:47 PM PDT by ProtectOurFreedom
If AI displaces human workers faster than the economy can reabsorb them, it risks eroding the very consumer demand firms depend on. We show that knowing this is not enough for firms to stop it. In a competitive task-based model, demand externalities trap rational firms in an automation arms race, displacing workers well beyond what is collectively optimal. The resulting loss harms both workers and firm owners. More competition and "better" AI amplify the excess; wage adjustments and free entry cannot eliminate it. Neither can capital income taxes, worker equity participation, universal basic income, upskilling, or Coasian bargaining. Only a Pigouvian automation tax can. The results suggest that policy should address not only the aftermath of AI labor displacement but also the competitive incentives that drive it.
(Excerpt) Read more at x.com ...
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RESEARCHERS JUST MATHEMATICALLY PROVED THAT AI LAYOFFS WILL DESTROY THE ECONOMY. AND EVERY CEO ALREADY KNOWS IT. BUT NONE OF THEM CAN STOP.It's a Brave New World.Two researchers from UPenn and Boston University just published a paper called "The AI Layoff Trap". They proved something terrifying. Every company replacing workers with AI is also firing its own customers. Every laid-off employee is someone who used to spend money. When enough people lose their jobs. Nobody can afford to buy anything. And the companies that fired everyone go bankrupt selling products to an economy with no purchasing power.
Every CEO can see this coming. The math is obvious. Fire workers. Lose customers. Lose revenue. Collapse.
But here's the trap. No company can afford to stop. If you don't automate. Your competitor will. They cut costs. Undercut your prices. Steal your market share. And you die anyway.
So every company automates. Knowing it's collectively suicidal. Because the alternative is dying alone while everyone else survives.
It's the Prisoner's Dilemma. And the researchers proved it mathematically.
The numbers are already stacking up. Block cut nearly half its 10,000 employees this year. CEO Jack Dorsey said AI made those roles unnecessary and that "within the next year, the majority of companies will reach the same conclusion." Salesforce replaced 4,000 customer support agents with AI. Goldman Sachs deployed an AI coder that lets one senior engineer do the work of a five-person team.
Over 100,000 tech workers were laid off in 2025 alone. AI was cited as the primary driver in more than half the cases. 80% of US workers hold jobs with tasks susceptible to AI automation.
Here's what should scare policymakers. The researchers tested every proposed solution.
- Universal Basic Income. Doesn't fix it. It raises living standards but doesn't change a single company's incentive to automate.
- Capital income taxes. Don't fix it. They change profit levels but not the per-task decision to replace a human.
- Worker equity and profit sharing. Narrows the gap but can't close it.
- Collective bargaining. Can't fix it. Because automating is a dominant strategy. No voluntary agreement between companies is self-enforcing.
Only one thing works. A Pigouvian Automation Tax. A per-task charge that forces every company to pay for the demand it destroys when it fires a worker.
The researchers call it a "Red Queen effect." Better AI doesn't solve the problem. It makes it worse. Because every company sees a bigger market share gain from automating faster than rivals. But at the end. Everyone automates equally. The gains cancel out. And the only thing left is more destroyed demand.
The paper's conclusion is devastating.
This isn't a transfer from workers to company owners. Both sides lose. Workers lose their income. Companies lose their customers. It's a deadweight loss that harms everyone.
And no market force can break the cycle.
The AI Layoff Trap isn't a prediction. It's already happening. And the math says it won't stop on its own.
Great article. Thanks.
Charles Lutwidge Dodgson (1832-1898), better known by his pseudonym Lewis Carroll, was not only an author but a keen observer of human nature. His most famous works are Alice’s Adventures in Wonderland and its sequel Through the Looking Glass, which have become timeless classics.
Bees have to move very fast to stay still.In Through the Looking Glass, Alice, a young girl, gets schooled by the Red Queen in an important life lesson that many of us fail to heed. Alice finds herself running faster and faster but staying in the same place.
David Foster Wallace
Alice never could quite make out, in thinking it over afterwards, how it was that they began: all she remembers is, that they were running hand in hand, and the Queen went so fast that it was all she could do to keep up with her: and still the Queen kept crying ‘Faster! Faster!’ but Alice felt she could not go faster, though she had not breath left to say so.Eventually, the Queen stops running and props Alice up against a tree, telling her to rest.The most curious part of the thing was, that the trees and the other things round them never changed their places at all: however fast they went, they never seemed to pass anything. ‘I wonder if all the things move along with us?’ thought poor puzzled Alice. And the Queen seemed to guess her thoughts, for she cried, ‘Faster! Don’t try to talk!’
Alice looked round her in great surprise. ‘Why, I do believe we’ve been under this tree the whole time! Everything’s just as it was!’Carroll was very prescient.‘Of course it is,’ said the Queen, ‘what would you have it?’
‘Well, in our country,’ said Alice, still panting a little, ‘you’d generally get to somewhere else — if you ran very fast for a long time, as we’ve been doing.’
‘A slow sort of country!’ said the Queen. ‘Now, here, you see, it takes all the running you can do, to keep in the same place.
If you want to get somewhere else, you must run at least twice as fast as that!’
The great thing about a free market is that it corrects itself. That does not necessarily occur overnight.
We could all be in a figurative economic smoldering crater by the time it gets figured out.
I’m sure I wasn’t the first to analyze the problem as resulting in a really small group of ultra wealthy elite people who get the advantages and wealth from the “tool” of AI, while tens of millions lose their jobs and thus are separate to get housing, food, clothing and electricity. And the end of the jobs arriving much faster than the government money ready to go to the people in socialism.
This would explain why they’re trying to kill us off. Georgia guide stones, Covid and all that kind of stuff.
I can just imagine how difficult that would be to account for. It would keep my CPAbots busy until October the following year.
Now, how does that handle new companies which use AI without having to fire anyone, much like new companies which enter the market without feather bedding union contracts? How about foreign companies that don't care about us or our market theories?
AI is the whipping boy for bringing in foreign tech workers. I don’t know one person who has lost their job to AI. I know a LOT of people that have lost their tech job, in America, to an Indian. This is all a very big PSYOP. We are all being played big time.
They proved the future ?
Bkmk
“We are all being played big time.”
I did a little bit of software development in my career and managed some projects. I’ve been using Anthropic’s Claude to develop a couple of personal apps, one for enhanced nutrition and the other for improved physiology analysis of my hikes. I essentially act as the Project Manager and turn Claude loose for planning, analysis, coding, code maintenance, debugging, refinement, regression testing, and documentation. I’ve gotten more done than if I had a team of five junior programmers working for me. It is truly astonishing.
“Being played.” Hardly.
With the censorship that has been applied to the web how can artificial be intelligent? I was always in the trades and now just do boat repair (on my schedule) in my last 2-3 decades left on Gods green earth.....Anyway, they will usher in this s __t in order to implement a monthly stipend from the government for the masses and try to control every aspect of an ARTIFICIAL economy. Ever try SOMA?
Most companies are using AI as the excuse to lay off\fire employees but fact is they are getting rid of staff for the shareholders earnings..... Just greed more than anything.
I have been a DBA for 40 years. I will admit it is helpful. But I have not had one occasion where it wrote some code that I can use “out of the box”.
Read the paper.
They found ways to survive.
If the high tech workers are so smart, they will also find ways to survive, start businesses, etc.
Read an interesting article that basically said when the smoke clears Apple is going to be the big winner, because they are focusing on how to embed the AI technology in private devices, instead of focusing on LLM Models that take up all of those data centers.
Of all people, Rick Beato had a very interesting take on AI, and how it will parallel what happened in the music industry.
How AI Will Fail Like The Music Industry
https://www.youtube.com/watch?v=YTLnnoZPALI
Well, if 20% of the people do 80% of the work, those laid off will not be missed much.
In my life I have rubbed some people the wrong way. They did not like that I came to work each day with a positive attitude, and worked really hard. Whenever it did not effect my own productivity, I said yes to coworkers and supervisors who needed my assistance. When someone called in sick, I often offered to assist.
The one time I responded to someone was when they asked how I could be happy early on a Monday morning at work. I simply stated that it is a choice. They did not like that answer, but they understood it.
Change happens. Adapt, or not.
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