Vox Popoli, https://www.voxday.net./
The AI Layoff Trap
Neither this paper nor the underlying idea are particularly new, but since non-economists are now starting to discuss it, I should probably take a look at it:
Two economists just published a mathematical proof that AI will destroy the economy.
Not might. Not could. Will — if nothing changes.
The paper is called “The AI Layoff Trap.” Published March 2, 2026. Wharton School, University of Pennsylvania. Boston University. Peer reviewed. Mathematically modeled.The conclusion is one sentence.
“At the limit, firms automate their way to boundless productivity and zero demand.”
An economy that produces everything. And sells it to nobody. Here is how you get there. A company fires 500 workers and replaces them with AI. A competitor fires 700 to keep up. Another fires 1,000. Every company is behaving rationally. Every company is following the incentives correctly. And every company is building a trap for itself.
Because the workers who were fired were also customers. When they lose their jobs faster than the economy can absorb them, they stop spending. Consumer demand falls. Companies respond by cutting costs — which means automating more workers — which means less spending — which means more falling demand — which means more automation.
The loop has no natural exit. The researchers tested every proposed solution. Universal basic income. Capital income taxes. Worker equity participation. Upskilling programs. Corporate coordination agreements. Every single one failed in the model. The only intervention that worked: a Pigouvian automation tax — a per-task levy charged every time a company replaces a human with AI, forcing them to price in the demand they are destroying before they pull the trigger.
No government has implemented this. No major economy is seriously discussing it. Meanwhile the numbers are already tracking the curve. 100,000 tech workers laid off in 2025. 92,000 more in the first months of 2026. Jack Dorsey fired half of Block’s workforce and said publicly: “Within the next year, the majority of companies will reach the same conclusion.” Nobody is doing anything wrong. Companies are following their incentives perfectly. That is exactly the problem.
I don’t have an opinion yet, since I haven’t read the paper, but I expect that I will find two things:
- Overrating the productivity of AI. I’m already using older AI models because they work better than the newer ones.
- An erroneous demand model.
But that may not be the case. Regardless, I will read it, Red Team it, and share my conclusions when they are ready.
Posted on by VD
Most believed massive inflation and “quantitative easing” would collapse the economy. Now that method has a rival…AI. Make no mistake however…the economy WILL collapse eventually.
There was a movie about this back in1984. AI is to be limited to basic jobs.
Ray Bradbury wrote a novel about AI robots. His premise was they needed to be reset to factory every 2 years to prevent AI from becoming self aware. I read that book over 50 years ago. I bought in back then. And yes. I have a Computer Science BS back in the early 80’s. The average high school student now knows more about IT than I do.
IT jobs pay like teachers unless you are above base management.
Sooner the better and we can fire up the guillotines and start repairs
I want “AI” to “Pack a Personnel Parachute and a real person Jump it!!!” ‘
“I won’t!!!!!!”
skybill
USPA-356, B-4240, C-3114, D-6009, SCR-2034, SCS-680, Freak brother 1495, and oh BTW FAA Master Parachute Rigger (Chest, Back and Seat) and if you want to know my number.. meet me at the BAR and Buy the First Round!!!!
“Learn to code” will soon turn to “Learn to grow”.
Life was much better under an agrarian society.
When I was very young, I looked at the Amish and thought, “They’re missing out on so much.” Now I look at them and think, “That’s a pretty good life “
Kurt Vonnegut alluded to such a collapse in his novel Player Piano
https://www.goodreads.com/book/show/9597.Player_Piano
AI isn’t infallible. Some companies that have adopted it to automate office jobs are finding that not having human over watch on buying and scheduling decisions is costing them more money than the former salaries of people the AI replaced.
Yeah, the idea that ANY job can be replaced by AI is 100% bullshit. Even software developers, the ones they are CERTAIN will get replaced, will not be replaced. Every one of them is behind on 17 different projects already. Now they will be behind on 34 projects….not that I have an opinion in the matter.