Enlightenment before Death-E9MBD
paper titled "The AI Layoff Trap" explores how competitive firms may inadvertently destroy their own consumer base by over-automating through artificial intelligence. While replacing humans with AI reduces internal costs, it also triggers a demand externality because displaced workers lose the purchasing power that fuels industry revenue. Individual firms are trapped in an automation arms race because they capture the full benefit of cost-cutting while bearing only a small fraction of the collective drop in market demand. This Prisoner’s Dilemma results in a deadweight loss that diminishes profits for owners and income for workers, regardless of how productive the technology becomes. The authors demonstrate that traditional remedies like universal basic income or upskilling fail to alter the core strategic incentive to displace labor. Ultimately, the study concludes that only a Pigouvian automation tax can align private firm behavior with the broader economic health of the market.
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