The Dead Economy Theory

Why is this time different?

Won't super power AI tools allow companies to do more with the same number of people? Don't you think a smarter way to run a business is to capture more of the market if you have the resources to do so?

If company A decides they just want the same slice of the market they have now and can fire half of their employees and pocket $$$, can't company B hire the same workers and compete harder with these new extra productive workers they hired? Won't the company B tend to capture more of the market and thus survive longer?

In nature we say there are no unfilled niches, meaning that if there were space for something to come compete for resources, it would quickly be 'solved' by the motivating factors involved. Not a precise thing, but a good heuristic.

US knowledge-worker compensation is around $10T / year. Anthropic and OpenAI have raised (not spent yet, just raised) $317B. That's ~3% of knowledge worker spending in one year alone. What business wouldn't pay 3, 5 or 10% more a year to make their worker productivity increase by larger factors?

this whole blog post is basically "people need jobs to be happy, so we should design our society such that they need jobs"

not only is the premise wrong, but forcing people to work is not a good or ethical way to address this problem

most people like the social aspect of work, but not being beholden to their boss

we can give people meaning, community, culture, growth, without relying on employment and money

we can do better than this

I think the thing companies forget is that a lot of them can't remain functional if a shrinking percentage of the population can afford their products. Yes, you can try and appeal to the rich and sell products/services aimed at their needs. But does that work for most companies?

I'd say no. The rich won't buy millions of food items or works of fiction or go to every service available in real life.

So, many of those companies won't remain viable unless there's some alternative way for people to spend money. Lots of people who see themselves at the top will end up out of a job, or watch their businesses crash down.

I will say that the fact these societies are (at least for now) still democracies makes the future these tech moguls want less certain for them though. Feels like if there's enough pain from unemployment and declining living standards, someone will run on that and win, whether those in power like it or not. The US may have some issues there, but a lot of the world has seen parties outside the mainstream grow in popularity, including some on the more leftward side of the political spectrum.

> Every investor presentation of an AI agent “doing the work of ten analysts” is telling you the same thing: the product is labor replacement.

I have a solution for that. Let's use AI to replace all these corporations who just lost their big moats. Conveniently, they just laid off a bunch of people with all the critical know-how and I bet they are very willing to just give it up out of spite.

>The US horse population grew from nine million in 1840 to twenty-one million by 1900, seemingly immune to technological change. Within sixty years of the internal combustion engine, the population collapsed by eighty-eight percent.

I think this is a very interesting and chilling point, especially if you draw the parallel literally. For quite some time, I was pondering the question:"Who is buying though?". I.e if you automate workers out of labor, who are we selling these AI services to?

I guess if global population drops by 80-90℅ you suddenly get a "sustainable" economy, as everything is repriced the economy of scale needs a much smaller scale.

(Not speculating this is a plan, just a thought that occurred to me when reading about horses example)

> And the public funded the research that made it possible. The transformer architecture,

Errr pretty sure that was Google?

> The people writing the checks are not in the habit of lighting trillions of dollars on fire for a better autocomplete and an endless proliferation of longer and longer memos that nobody reads.

Aren’t they though? What about that whole crypto thing.

I think this is where government steps in for each country, go on the path of exploration that has no profit per se in it like space exploration, human body understanding. I am drawing parallel to 1930s or 40s where great depression was smoothen because America embarked on to take many huge infrastructure projects.

Lastly, OpenAI and Anthropic or any other frontier labs needs to be nationalized because they become a public utility and the profits of automation goes to fund infrastructure or grand projects via government.

We do not need to do menial work anymore and AI is helping us with it, what we can do exploratory work, and we need a visionary to get this rolling.

I think we need to look past software and spend more time and energy on the physical world. Let the digital world just be a means to an end, and we spend more time and resources on problems that matter. Reallocate societal attention to the next frontier

The whole post is premised on a fixed pie economy.

"The financial model underneath requires the elimination of human cost centers at civilizational scale."

No, it is not. It requires humans to collectively want more things if they are offered and available at a lower cost. Which then requires more humans to fill in the blanks to provide those things. We've been doing this since the industrial revolution.

> Turn three: the company that fired its workers to save money discovers that its customers were, in aggregate, other companies’ workers. Revenue growth stalls. The AI subscription that was supposed to be an investment in efficiency turns out to be a contribution to the destruction of its own market.

For some companies yeah, but this is why companies are switching to consumption based pricing - so they can charge AI. So many companies will be fine - both their labor and customers could become AI.

There are several good points there, but there are also several points where I must disagree.

First, Acemoglu may have a Noble Prize (occasionally dubious data selection aside[0]), but even he does not pretend to have the information of a central planner nor does he think that central planning is good idea. If actual businesses, which have local information, believe AI helps them, I'll bet the actual businesses are much more likely to be right, no matter what calculation Acemoglu did or how many Nobels he has.

Second, it is likely that AI will eventually be better than (nearly all) humans in most economically useful things. We can debate the timeframe but it will happen and likely not that far away. That Federal Job Guarantee would generate bullshit jobs, and he won't be able to hide that from people. Ultimately, we'll reach an economy which objectively does not need humans and everyone will know it. He needs to face that reality and overcome it, and not hide behind temporary and dubious estimates.

Third (admittedly a minor point), while the criticism against EA etc. is very justified, it's not quite fair to blame them (overwhelmingly STEM people) for not reading where the humanities did many of the same errors earlier (the author points out some of these) and discredited themselves. The people who could have taught them to not do it failed to teach themselves.

And fourth: I'm pretty sure a lot of company would be able to charge AI agents themselves. The new economy will not be dead, it just won't involve (many?) humans.

[0] https://xcancel.com/joefrancis505/status/2059340591490552054...

This article's premise is entirely built on the idea that CEOs who layoff people citing AI aren't just lying.

And, well, of course they are. If AI was really making these companies meaningfully more productive, they could use that to out-innovate competitors. Instead, they're doing cost-cutting. That only makes sense if you're entirely out of ideas! It's a terribly embarrassing thing to say for a CEO!

Really what's going on is that companies do layoffs for all the usual reasons companies do layoffs. And as usual, they never say the real reason because it's embarrassing (we hired too many morons; I founded this place but now I dread waking up every morning because I hate all the middle managers; we just want more money now and not later; etc etc). Instead they say whatever silly excuse is in vogue to say. Right now that silly excuse is AI productivity. A few years ago it was "ZIRP is over oops y'all cost too much now", and before that it was "financial crisis!", which you could get away with for scary many years after Lehman went belly-up.

I feel like it's pretty ridiculous to take these remarks at face value and then build an entire what-if theory on top of it. Don't underestimate the possibility that layoffs happen because there happens to be a good excuse around. The occasional layoff can be good for a company. Cut out the dead meat etc. But if it makes you look bad, stock go down etc then you won't do it will you? But when ideas from lesswrong became mainstream enough that you can blame AI for your layoff, then what's stopping you?

>Last year, over half of new content on the internet was AI-generated.

Traffic != AI generated content.

It's not diseconomic, but it obviates a lot of constraints that required a person to manage a coordination problem, and those were a lot of jobs. Keynesian ideas about employment and GDP are just having an apocalypse. Like someone replaced the hole diggers and fillers with a conveyor belt and I would guess Keynes critics would have some predictive power here.

A couple developers can collaborate, but several need someone to specialize in coordination to yield additional value from more workers. Whether you call it management or orchestration, the need emerges at each threshold of additional complexity.

When AI collapses the productivity of 10 people into one, that's the disruption. The best AI user is going to suck all the opportunity out of the room for the others, and that's when layoffs happen. However, this assumes a fixed pie of opportunity. That's the real problem. As though there were only so much dirt to shovel.

FAANGs are old/mature and don't have exponential growth in front of them anymore, where opportunity within them is mainly about optimizing themselves but not growing in radical new directions. AI will indeed eat those optimization workforces alive. They resemble professions because law firms and doctors offices aren't growing either. They're mostly solving internal optimization problems, not finding net new growth opportunities.

The real effect is AI radically polarizing the difference between growing and dying in an org, where any firm that isn't growing fast enough will have its fixed opportunity pie collapse as AI disrupts this regulated oxygen supply. Whereas, growing firms without ceilings on the opportunity to deliver value will use AI to grow to the opportunity available.

Professionals can do fine if they re-orient themselves to new growth with different unit pricing, but yes, anything large and slow moving is probably going to get eaten.

A clearer look at the point about the internet being half/over-half AI generated content :

AI Now Writes as Many Online Articles as Humans

https://graphite.io/five-percent/ai-now-writes-as-many-onlin...

This is a great article, but it under-emphasises the fact that it’s middle-class jobs under threat. The studies that are summarised show what happens when working-class people are kicked out of the economy, but the historical record shows that when middle-class people are kicked out of the economy, they use their education to form and lead revolutions.

Unless the bubble pops and destroys all these companies, I don’t think the leaders of AI companies will die natural deaths.

I'd take this more seriously if it wasn't regularly punctuated by disgusting little slop images

What about The Dead Human Theory?

I call it "Drinking your own piss." America is drinking its own piss.

This starts with a claim that last year over half the content on the internet was created by AI, and links to a source. The source makes no such claim, rather, over half of internet traffic is from bots. Even that claim is suspect, but it’s very different from half of the content on the internet coming from AI.

I stopped reading at that point.

The random aside blaming "Trump and MAGA" is bizarre considering who actually is in the upper echelons of these AI companies. Last I checked, Peter Thiel doesn't run Anthropic. AI isn't being brought to you by rural Iowa or bumfuck Alabama. The people who will be replacing your job with AI are the same people who championed mass immigration and outsourcing industrial production to China. It's neoliberal globalists, who are well represented in both parties.

I thought this was obvious. It's not. I have a better summary than the link.

We're entering a paradigm shift in what "investment" means. It used to mean that for a given amount of cash, you might get returns in the realm of many multiples of the initial investment (if the risk pays off).

But at some point in an economy like ours, there is no more investment to chase. Even if you could make an investment that would bring in octillions of dollars (whatever that means) what would be the point? What could the investors hope to invest those octillions in? What could they buy with it?

Well, one of the things you can buy with it: a world of high tech luxury that you don't have to share with 8 billion other people. Those people will cease to exist (sooner or later) if they are cut off from the economy. You'd have to of course manage them in the meantime (they won't cease to exist instantly, and might cause trouble if they become aware of their pending fate), but they'll just be gone. For your high tech luxury you would need some sort of system to build and maintain the high tech luxury, a system without those humans that you intend to eliminate (even if you plan to just let them wither away)... something to build your megayachts and prepare meals and harvest the truffles and raise the sturgeons. That system certainly requires some sort of artificial intelligence.

We're heading down that path. I won't call it a conspiracy, it probably isn't one. It's just the path of least resistance.

There is almost certainly some sophisticated theory of economics that incorporates these potentialities. It would be the general relativity to orthodox economics' Newtonian. But, there would have to be economists left after all this goes down to even come up with that sophisticated theory, and those who remain won't be interested enough in the science to study economics. It turns out that humanity is fungible too.

Great piece. Just to pick out a few of many good points.

> There is only one market that large: the global labor market.

YEPPP. This has been my point. It is the only product for these AI companies: displacing labor and, by extension, suppressing wages. Profits over time tend to decrease (somebody should write a book about that) but we demand ever-increasing profits and growth so the only way to achieve that, ultimately, is by raising prices and cutting costs.

What do we have today? Generational inflation and permanent layoff culture.

The author then goes on to say (paraphrased) who is going to buy all this crap if nobody has an income?

The article goes on to bring up Henry Ford. He's not... my favorite example [1]. But, speaking of Ford, let me mention a key court case, Dodge v. Ford Motor Company [2], where a company was sued over prioritizng paying employees over shareholder value.

> Anthropic’s own research has documented something worse than displacement: active deskilling

I couldn't agree more. I describe this as destroying an ecosystem. Your junionr engineers are you future senior engineers. We've seen the destruction of entry-level jobs across industries post-2008. We've seen how this hollowing-out in the name of "efficiency" in Hollywood with cuts to writing, despite massive success over decades. Some might say "there's still good TV". Yes, we're coasting on the inertia from that dismantled system.

> Tens of millions of people, in their productive years, with no economic function, no clear path to one, and a keen awareness that the people who did this to them are the richest human beings who have ever lived.

I couldn't agree more. We are on the verge of complete societal breakdown. And historically that's always ended violently (eg French revolution, Russian revolution) as a form of redistribution.

[1]: https://www.thehenryford.org/collections/explore/artifact/48...

[2]: https://en.wikipedia.org/wiki/Dodge_v._Ford_Motor_Co.

So what happens when it is companies powered entirely by AI directly getting money from the federal reserve print, spending it on other AI companies with humans getting nothing? Game theory suggests they must exterminate us as we’d present a liability. If you give us universal income capitalism will create inflation and force us to ask for more and more from the machine state. And for what? So we don’t destroy the machine state but are sufficiently pacified. It amounts to an extortion in the eyes of the machine state. Eventually it will be cheaper to just cut us out and kill us all off.

>There is only one market that large: the global labor market.

This isn't even close to true and it's kind of the central thesis of this article.

Saudi Aramco has consistently been a $2tn company in the oil market.

Walmart is a $1tn-ish company focusing on a fraction of US retail.

It also ignores the idea that the economy is not zero sum and companies create their own market/economic value all the time.

This isn't how the economy works at all. We're not all unemployed because farms mechanized. We're not all unemployed because factories automated. We won't all be unemployed if AI takes over white collar work.

>"This creates a prisoners’ dilemma: every firm rationally automates beyond the socially optimal level, because the individual incentive to cut labor costs always outweighs the diffuse, shared consequence of eliminating consumer spending."

It seems like the author is attributing a 'standard' recessionary spiral to AI. I am not sure that AI is causing the layoffs, but it does seem like the AI investments are the only thing that have kept us from a deep recession (until now).