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AI-Driven Layoffs: Demand Shock and Automation Tax Debate

15 April 2026 · 121 views · 0 likes · 0 reposts · 149 blog views

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AI-driven layoffs undermine the entire economy by reducing consumer demand.

I've expressed these concerns a couple of times already, and now we see a paper with the results.

I remember @RayDalio in "How the Economic Machine Works" explained that really well. Transactions are the driving force of the economy. If people lose their jobs, they spend less; if they spend less, demand for all firms goes down, and the whole economy slows down.

The problem is that over-automation is inevitable because competition pushes firms into it.

The extreme case is high productivity and zero demand.

The paper also highlights that common solutions such as wage adjustments, universal basic income, capital taxes, etc., won’t work here.

Their solution is a tax on automation (Pigouvian automation tax) but I doubt it will work.

@nntaleb in Antifragility also doesn’t believe in regulation because every time, the winners abuse the system:

arbitrage regulation move jurisdictions reshape rules in their favor etc.

But what's the solution!?

Let the free market cure itself, though it will be painful. Historically, this rebalancing usually saved the system but .... much slower than layoffs happen.

Thoughts?

Paper: arxiv.org/pdf/2603.20617

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A cartoon illustrates global tax strategies, featuring a businessman, a robot, and remote workers near a beach, highlighting profit shifting.

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PS: I'm pretty active on 𝕏 if you'd like to follow along

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