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.”....
....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.
