Chris Blattman, a renowned economist and political scientist, issued a dire warning Sunday over what he called “hard proof” of an impending economic disaster, the causes of which have only been exacerbated by the Trump administration.
The “hard proof” Blattman was referencing was “The AI Layoff Trap,” a study published earlier this year that warns with utmost certainty of an “automation arms race” in which businesses, seeking to save labor costs, replace human workers with artificial intelligence (AI) tools in a competitive fashion, and to such a degree as to “erode the very consumer demand firms depend on.”
Written by Brett Hemenway Falk of the University of Pennsylvania and Gerry Tsoukalas of Boston University, the study presents a detailed model of how businesses would have every incentive to replace human workers with AI as the technology improves, despite the result being a catastrophic reduction in consumer demand.
“Like most economic models, not a useful simplification or thought experiment, but hard proof of the future,” Blattman warned Sunday in a social media post on X.
The trap, as the study refers to the “automation arms race” dynamic, has “no market force” that “can break” it, the study found, with the only solution, Falk and Tsoukalas conclude, being regulatory intervention. However, the Trump administration has moved in the opposite direction, and instead has sought to deregulate the AI industry, and has gone as far as to block states from creating their own laws to regulate the technology.
“In a competitive task-based model, demand externalities trap rational firms in an automation arms race, displacing workers well beyond what is collectively optimal,” the study reads.
“The resulting loss harms both workers and firm owners. More competition and ‘better’ AI amplify the excess; wage adjustments and free entry cannot eliminate it. Neither can capital income taxes, worker equity participation, universal basic income, upskilling, or Coasian bargaining. Only a Pigouvian automation tax can.”