// HACKER NEWS — CYBERSECURITY
Marx, Keynes, and A.I
There’s a recent paper by two economists called “The AI Layoff Trap.” It includes a ton of math I can’t understand, but I get the basic idea. I’ll show you the abstract:
If AI displaces human workers faster than the economy can reabsorb them, it risks eroding the very consumer demand firms depend on. We show that knowing this is not enough for firms to stop it. In a competitive task-based model of a transitioning economy, each firm captures the full cost saving from automation but bears only a fraction of the demand loss it creates in the product market; the rest falls on rivals. This demand externality traps rational firms in an automation arms race, displacing workers well beyond what is collectively optimal. 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, universal basic income, upskilling, or Coasean bargaining. A Pigouvian automation tax can. The results suggest that policy should address not only the aftermath of AI labor displacement but also the competitive incentives that drive it.
The reason I get this is that it’s just Marx’s concept of coercive competition put in the language of conventional economics.
Orthodox economics generally posits that competition is always ultimately rational and virtuous: a given firm may fail, but the process of competition itself creates better social outcomes: cheaper products, more productive methods, better technology, etc. The free operation of the market will produce abundance—no comment on present discourse intended. Marx didn’t think so; he thought competition coerces capitals—firms—to do things that are completely rational from their perspective of staying afloat and accumulating profits, but which undermine the entire environment that capitalism as a whole requires to keep chugging along. The naked pursuit of self-interest does not miraculously produce a positive outcome; instead, it produces crises and contradictions for the capitalist class.
For our purposes here, competition with other firms forces each firm to adopt labor-saving AI technology. For any one firm, this seems perfectly rational: replace workers, lower costs, increase profits, and avoid being left behind by competitors. But when every firm does the same thing, they begin to undercut the economy on which they all depend by eliminating the wage income of the consumers who buy their products.
This is not quite the contradiction Marx envisioned, which involves a much more complicated story about labor, value, and profitability. Here, the problem is closer to the one John Maynard Keynes worried about. Cutting wages can look like a gain from the standpoint of an individual business: its costs go down, and its profits may temporarily rise. But wages are not only a cost to businesses; they are also incomes to workers, and workers spend that income buying things. If all the firms in the economy slash their wages at the same time, total consumer demand falls. That is a possibility here because of the distinctively adaptive and generalized nature of AI technology: it seems like almost any type of firm could benefit from it. Again, what’s rational for each company separately can therefore be disastrous when everyone does it at once.
When I glanced at this paper, I immediately thought of the work of James Crotty, introduced to me by Nina Eichacker. Crotty synthesized Marx and Keynes and made a special study of the conditions of coercive or “fratricidal” competition. Crotty took Marx’s idea of coercive competition and combined it with Keynes’s view of an uncertain, unstable economy. Firms often make enormous investments not because they are confident those investments will pay off, but because they fear what will happen if their competitors make them first. A company may think a new technology is overhyped, too expensive, or even likely to produce excess capaci