d-AI-lemma (Part 1) | Matt Lane

Photo by Emilipothèse on UnsplashContentsIntroduction<br>Putting the AI in Anxiety<br>Imprisoned by Automation<br>Real Life Isn't Binary<br>The Invisible Robotic Hand<br>Prison Break?<br>Appendix

They say that misery loves company. As a mostly non-miserable person, I can't corroborate this claim. But I am an anxious person. And increasingly, it feels like anxiety loves company too.

Maybe "loves" is too strong a word. But anxiety is surrounded by company, whether it likes it or not doesn't have quite the same ring to it.

If you're an American feeling anxious in 2026, you're not alone. Self-reporting on anxiety is increasing. Among all causes of anxiety, economic fears are at the forefront. According to the American Psychiatric Association, nearly 60% of Americans entered the year carrying some amount of anxiety related to their personal finances.

Against this backdrop, the stock market (unpopular wars notwithstanding) continues to perform well. The S&P 500, for example, is the highest it's ever been. The economy itself appears strong, but Americans are struggling financially more than ever. What gives?

Putting the AI in Anxiety

One chart making the rounds tells a compelling tale. Take a look at the diagram below. It charts the S&P 500 (blue) every month since 2001. It also charts the number of job openings (red) over the same time period. For a long time, these two economic indicators moved roughly in the same direction. But for the past three years, since conversational AI tools like ChatGPT launched, these two lines have become completely untethered from one another.

S&P 500Job Openings (thousands)9/112008 crisisCOVID-19ChatGPT

S&P 500 and US job openings per month over time. Note the divergence around the time when ChatGPT launched.

As you can see, while the stock market is going like gangbusters, the job market is going like, well, whatever the opposite of gangbusters is. (Lonermakers?)

From this lens, it's no wonder people are feeling more anxiety. It's increasingly difficult to believe we're not barrelling towards a Hunger Games-style dystopia. Anecdotally, this dichotomy feels very pronounced in my hometown of San Francisco. Billboards advertising AI jargon fill the skyline while tech companies shed employees like dry skin. Nationwide, well over 150,000 tech workers have been laid off since the start of 2026.

Economic anxiety isn't just being carried by individuals. Oftentimes it seems like companies themselves are reacting from a place of anxiety. (Perhaps this shouldn't be surprising; after all, as we all learned from Mitt Romney, corporations are people too.) The drive for AI automation stems from a desire for efficiency, sure, but it also happens because of FOMO. There is a common fear that companies who do not deploy these technologies quickly enough will be left behind by companies that do.

However, this race for efficiency doesn't happen in a vacuum. If I use AI to totally automate my widget factory, and lay off all of my employees, those employees are hindered in their ability to actively participate in the economy. If too many other companies follow suit, then where will the demand for all of our widgets come from? A collective of the unemployed and over-anxious? This seems unlikely.

Imprisoned by Automation

Researchers Brett Hemenway Falk and Gerry Tsoukalas have explored some of these ideas in a more rigorous way in their paper The AI Layoff Trap. Here we'll unpack some of what they've demonstrated there. In this story I'll focus on sketching out the model they developed; in the next one, we'll look at potential ways to remediate what often feels like a tokenmaxxed race to the bottom.

To make this concrete, let's consider the case of two companies who are in competition with each other. Both are considering AI adoption to cut costs via automation. Suppose the true savings either company can achieve with such an adoption is somewhere between a pessimistic 0% and an optimistic 100%.

At the same time, automation is likely to result in layoffs, which will impact the ability of consumers to spend money on a firm's products and services. Let's suppose here, too, that the losses to the companies resulting from AI-induced layoffs fall somewhere between 0% and 100%.

For better or for worse, if the gains from automation outweigh the hit from consumer demand, both companies are incentivized to pursue automation. However, something interesting happens if the demand loss exceeds the automation savings. You can explore it for yourself:

Automation savings: 50%

Consumer spending loss: 40%

Firm B: AutomateFirm B: Don'tFirm A: Automate<br>+10.0%,+10.0%<br>Where both firms end up

+30.0%,-20.0%

Firm A: Don't<br>-20.0%,+30.0%

0.0%,0.0%

A potential dilemma is exposed when companies are deciding whether or not to automate.

For example, look at what happens if the savings due to automation drops to 40% and the expected consumer spending loss rises to 60%. When firm A is trying to...