20 May 2026 · LinkedIn
The ouroboros is an old symbol - a serpent consuming its own tail, the figure of a system that destroys itself through the very act of sustaining itself. It is also, increasingly, the most accurate image we have for late-stage market capitalism under AI.
The mechanism is simple enough to state. A firm replaces workers with automation. Its costs fall. Its margins improve. The workers it displaces are also, somewhere in the aggregate, the customers whose spending sustains demand for what the firm sells. Repeat across enough firms and enough sectors, and the market begins to consume the consumer base it depends on.
The intuition is not new. What is new is the formal proof.
A paper circulated in March by Brett Hemenway Falk at Penn and Gerry Tsoukalas at Boston University builds a competitive task-based model in which firms understand exactly this dynamic. They know that automating their workforce erodes aggregate demand. They are rational. They are not short-sighted.
It does not matter. The structure of competition forces them to automate anyway.
Each firm captures the full saving from its own layoffs and pays only 1/N of the demand destruction those layoffs cause across the economy, where N is the number of competitors in the market. The incentive to over-automate is not a failure of foresight or ethics. It is an externality, mathematically baked into the market itself, and it intensifies as competition increases and the technology improves.
When Jack Dorsey cut nearly half of Block's workforce in February and told staff that within a year most companies would reach the same conclusion, he was not making a prediction. He was describing the equilibrium.
Capital income taxes do not solve it. Worker equity participation does not solve it. Universal basic income raises the floor on consumption but leaves the automation incentive entirely intact. Upskilling narrows the gap. Coasian bargaining cannot eliminate it. Only a Pigouvian tax on automation, calibrated against the demand loss per displaced task, makes the private calculation match the social one.
It is an elegant result, and it almost certainly understates the problem.
The model holds output structurally human-centred: workers and consumers are the same people, resolve the externality and the system stabilises. Pascual Restrepo's recent work on the AGI economy points to a deeper revaluation in which labour's share of output converges to zero regardless of how the demand externality is handled. The Pigouvian tax assumes there is still a feedback loop between worker incomes and aggregate demand worth preserving. That assumption is precisely what is in question.
The serpent does not stop on its own. Neither, it turns out, does it stop where the model assumes it does.
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