CONCEPT
The AI Aggregate Demand Problem
The Keynesian diagnosis of the AI transition — productivity without payroll leaves the demand engine without fuel. The structural challenge that markets cannot solve on their own.
The AI aggregate demand problem is the Keynesian name for the structural challenge at the heart of the transition. For centuries, economic systems have relied on a fundamental loop: labor produces income, income generates demand, demand drives production, production employs labor. AI puts terminal pressure on this bridge. It allows for productivity without payroll, leaving the demand engine without fuel. Each firm's decision to replace workers with AI tools is rational in isolation. The aggregate result — an economy with dramatically higher output and dramatically lower employment income — is irrational from every firm's perspective, including the firms that made the cuts, because they depend on consumers whose employment income is disappearing.
In The You On AI Field Guide
The mechanism is classically Keynesian. When workers are displaced, they lose income. When they lose income, they reduce spending. When they reduce spending, the businesses that sell to them lose revenue. When those businesses lose revenue, they reduce their own workforce, which reduces