The model outlines a dangerous feedback loop. Individual companies that replace workers with AI reduce labour costs and gain short-term efficiency. But when this strategy is repeated across an entire economy, displaced workers lose wages and cut spending. Since workers are also customers, aggregate demand begins to shrink.

As consumer spending falls, firms respond rationally by cutting costs even further — usually through more automation. The cycle then accelerates: layoffs reduce demand, falling demand encourages more layoffs, and the process becomes self-reinforcing.

In effect, every firm behaves logically in isolation while collectively driving the economy toward systemic failure.