The demand didn’t die.
It moved inside.

The paper is called “The AI Layoff Trap,” from professors at UPenn and Boston University, and it is worth your time. But the most important thing about it is not in the model. It is in the question the model cannot answer: why do the people with the most to lose keep pushing anyway?

The trap is real — read it anyway

The mechanics: when a company replaces workers with AI, it pockets the entire cost saving, but the fired workers’ lost spending power spreads across the whole market — the company bears only a fraction of the demand it destroyed. Every firm reasons the same way, so everyone automates, and total demand sinks under everyone. The professors’ conclusion: retraining, UBI, profit-sharing — none of it fixes the core failure; only a tax on automation does.

I have no quarrel with the model. My quarrel is with the assumption underneath it: that the demand being destroyed was the demand of the future.

They knew on day one

Do we honestly think Beijing’s planners haven’t run this math? China is the most manufacturing-dependent large economy on Earth, with the most workers exposed to automation — and it is pushing AI and robotics harder than anyone, into its own factories, at state speed. If the layoff trap were the whole story, this would be suicide.

It is not suicide. It is sequencing. You push machines into the material economy precisely when the material economy has stopped being where growth lives — and you free your people for the economy that comes next.

My father’s concept

My father once shared a concept with me that I keep coming back to. Put aside the super high tech — semiconductors, aerospace, quantum. Below that line, there is no product China cannot manufacture. Supply overtook demand long ago — long before AI arrived. The factories were already outrunning the shelves.

Look at the demand side honestly. We are filled with material things. The new generation’s problem is not scarcity — it is too much to choose from. If there is no war, food and energy supply are not the question anymore. The external economy — the economy of things — is full. AI did not create that saturation. It arrived after it.

So when the paper says AI layoffs destroy demand, my question is: demand for what? For the tenth phone case, the fifth air fryer, the next fast-fashion haul? That demand was already dying of abundance — the price war at the bottom of the material shelf is the same story told from the labour side.

The regulators have reached the same conclusion. The EU now bans the destruction of unsold clothing — since July this year, incinerating or landfilling excess stock is illegal for large companies — and its new producer-responsibility rules make fast-fashion models like Shein pay more precisely because they churn the most. France went further, taking direct aim at ultra-fast fashion with advertising restrictions and per-item penalties. Read those laws as an economic signal, not just a green one: when a civilisation starts legislating against making too many things, the material economy is no longer the future. It is the excess being managed.

The dance troupe that answered the paper

Now look at where demand is actually going, because China is showing us in real time.

A modern dance company called 公狗剧场 — an all-male troupe founded in 2019 by Ge Junyi, a former principal dancer from Yang Liping’s company — became one of the most talked-about performance IPs in China. The numbers, not the controversy: roughly 600 shows in 2025 at over 98% occupancy, more than ¥100 million in annual box office, a 35% repeat-purchase rate, 18.6 billion short-video views — and 1,300 shows planned for 2026. Its audience, overwhelmingly young women, is not buying a product. It is buying a feeling.

Zoom out and the troupe is a data point in something much larger. China’s “emotion economy” — wellness, companionship, immersive experience, collectibles, psychological services — hit ¥2.3 trillion in 2024 and is forecast to pass ¥4.5 trillion by 2029, growing about five times faster than total retail. Nine in ten Chinese consumers report living under stress; more than eighty percent say consumption relieves it. Multinationals and Chinese giants alike are moving money into cultural products — because that is where the spending curve is bending.

Why the internal market has no ceiling

Pop Mart’s founder Wang Ning has a theory that explains this better than any economist I have read.

Leave a tap running and it costs you perhaps thirty yuan a day. Even a wealthy man is irritated by it — because tap water is useful, and the moment something is useful the brain starts calculating. Thirty yuan of water nobody drank? Too much.

Now the decorative fountain at the entrance of that same man’s condominium runs all day and costs three hundred. Nobody objects. The fountain is useless — it produces no water anyone needs. It produces a feeling, and feelings do not get itemised.

His conclusion is now the operating principle of a company selling collectible figures: emotional value is often worth more than functional value.

So Pop Mart deliberately removes function. Could a Labubu be built as a USB drive? Technically, easily — and they refuse. Because the moment it stores files you begin doing arithmetic: I already own a USB drive; a few tens of yuan is acceptable; a few hundred is robbery. Strip the function away, leave only aesthetics and emotional resonance, and the ceiling disappears. As Wang Ning puts it, the useless is what lasts — the moment a product acquires a function, it also acquires a lifecycle and a decay curve.

That is the mechanism underneath everything above. Functional goods invite comparison and cap their own price. Emotional goods do not. It is why the material economy saturates while the internal one does not — and, uncomfortably, why the same psychology powers speculation: fundamentals are the tap, narrative is the fountain, and once the fountain is lit nobody checks the valuation.

From external to internal

Here is how I read all of it together, and it is the real thesis of this piece.

Humanity is moving from external development to internal development. For two centuries, growth meant satisfying material needs — more goods, cheaper, faster. That project, in the manufacturing sense, is approaching completion; the machines can carry it from here. What is not saturated — what may be bottomless — is the internal market: mental health, self-esteem, identity, meaning, the feeling of being alive at a live show on a Tuesday night.

That is why the planners push through. The layoff trap is a real hazard within the material economy. But the bet — and I believe it is a conscious bet — is that human demand does not disappear when machines take the assembly line. It climbs. The wellness industry is not a niche. It is the beginning of the next economy. It is the same fork I wrote about before: what freed capacity becomes depends on what we choose to build with it.

To be fair about the transition

None of this makes the paper wrong, and none of it makes the transition painless. A laid-off assembler does not become a dancer, a therapist, or an experience designer by Friday. The dangerous years are the gap — demand destroyed at machine speed, the internal economy hiring at human speed. That gap is exactly where the professors’ automation tax, or something like it, may earn its keep.

And an emotion economy will have its own excesses: hype, 擦边 controversy, bubbles in feelings just like bubbles in goods. Internal demand is real; not every business built on it will be. The direction, though, I don’t think is in doubt. It is the oldest chart in psychology, playing out at economy scale: once survival and comfort are secured, humans climb.

The bottom line

For business owners, especially in Malaysia: stop fighting for the saturated material shelf — that war now belongs to machines and giants.

Audit your own product instead: how much of what customers pay you for is function, and how much is feeling — trust, identity, care, experience? The function share is automating. The feeling share is the growth market. Build there.