If AI leads to widespread unemployment, will consumption collapse as a result?

If consumption crashes, who will use the products created by AI?
If no one uses them, will technological progress come to a halt?
Most importantly, will the US stock market continue to rise?
These questions seem simple on the surface but fundamentally touch on the core of technological and economic development: does economic growth come from the supply side or the demand side?
In the short term, it is almost inevitable that consumption will be impacted.
In modern economies, consumption mainly depends on labor income. If a large number of jobs are replaced by AI, total wages will decline, leading to decreased purchasing power, pressure on corporate revenues, and further cost-cutting, creating a negative feedback loop.
This phenomenon has occurred during the early stages of the Industrial Revolution and the era of manufacturing automation. Technological progress can indeed coincide with weak consumer demand, causing significant imbalances in economic structure.
However, this state will not last indefinitely because AI is changing not only the employment structure but also the very production function itself.
Technological progress has never simply eliminated demand; it eliminates old demand while creating new demand.
Automation in agriculture eliminated many farming jobs but created manufacturing and service industries.
Deeper changes involve the shifting sources of demand.
In the past, demand mainly came from labor income;
In the future, demand may increasingly come from capital income.
As AI takes on more and more production tasks, a portion of total economic income shifts from wages to capital returns. Demand does not disappear but gradually shifts from being “driven by worker consumption” to “driven by capital gains.”
The proportion of capital income has been steadily increasing over the past few decades, and AI is merely accelerating this process.
An counterintuitive key point is that even if the number of income earners decreases, total demand could still increase (each industrial revolution tends to increase the Gini coefficient, but GDP still grows significantly).
If AI boosts production efficiency by several times, the total wealth created by a small number of people could surpass that created by the majority in the past.
The exponential increase in production efficiency means economic growth will no longer depend on employment levels but on overall productive capacity.
Furthermore, future demand may not be entirely human-driven. AI systems themselves will become part of demand.
AI requires computing power, electricity, storage, networks, and data center resources. These demands form a new economic cycle. Some economic activities will no longer be “human consumption of products” but “smart systems consuming resources,” creating a new demand foundation. This allows economic growth to continue even as employment declines.
In the long run, the size of the economy is determined not by employment numbers but by productivity levels. As long as the productivity gains from AI outweigh the impact of declining employment, total output will still grow.
The economy will not stop expanding because of reduced employment but will enter a new structure: fewer people involved in production but generating more total output.
Therefore, the most likely future path is not demand disappearance or simple continuous prosperity but a phased process.
In the short term, unemployment will increase, consumption structures will become unbalanced, and the economy may experience turbulence;
In the medium term, a new demand structure will gradually form, with AI becoming the main production tool;
In the long term, productivity will increase significantly, total demand will continue to grow, but the sources of income and distribution methods will undergo fundamental changes.
The economy will not stop growing because of AI. What truly changes is not demand itself but who owns the demand.
It’s not that the economy stops expanding but that the foundation driving the economy shifts from human labor to intelligence and capital.
The real risk lies in income distribution imbalance during this process.
If production capacity increases while income remains highly concentrated, social stability could be threatened.
And this time, the impact could surpass any country’s capacity to withstand.
Finally, regarding the US stock market, I’ll keep you in suspense—you can ask ai😂.