I agree with you from a mathematical point of view. You have this "dead economy theory"[0]. I spent a lot of time trying to model this theory, enhance the theory (lot of good HN comments) and find a "middle ground" path. My saying is that you end-up on an optimization saddle point where it is really hard to not fall into concentration of power. I was able to get radical abundance only at the cost of pretty hard regulations.
I agree there are some extremely bad outcomes from fast labor replacement.
I don’t think it’s inevitable that the economy collapses though. The problem is that this model assumes that capital needs labor, but soon it may not.
The easiest model is - assume we get robot laborers in the next few years. The AI firms that are displacing humans still need services, most of these will be purchased from other AI/robot firms, and so while prices will swing around dramatically, there is no reason the engine has to stop. (Depending on what the AIs want; you can assume that more compute and robots will be part of it.)
I do agree that unbridled capitalism is mostly incompatible with human flourishing in this world and in any event you’ll see a lot more regulation; made feasible by how good AIs are at navigating huge Byzantine rulebooks. I view the techno-feudalist capitalist endgame as fairly unstable due to consolidation pressures, though I guess once we have nuclear-armed megacorps they might use MAD to prevent further mergers.
[0]: https://news.ycombinator.com/item?id=48324712