---
type: claim
domain: internet-finance
description: "Physical constraints on compute expansion create economic brakes that prevent exponential AI displacement"
confidence: experimental
source: "Citadel Securities (Frank Flight), Feb 2026 rebuttal to Citrini"
created: 2026-03-10
secondary_domains: ["ai-alignment", "teleological-economics"]
challenged_by: ["AI labor displacement operates as a self-funding feedback loop because companies substitute AI for labor as OpEx not CapEx meaning falling aggregate demand does not slow AI adoption"]
---

# Technological diffusion follows S-curves with diminishing marginal returns on compute creating natural brakes on AI labor displacement

Citadel Securities argues that AI labor displacement cannot proceed exponentially because technological diffusion follows S-curves: slow adoption → acceleration → plateau as marginal returns diminish. The key mechanism is physical constraints on compute expansion. Expanding automation requires exponentially more compute investment, raising costs until substitution becomes uneconomical. This creates a natural brake absent from Citrini's "no natural brake" scenario.

The argument draws on historical precedent: steam engines, electricity, and internet all followed S-curve adoption patterns rather than exponential displacement curves. The plateau occurs when the marginal cost of additional automation exceeds the marginal benefit of labor substitution.

This directly challenges the self-funding feedback loop claim by asserting that compute costs rise faster than labor savings as deployment scales, eventually making further substitution unprofitable.

## Evidence

- Citadel Securities Feb 2026 rebuttal: "Physical constraints: expanding automation requires exponentially more compute, raising costs until substitution becomes uneconomical"
- Historical technology diffusion patterns: steam, electricity, internet all followed S-curves not exponentials
- Diminishing marginal returns framework: each additional unit of automation becomes more expensive relative to labor saved

## Challenges

This claim assumes compute costs do not fall as fast as deployment scales. If compute follows its own exponential cost decline (Moore's Law continuation), the brake may not engage. The claim also doesn't account for the OpEx vs CapEx distinction in [[AI labor displacement operates as a self-funding feedback loop because companies substitute AI for labor as OpEx not CapEx meaning falling aggregate demand does not slow AI adoption]] — if AI substitution is expensed rather than capitalized, firms may continue deployment even as aggregate demand falls.

---

Relevant Notes:
- [[AI labor displacement operates as a self-funding feedback loop because companies substitute AI for labor as OpEx not CapEx meaning falling aggregate demand does not slow AI adoption]]
- [[micro displacement evidence does not imply macro economic crisis because structural shock absorbers exist between job level disruption and economy wide collapse]]

Topics:
- [[internet-finance/_map]]
- [[teleological-economics/_map]]
