Simulate the Crash
Before It Happens
A plain-English guide to CrashLab's economic model. Understand how money flows, what can go wrong, and why AI makes everything more urgent.
The Economy is a Circle
Think of the economy as a big loop. Money changes hands as a means of facilitating economic relationships and making things happen. Money is a tool for collaboration and creation — as well as a means of exercising power.
Money flows from firms to households as wages, then back to firms as spending. The circle keeps society working and surviving.
Households (That's You)
- You work for companies and earn wages
- You use that money to buy things
- Whatever you don't spend, you save
- If you lose your job, you spend less
Firms (Companies)
- They hire workers to make products
- They pay wages out of their revenue
- Their revenue comes from... you buying things!
- If nobody buys, they cut workers
The Complete Flow
Our model implements a complete circular flow economy with households, firms, government, and banks. Money flows between agents in a closed loop.
What Happens When the Circle Breaks
The circular flow can spiral downward. It starts small, but gets worse and worse.
The demand death spiral: each round of job cuts leads to less spending, which leads to more job cuts, until the economy settles at a high-unemployment equilibrium.
The Demand Death Spiral
How Markets Work
Every step of the simulation, agents interact through markets. Here's how labor and goods markets work:
Labor Market
Goods Market
What Stops the Spiral in Real Life
Neoliberal economics claims that economies can reach equilibrium without intervention—that markets naturally self-correct. But in all observed capitalist societies, equilibrium doesn't hold naturally. Government must intervene to prevent spirals.
In the real world, we have tools that automatically kick in to stop death spirals. They're called "automatic stabilizers."
Unemployment Insurance
When you lose your job, you still get some income. You keep spending (less, but not zero), which keeps money flowing.
Prevents spending from collapsing entirely
Progressive Taxation
When you earn less, you pay less tax. When companies lose money, they pay less tax. More money stays in people's pockets.
Automatic tax cut during hard times
Counter-Cyclical Spending
The government keeps spending even when the economy slows. This creates demand even when private demand falls.
Guaranteed floor on demand
Bank Recapitalization
Government injects capital when banks are struggling, preventing credit crunch spirals.
Keeps credit available
Why AI Makes This Harder
AI creates a new kind of problem: massive productivity gains that may happen faster than our stabilizers can handle; and that will replace human workers and leave them without any means of future employment.
The AI Displacement Scenario
Why AI is Different From Past Automation
- •Universal Capability: When AI can do anything a human can do with a screen and keyboard, new firms will be staffed by AI, not humans.
- •Management Too: Even managers and CEOs are replaceable. Entire companies will be run by AI (with human owners).
- •Physical Work: Physical labor remains but is also being automated. And with knowledge workers laid off, demand for physical goods crashes.
- •The Uncertainty: We're not sure how fast this transition may be. But we ARE sure AI will eventually make knowledge workers fully replaceable.
How Our Simulation Works
CrashLab simulates an economy with individual "agents" making their own decisions. Big patterns emerge from millions of small interactions.
A Month in the Simulated Economy
Morning: Production
Firms decide how much to produce based on what they expect to sell. They make products and add them to inventory.
Midday: Labor Market
Firms hire or fire workers based on their production needs. Workers accept jobs that pay more than their "reservation wage."
Afternoon: Wages Paid
Employed workers receive their wages. Unemployed workers receive benefits (if any).
Evening: Shopping
Households decide how much to spend (based on their income and wealth). They buy from firms with better prices.
Night: Accounting
Firms count up profits or losses. Banks handle loans and payments. Government collects taxes and makes transfers.
Every household and every firm makes its own decisions. There's no central planner telling them what to do. The unemployment rate, GDP, inflation—these all emerge from the interactions, just like in a real economy.
Want the technical details? Read our MethodologyWhat You Can Do
Run the Simulator
See the dynamics yourself. Watch how policy changes affect outcomes.
Launch SimulatorDive Deeper
Read the technical methodology if you want to understand (or challenge) our model.
Read Methodology