The world could run on older hardware if software optimization was a priority

It's similar to the "Market for Lemons" story. In short, the market sells as if all goods were high-quality but underhandedly reduces the quality to reduce marginal costs. The buyer cannot differentiate between high and low-quality goods before buying, so the demand for high and low-quality goods is artificially even. The cause is asymmetric information.

This is already true and will become increasingly more true for AI. The user cannot differentiate between sophisticated machine learning applications and a washing machine spin cycle calling itself AI. The AI label itself commands a price premium. The user overpays significantly for a washing machine[0].

It's fundamentally the same thing when a buyer overpays for crap software, thinking it's designed and written by technologists and experts. But IC1-3s write 99% of software, and the 1 QA guy in 99% of tech companies is the sole measure to improve quality beyond "meets acceptance criteria". Occasionally, a flock of interns will perform an "LGTM" incantation in hopes of improving the software, but even that is rarely done.

[0] https://www.lg.com/uk/lg-experience/inspiration/lg-ai-wash-e...

What I realized is that lower costs, and therefore lower quality, are a competitive advantage in a competitive market. Duh. I’m sure I knew and said that in college and for years before my own startup attempt, but this time I really felt it in my bones. It suddenly made me realize exactly why everything in the market is mediocre, and why high quality things always get worse when they get more popular. Pressure to reduce costs grows with the scale of a product. Duh. People want cheap, so if you sell something people want, someone will make it for less by cutting “costs” (quality). Duh. What companies do is pay the minimum they need in order to stay alive & profitable. I don’t mean it never happens, sometimes people get excited and spend for short bursts, young companies often try to make high quality stuff, but eventually there will be an inevitable slide toward minimal spending.

There’s probably another name for this, it’s not quite the Market for Lemons idea. I don’t think this leads to market collapse, I think it just leads to stable mediocrity everywhere, and that’s what we have.

You must have read that the Market for Lemons is a type of market failure or collapse. Market failure (in macroeconomics) does not yet mean collapse. It describes a failure to allocate resources in the market such that the overall welfare of the market participants decreases. With this decrease may come a reduction in trade volume. When the trade volume decreases significantly, we call it a market collapse. Usually, some segment of the market that existed ceases to exist (example in a moment).

There is a demand for inferior goods and services, and a demand for superior goods. The demand for superior goods generally increases as the buyer becomes wealthier, and the demand for inferior goods generally increases as the buyer becomes less wealthy.

In this case, wealthier buyers cannot buy the superior relevant software previously available, even if they create demand for it. Therefore, we would say a market fault has developed as the market could not organize resources to meet this demand. Then, the volume of high-quality software sales drops dramatically. That market segment collapses, so you are describing a market collapse.

> There’s probably another name for this

You might be thinking about "regression to normal profits" or a "race to the bottom." The Market for Lemons is an adjacent scenario to both, where a collapse develops due to asymmetric information in the seller's favor. One note about macroecon — there's never just one market force or phenomenon affecting any real situation. It's always a mix of some established and obscure theories.

https://en.m.wikipedia.org/wiki/The_Market_for_Lemons

The Market for Lemons idea seems like it has merit in general but is too strong and too binary to apply broadly, that’s where I was headed with the suggestion for another name. It’s not that people want low quality. Nobody actually wants defective products. People are just price sensitive, and often don’t know what high quality is or how to find it (or how to price it), so obviously market forces will find a balance somewhere. And that balance is extremely likely to be lower on the quality scale than what people who care about high quality prefer. This is why I think you’re right about the software market tolerating low quality; it’s because market forces push everything toward low quality.