Economics framework shows why companies are shifting budgets from software developers to AI — and when that trend might stop

A software engineer applied managerial economics (a tool Charlie Munger used for investment analysis) to predict how businesses will reallocate budgets between AI systems and human developers. The article cites real evidence: companies are already planning 2026 budgets with fewer new developer hires and larger spending on LLMs (AI systems that generate code and text).

The framework uses 'isoquant curves' — an economics concept showing how you can swap one input (labor) for another (capital/AI tools) while keeping output constant. If AI can do the same work as a developer at lower cost, businesses will mathematically optimize by spending more on AI and less on salaries — similar to how one worker with a shovel replaces ten workers with spoons digging the same hole.

For software developers: your job security depends on whether AI is a 'perfect substitute' (replacing you entirely) or a 'complement' (making you more productive). The article doesn't predict which will happen, but warns that in a perfect-substitution scenario, companies would hire zero developers and buy only AI. For business leaders: the model explains why your 2026 planning likely shows this capital-labor tradeoff already underway.