Let us consider such a conserved karma system. For every group of users that gets upvoted by outsiders more than they upvote outsiders, their karma is going to increase until the increase to their voting power produces an equilibrium. Consider such a powerful group that tends to upvote each other a lot, no conspiracy required. Their posts are going to be more visible without the group spending any of their collective power to make it happen. More visible posts will get more upvotes, compounding the group's power with interest. There are combinatorially many potential groups, and this karma system would naturally seek out the groups that best fit the above story, and grant them power.
Karma cannot be spent. It's not an economy, it's just an indicator of popularity. I don't know how to measure, but I strongly expect that most of the information content about post quality/prefer-ability/whatever is conveyed between -2 and +10 total votes, and anything outside that range is valueless.
Worth noting that Old LessWrong did something somewhat different – if I recall, downvoting didn't cost karma, but you could only downvote a number of times proportional to how much karma you had.
I suspect that if voting reduced your own karma, some people wouldn't vote. As it becomes obvious that this is happening, more people stop voting, until karma just stops flowing at all. (The people who persistently vote anyway all run out of karma.)
In the broader economy, it's not the case that "If buying things reduced your income, people stop buying things, and eventually money stops flowing altogether".
So the only way that makes sense to me is if you model content as a public good which no user is incentivised to contribute to maintaining.
Speculatively, this might be avoided if votes were public: because then voting would be a costly signal of one's epistemic values or other things.
There is no limit to how many different posts and comments one can do this to. In this sense there is an unlimited supply of karma to be handed out.
So infinite posts * 1 sock puppet = infinite karma.
One cannot get high karma by producing a small amount of content that a small number of users likes a lot.
Aside from the fact that both posts and comments can be upvoted, there's double upvoting (though I'm not sure how that is calculateed from one's karma) so:
One can get high karma from a small amount of content that a small number of sufficiently high karma users double up vote. (Though sequence length may be rewarded more than brevity, and while there may be a loose correlation (longer sequence requires more time) we might suppose there is a correlation going the other way - more time is required to make what would otherwise be longer posts shorter, and the same may be said of sequences.)
though I'm not sure how that is calculateed from one's karma
I believe it's proportional to the log of your user karma. But I'm not sure.
One can get high karma from a small amount of content that a small number of sufficiently high karma users that double up vote it.
There is still an incentive gradient towards "least publishable units".
Suppose you have a piece of work worth 18 karma to high-karma user U. However, U's strong upvote is only worth 8 karma.
If you just post one piece of work, you get 8 karma. If you split your work into three pieces, each of which U values at 6 karma, you're better off. U might strong-upvote all of them (they'd rather allocate a little too much karma than way too little), and you get 24 karma.
To the extend the metaphor in the original question: maybe if the world economy ran on the equivalent of strong upvotes there would still be cars around, yet no one could buy airplanes.
I'd leave the current system mostly as is, but let people use their own karma to up/down-vote a post or comment they like/dislike, beyond the free level.
LessWrong users can up/downvote posts and comments, which then receive a karma boost (capped by the voters own karma). There is no limit to how many different posts and comments one can do this to. In this sense there is an unlimited supply of karma to be handed out. (This is also the case for Facebook, YouTube, Instagram, HackerNews(?), Medium, ...)
Is this important? That is, does it have non-trivial medium or long-term effects on the “LessWrong economy" -- the kind and amount of content that gets produced?
Here are some quick thoughts I wrote down. I publish this question despite them being unfinished, instead of letting them wither deep in my Google Drive.
Under the current system…
If instead of the current system each karma point given was taken from your own score, then…
Some uncertainties