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The Duplicator: Instant Cloning Would Make the World Economy Explode

I think there may be a problem with the premise here. The premise is the f(labor, capital, tech) = total output. I think this has baked in assumptions that don't necessarily apply to digital versions of human beings. That is, this implies a needs based economic system. If the demand-side goes to zero, there is no need for this function to hold. The concept of living in a digital world where the laws of physics need not apply, and you have effectively no accesses to the server system running tho world you live in, there is no reason to engage in meaningful labor. If I can build myself a house, minecraft style, in minutes, what concern do I have to solving the problems of developing more efficient versions of housing. 

Now, we could duplicate people with needs built in, that is, to create coercion there none is needed, but this would seem to have horrific ethical outcomes, tantamount to slavery. The very nature of living inside a curated programmable world without needs or concerns would likely lead to very little economic productivity that would be applicable to the imperfect world of constraints. It's as though we would create a world with some horrible disease, in order to get it's inhabitants to work harder.