The generalized version of the fallacy (“Labour-saving technologies increase unemployment in general by reducing demand for labour in general.”) may be wrong or not. That’s kind of hard to figure out.
However, the micro level version of the fallacy is, I think, not a fallacy at all, but very much true and can be disastrous for a great many individuals: “Labour-saving technologies increase unemployment among people with my qualifications by reducing demand for labour for people with my qualifications.” (The consequence may not be unemployment. The affected people more or less only qualify for jobs where no qualifications are necessary, probably leading to unemployment for some, a reduction in income for others.)
Put another way, while the labour market in general may be left intact, the effect on specific individuals may be disastrous. In that context luddites smashing up machines may be entirely rational for them personally, because even though the industrial revolution lifted large swathes of humanity out of poverty (eventually), along the way many individuals had to suffer greatly and it didn’t get better for them personally until they died. Maybe it got better for their kids or grandkids.
That’s one reason why thinking about macro level effects is not enough (but there may also be better solutions than smashing up machines, i.e. it may well be possible to get the positive macro level effects over longer time scales while also, through other means, reducing or eliminating poverty or suffering on a micro level).
You're right, the micro-level version isn't a fallacy (either..), though I think that's less contentious, or? Many countries already have some experience with this. For example, agriculture has gone from having 70-80% of the workers in 1870 to less than 2% in 2008 (https://en.wikipedia.org/wiki/Agriculture_in_the_United_Stat...). Some countries now have welfare systems that introduce some security on an individual level, though in their current form they tend to rely on the average employment rate remaining fairly high.
However, the micro level version of the fallacy is, I think, not a fallacy at all, but very much true and can be disastrous for a great many individuals: “Labour-saving technologies increase unemployment among people with my qualifications by reducing demand for labour for people with my qualifications.” (The consequence may not be unemployment. The affected people more or less only qualify for jobs where no qualifications are necessary, probably leading to unemployment for some, a reduction in income for others.)
Put another way, while the labour market in general may be left intact, the effect on specific individuals may be disastrous. In that context luddites smashing up machines may be entirely rational for them personally, because even though the industrial revolution lifted large swathes of humanity out of poverty (eventually), along the way many individuals had to suffer greatly and it didn’t get better for them personally until they died. Maybe it got better for their kids or grandkids.
That’s one reason why thinking about macro level effects is not enough (but there may also be better solutions than smashing up machines, i.e. it may well be possible to get the positive macro level effects over longer time scales while also, through other means, reducing or eliminating poverty or suffering on a micro level).