Horses are used in this discussion because they're a tool for a job that got replaced by something that was more efficient than they were. Driverless cars would do the same to taxi drivers, warehouse workers, truck drivers, etc. While they participate in the economy, they are tools for a task they are no longer economically useful at.

The fact that horses are not players in the feedback loop means their replacement has no impact on the system. Every lost job is a direct signal to the economic system that led to that job being lost. On the scale of a single job, the signal is negligible, but accumulated the signal directly impacts the system.

Their former employers are making more money, resulting the the reinvestment cycle you mention, but they need new jobs.

This is not isolated to a specific employer, and the question is about the broader economy. Their consumption is lost, which has a direct impact on the economy, all goods/services that they were purchasing stop, changing demand curves and slowing supply/production. When consumption is dropping, that means production is not increasing, which means my company now doesn't have incentive to go out and buy a robot/AI/automation system.

But the automation that led to a job being replaced has more than just the negative feedback of a lost consumer. It has positive feedback by way of the automated job reducing costs. The reduced costs are realized by the consumers of that good/service, which gives them increased spending money which goes to all sorts of other industries, increasing the aggregate demand. Now a job may pop up in another place that either isn't ready for automation or that no such technology yet exists for.

Played out over the entire chaotic system, this leads to short-term fluctuations in unemployment but long-term stable rates with a long-term growth trend. Of course sometimes we will get into downward spirals for various reasons (recessions) that the government must intervene, but in general we aren't at risk for structural unemployment due to technology.

In order to do this, they will need to trade something - most likely future expected earning in the form of loans that will likely be predatory due to the scenario.

Time is an enormous resource, previously they were using up a significant amount of that resource to sell their labor. Being unemployed frees up this resource entirely. The internet makes learning/training available for no additional cost other than access to the ubiquitous internet.

By this definition of low-skill, low-skill jobs today economically equivalent (in pay, benefits) to low-skill jobs in the 60s or 70s (e.g. union factory work) require college degrees or trade-school experience.

Inflation adjusted wages have stagnated not declined. That is still not a good thing but low-skill work is the same from the 70's and now. There isn't much agreement on why, but clearly we need to do something about it.

Yes, things will be cheaper, but it'll be because fewer people participated in the economy to make them. This leaves fewer people in the economy to take advantage of the cheaper prices, unless those people retrain, which bring me to where I think our disconnect is:

There is no model of economics that I have seen which makes this plausible. Decreasing market participants reduce production and can send the entire economy into a downward spiral. Economic growth requires low levels of unemployment, of which we continue to have (currently at 5.5%).

This will create smarter systems that will be able to learn and see patterns that people would never catch, and will be able to fill the new jobs that pop up as well as the old.

They will still require a goal, they can't learn to create a new goal, and new goals are dictated by consumers. We will continue to try to automate smarter and more complex tasks on a case-by-case basis, but ultimately this automation leads to the increased productivity of people.