> people use ad blockers, making the websites less money, so they add more advertisements for the people who don't have ad blockers
I have serious doubts about this step in the spiral. IIUC, people who use ad blockers are still vanishingly few, and therefore the loss of ad impressions should not be that large.
Some sites have a message like "hey, we can't serve you ads, you must be using an ad blocker, stop that and absorb the advertising as is your duty because we need the money". But maybe that's just desperation and they aren't losing much to ad blockers anyway.
It's clearly enough of an impact for Google to spend effort killing uBlock on Chrome, and (attempting) to block it on Youtube. Obviously Google is huge, and even a small percentage of users is still a lot of money on the table.