Artificial Intelligence and Job Destruction

On February 22nd, Citrini Research posted a report titled “The 2028 Global Intelligence Crisis” by Citrini and Alap Shah. The self-described thought exercise theorized a scenario in which Artificial Intelligence (“AI”) destroys more jobs than it creates. The results are economically catastrophic.

The thesis of the report is that AI replaces human knowledge, creating a deflationary spiral as companies fire white-collar workers at scale. While cutting labor costs makes companies more profitable and output rises, actual income and consumption collapse as the machines replacing the labor do not consume. Given that consumer spending accounts for about 70% of the Gross Domestic Product, sectors dependent on this spending shrink. To remain profitable, companies invest more in AI and further cut labor costs. This increases the labor supply for all jobs, driving down wages beyond white-collar jobs, and eventually spending. The government is powerless as their ability to spend is dependent on collecting tax revenue, but with wages falling, tax collection falls as well. The damage spreads and the economy stalls.

The report is a fascinating read, so much so that some believe the stock market fell as investors digested the report. While that points to the quality of the report, it is more a reflection of the uncertainty in the market with regards to the long-term impact of AI. Companies cannot prove a negative — that AI will not destroy their business model.

We do not subscribe to the outlined thesis. We do not believe AI will drive down the value of labor and ultimately destroy the economy. There are multiple leaps the authors make to allow the thesis to play out. While machines don’t consume goods, the profits they generate flow through to equity holders. This enriches the equity holders which then have more money to spend and flow through the economy. The AI infrastructure required to support the continued investment would create a boon for utilities, construction, industrial automation and other industries.

However, the overriding argument that drives the outcome is the concept that AI destroys more jobs than it creates. Throughout human history, technological advancement has led to job growth, not job destruction. It does result in job losses for those whose skills can be replaced by technology. But ultimately more jobs are created as workers become more productive and some products are cheaper. More productive workers and cheaper products mean more spending, which in turn leads to new industries being created.

The report points to a few examples. ATMs made branches cheaper to operate so banks opened more, and teller employment grew. The Yellow Pages are long gone but advertising has shifted to digital. More recently, smartphones created apps, which led to ridesharing (Uber) and the influencer economy (Instagram). Renewable energy has led to rooftop solar panels and electric cars.

Currently, AI has not disrupted an entire industry. Software companies are on edge with the threat of AI making coding so simple that it drives down the value of software. Company earnings have yet to show that impact. The retail industry and how payments are made could be disrupted by AI agents that automatically execute transactions on your behalf.

AI is creating new industries, e.g. the AI models like Anthropic and Gemini and the infrastructure to support the training and deploying of the models. It has improved productivity in white-collar jobs. The complete long-term impact of AI is still unknown, but we don’t believe it will drive down the value of all human labor and stall the economy. However, we do not dismiss AI’s ability to significantly alter the dynamics of certain industries or sectors. We will continue to assess its impact on both the underlying investments and the overall economy.

For informational and educational purposes only. The information is not intended to provide specific advice or recommendations, and the information has been obtained from sources believed to be reliable. 

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