The AI Economic Doomsday Report That Shook Wall Street

[MUSIC] Our colleague, David Uberty, was doom scrolling on Sunday night, like a lot of us do. When a certain post caught his eye, I was reading in bed on my iPad this interesting sub-stack post from a financial research firm I hadn't heard of before. It was published by a relatively unknown firm called Citrini Research. It was written like a memo from the future from June, 2028, looking back at how artificial intelligence transformed the economy. It basically framed the support as a post-mortem on what happened over the time between now and then and how the economy has changed. It read to me like really good science fiction. I didn't put it down despite the fact that it was 7,000 plus words long. The picture that Citrini report painted in the future was bleak. We described it as a doomsday report and very much so it was in the scenario that they outlined there was something like 10.2% unemployment across the United States, which is worse than what it was in the depths of the Great Recession. The report proposed that AI will become so good at writing code and replacing jobs that it could become very bad for the broader economy. Basically, the question is not whether like AI is bearish or bullish for the economy, is that what if it's so bullish that it becomes bearish? David wasn't the only one reading the Citrini post that night. It was going viral and it was freaking people out. Pretty soon after the market opened on Monday morning, a lot of stocks that we follow in the software space in particular were all flashing red on our screens and when something across the entire sector is moving the same direction, it tends to mean something big is happening. This is the Dow dropping about 1.6% losing more than 800 points. Sales force, snowflake, other software names, falling sharply. Syncrety and Capital One, those names plunging. So too is Door Dash and Uber. Door Dash, that stock was down over 6% in all coming after that report we were talking about from Citrini Research where they lay out the potential risks that AI. Why do you think this post about a hypothetical future, almost like science fiction, led to such a big reaction in the stock market? I think it really articulated a lot of existing fears that people have about artificial intelligence. I think people who think a lot about this space and the uncertainty around it are looking for ways to understand it and this definitely tapped into that vein. Welcome to the journal, our show about money, business and power. I'm Ryan Knutson. It's Friday, February 27th. Coming up on the show, the AI Doomsday report that shook this stock market. At the end of last year, the biggest worry about AI in the stock market was that it was a bubble that the technology was overhyped and the company is we're spending too much money on it. There's a lot of questions about AI companies over investing in AI, basically throwing billions and pond billions of dollars into data center construction, ships and more and that all of that wouldn't actually pan out. But over the last couple of months or so, there's been a vibe shift of sorts. And it shifted more from this idea that there's a bubble that might burst to this idea that AI might actually pan out. This vibe shift was sparked by massive advancements in AI tools, tools that allow for AI agents or digital assistants to actually do stuff for you. And there have been advancements in coding tools like Anthropics, Cloud Code and OpenAI's Codex, which make it possible for just about anyone to write computer code. I mean, when you see people like me who are able to go into cloud with no previous coding experience and do in a couple of hours what trained software engineers would take much longer to do traditionally speaking, I mean, that's a pretty big development. And it raises the question of how quickly can people spin up new pieces of software? It wouldn't take the type of massive investment that you'd have from a traditional software company that takes billions upon billions of dollars to do this stuff, the idea being that it's actually much cheaper to do this now. One AI founder compared this moment to February 2020 when we could see a pandemic brewing on the horizon in other countries, but didn't know exactly what was about to hit us. There's been this sort of, during the headlights moment, on Wall Street of what people should do. And it has left the market in this very, herky, jerky, trigger, happy mode. So, they just sort of speaks to how this particular substack post played into an existing trend, and in many cases exacerbated that trend. Okay, well, let's dive into that substack post. It was written by Satrini Research. First of all, what is Satrini Research? So, Satrini Research is a small research firm. They do macro and stock research, which they have published on Substack for the last couple of years or so. They're not as widely known as a lot of the research outfits that we tend to follow, but they have a really sizable following on Substack. And in fact, they're one of the largest financial blogs on Substack. And this went more viral than anything else that they've done previously. Tell me more about the future world that this report lays out. What do they think is going to happen? The scenario at a high level is that the sort of rapid advancement in adoption of AI will lead to this cascading dynamic of job losses, disinvestment, and a race to the bottom of prices. The ultimate leads to mass unemployment among white color workers. Here's one of the authors of the report, Alep Shah, in an interview with Bloomberg. And so that's kind of the underlying thesis here is that there's going to be significant replacement of jobs with AI, specifically AI agents. Those things only really came into fruition in the last few months. And so as it comes through and shows up in the productivity of different corporations, that's when things are going to get a little more interesting and where we got to pay real attention. The report lays out a potential downward spiral for white color workers. It starts with software. Because AI makes it so easy to create software on the cheap, big software companies might not need as many employees, or might not need to exist at all. At the same time, the report suggests that consumers will also start using AI agents to complete tasks, like for online shopping. As soon as you'll tell your AI agent to go buy shoes for you, rather than searching around for the cheapest price. They said these agents will just sort of exist in the background of all of the apps that you or I use and they will basically make decisions either autonomously or semi-autonomously to reduce the friction of something like ordering food to your house, to make sure that you get the lowest possible price at all times. As AI agents take over more aspects of commerce, they'll likely look for efficiencies that could lead to more job losses. For instance, one of the decisions AI agents might make is to avoid credit cards and pay with something that doesn't have fees, like cryptocurrency. That could devastate the credit card companies, leading to more laughs. Their hypothesis is that it will actually snowball into the broader economy because if you have mass laughs among white collar workers, those folks tend to make a lot of money. There will be in turn a huge decline in US overall consumption in the economy. And then all sorts of financial institutions, whether they are private lenders, mainstream banks, payment processors, mortgage lenders, all of the financial firms that sort of exist around that space. Those firms will also suffer as well. So they raise the question that this could also sort of lead to a financial contagion of sorts in addition to an economic malaise. A key point of the report is that AI will create something that authors coined as ghost GDP. Basically, the ghost GDP idea is that all of this innovation will help create wealth in the form of new GDP, new stuff, new value that we create in the economy. But it won't actually go back into the quote unquote real economy in any meaningful way. Instead, the report suggests that the wealth created by AI will only benefit a small number of people. Basically, all of this wealth will crew to people or companies who win this sort of winner take all situation. And the benefits of that, the financial benefits of that won't be filtered elsewhere. This Doomsday vision of the future helped fuel Monday's huge sell-off in the stock market. For all sorts of companies that were either named directly in the post or that have business models that AI agents could replace. You have DoorDash, which is your food delivery app, Yaviza and MasterCard, which are some of those payment processors that take a cut of each transaction. Sales force, Z-scale or crowd strike, which are all different types of software firms. And then also some managers of private assets, Blackstone, KKR, Apollo, Blue Owl. These are sort of integral parts of the financial plumbing for the tech and software worlds. And this piece really crystallized some of the fears people have around those firms that have already existed. It's also worth saying that a lot of these names have bounced back, at least to some extent, since then, which I think sort of speaks to how crazy this market is and how no one really understands how to price this. So how concerned should we really be about the future laid out in this Atreini report? That's next. [Music] After Atreini's hypothetical vision of the future went viral, critiques of it started going viral too. [Music] Many of smart people have pushed back poking holes in the thesis. Most notably, there is no mention of purchasing power here. We have to think about what normal people can do in how their lives are going to get better. Software engineering postings are still rising. Data center construction, booming, capital spending is accelerating. The apocalypse they argue is simply not in the numbers. The math doesn't math historically. Davies says the criticism falls into two broad camps. The first has to do with that ghost GDP concept. The idea that the value created by AI won't go back into the real economy. It goes against a lot of what mainstream economists think and how they think about GDP. A normal economist would tell you if you create more money through additional productivity through something like AI, that money has to go somewhere. Also, it overlooks the idea of political economy at all. The idea that the US government and public policy would slow walk into this without any meaningful changes on how to tax people. For example, if you have all of these incredible benefits occurring to a tiny number of companies or individuals in ways that really fundamentally alter the economy in a bad way, it seems unlikely that the government would just let that happen. The second big camp of criticism is that the piece focuses too much on the negatives of AI without getting into the possible upsides. This post really focused on the destruction of white color jobs as we understand them right now. There was no real discussion of any potential new types of jobs that might be created, new types of businesses that might form in response to that. Over the last century or so, whenever we've had these huge technological sea changes and productivity has gone up, that money has gone somewhere. It has expanded what we think of as consumption. People in the United States have bought more stuff generally in response to all that. That would seem to create a lot of opportunities for new businesses to pop up as well. I've heard some critics say that human desires are limitless and so as long as humans have desires, there will be jobs out there to satisfy those desires. We can't tell what those desires are right now. If there is this huge productivity boom, if people can use AI to do sort of medial tasks that free us up for more creativity, this is obviously the optimist talking. What do we do with all that extra time? What do we do with all that extra productivity? What other opportunities does that create? That's not really a possibility that this post brought up. There are a lot of jobs that don't exist anymore thanks to technological innovation, and yet we still find businesses to create and things to spend money on. If you told somebody a hundred years ago that your job was social media influencer or podcast host, they think you're insane. But even though this whole report was just speculation, it still had a real world impact. So what does this moment tell us about Wall Street's understanding of AI? Understanding is maybe not the word I would use. Or lack the right. So I mean, a price is a powerful piece of information. The price of AI is something that nobody really understands quite yet. But the even harder thing is pricing the disruption of AI. That's kind of what we're seeing with each of these really shoot first, ask questions later, market moves in recent months. We talked to people on Wall Street all the time about this. A lot of them are passive investors. They follow the trend. That makes up a huge portion of the market as we talk about it. A lot of them will give you a lot of cliches about productivity gains and sort of the opportunity with AI. But the real honest ones that we talk to say they have no idea. And I think that uncertainty between fear and greed, which are two of the most powerful forces in markets, that's kind of what you're seeing at this moment, such as this week. And it's particularly pronounced right now because the market's so highly valued. People have bet so much on this theme that any particular move, any retreat or entrenchment in the expectations around it could have a really big impact. By the end of the week, the stocks that had dropped related to the Sotrini report had mostly bounced back, especially as more prominent analysts started spreading their counterpoints. David says it'll take a lot to disrupt the US economy, which over time keeps proving its resilience. I have just been struck for the last six years of how resilient the US economy is we had the pandemic. We had a one-centred generation inflationary shock with an energy crisis laid on top of that. And now subsequently we've had this huge surge in financial markets and pretty significant economic growth. And I've just been struck over and over again by how the US economy has adapted. Either way, there will be growing pains. This week, the payments company Block, which owns Cash App and Square, announced that it was laying off 40% of its workforce. The company CEO, Jack Dorsey, said on X that AI was transforming how people do their jobs, and that he wanted to get ahead of it. He wrote quote, "We're already seeing that the intelligence tools we're creating and using, paired with smaller and flatter teams, are enabling a new way of working, which fundamentally changes what it means to build and run a company." This Satrini report is, you know, it's written from the point of view of June 2028. So I can't wait for June 2028 and we can talk again and we can see how much of any of this actually came true. Happy to come back and discuss the Doomstay scenario, for sure. But yeah, in the mean time, yeah, we'll be, we'll be following it. Before we go, we have a question for you. How are you feeling about AI's role in the economy? Are you worried, hopeful? Are you using it? And if so, how? Please send us an email or a voice recording to [email protected]. That's [email protected]. And one more thing, for those of you who have been following our series, Camp Swamp Road about the standard ground shooting in South Carolina, there have been some big developments. And we've got a brand new episode coming out on Sunday. Our colleague Valerie Borlein reports from the courthouse, where the shooter, Weldon Boyd, finally takes the stand. And things will happen. My job was on the floor when I heard it. Again, that'll be in the journal feed on Sunday. And if you haven't been listening to this series, now's a good chance to get caught up. There's a link to the series playlist in our show notes. That's all for today. Friday, February 27th. The journal is a co-production of Spotify and the Wall Street Journal. The show is made by Catherine Brewer, Pierre-Gad-Carrie, Isabella Jepal, Sophie Codner, Matt Kwong, Colin McNulty, Jessica Mendoza, Annie Minneff, Laura Morris, Enrique Perez-Delerosa, Sarah Platt, Alan Rodriguez-Espinosa, Heather Rogers, Pierce Singer, Jivika Verma, Lisa Wang, Catherine Whalen, Tatiana Zameez, and me, Brian Knudsen. Our engineers are Griffin Tanner, Nathan Singer-Pock, and Peter Leonard. Our theme music is by So Wiley. Additional music this week from Catherine Anderson, Peter Leonard, Bobby Lord, Emma Munger, Nathan Singer-Pock, Griffin Tanner, and Brutat Sessions. Fact checking this week by Najwa Jamal and Mary Mathis. Thanks for listening. See you Monday.