AI, Growth & Collapse

By Aaron J. Leonard

Note: While Iran is rightly preoccupying the headlines, I did not want to lose sight of all else. -- AJL

On February 22, a small firm called CITRINI Research published a piece on their Substack, co-bylined by Alap Shah, titled A Thought Exercise in Financial History, from the Future. The entry sought to project the impact and implications of a hypothetical AI software that hit the streets between 2026 and 2029.

The results, according to the scenario, were immediate. The unemployment rate quickly vaulted 10.2%—as a result of the “wave of layoffs” that had begun in early 2026. The workers losing their jobs had become obsolete —the new software now doing their work. On the “bright” side, according to the notional report, the redundancies “did exactly what layoffs are supposed to.” Specifically, profit “margins expanded, earnings beat [expectations], and stocks rallied.”

In turn, the “record-setting” windfall that ensued was “funneled back into” the technology that had reduced the workforce. Meantime, “the owners… saw their wealth explode as labor costs vanished. AI capabilities improved, companies needed fewer workers, white-collar layoffs increased, displaced workers spent less, margin pressure pushed firms to invest more in AI, AI capabilities improved…” As the report hypothesized, “In every way AI was exceeding [market] expectations, and the market was AI.”

While the market was driven by AI, the economy was not. Specifically, while the technology had created some new jobs—“Humans are still in the loop, coordinating at the highest level or directing for taste.” However, “for every new role AI created, it rendered dozens [more] obsolete.” Further, those new jobs paid a fraction of what the old ones did.

While the report pointed out that there was an “upside,” in that there was no longer worry about the AI stock market bubble bursting—a current fear—on the downside, “What happens to a consumer-credit economy when consumers are being replaced with machines?” Put another way, what do you call a functioning economy predicated on the wholesale elimination of labor? The answer is simple if inconvenient—especially for those enthralled by the promise of AI—there is no such thing.

Surprisingly, the real world received the CITRINI musings with considerable alarm. The actual stock market convulsed, with technology stock indexes taking huge hits. For its part, the New York Times, in a not very compelling counterpoint, noted that, while the scenario “painted a dire picture of job losses and stock market sell-offs…. Many analysts and economists questioned its conclusions.” While the market recovered, to a degree, a lingering fear hung in the air.

Reflecting on this incident this writer was drawn back to some analog musings. Specifically, those of the cultural critic Fredric Jameson who once offered a precise description of how capitalism works. As he explained, it is “a peculiar machine whose evolution is at one with its breakdown, its expansion at one with its malfunction, its growth with its collapse.” The notion of the riches garnered from the dispatch of AI being thrown back into the production of AI, immediately springs to mind.

Another cultural critic, Karl Marx—many years before the conception of, let alone implementation of, AI—described another element of capitalism, on full display in the CINTRINI scenario. As he explained, the movement of modern industry depends “upon the constant transformation of a part of the laboring population into unemployed or half-employed hands.”

The fact that the bankers, the traders, and the crypto schemers would be rattled by an AI doomsday scenario is instructive. While they sit atop a mechanism driven to accumulate greater and greater levels of wealth, they don’t really know how the “infernal machine” of capitalism works. The reason the CINTRINI scenario rattled them is that—to the degree it penetrated their consciousness—it suggested how it actually does.