Instead of a universal productivity boom, AI will eliminate repetitive white-collar jobs. This will shrink the consumer base, reducing overall demand and creating a powerful deflationary force, further entrenching a feudal economic structure with fewer 'lords' and more 'serfs.'

The assumption that AI will create trillions in corporate profit overlooks a key economic reality: only 1% of global GDP is profit above the cost of capital. Intense competition in AI will likely drive prices down, meaning the vast majority of economic benefits will be passed to consumers, not captured by a few monopolistic companies.

While economic principles suggest AGI will be hugely deflationary, Sam Altman points out a paradox. The massive, urgent investment required to build AI compute could drive a strange, inflationary period where capital is extremely valuable, creating profound uncertainty about interest rates.

For 2026, massive capital expenditure on AI infrastructure like data centers and semiconductors will fuel economic demand and inflation. The widely expected productivity gains that lower inflation are a supply-side effect that will take several years to materialize.

For 2026, AI's primary economic effect is fueling demand through massive investment in infrastructure like data centers. The widely expected productivity gains that would lower inflation (the supply-side effect) won't materialize for a few years, creating a short-term inflationary pressure from heightened business spending.

Contrary to fears of mass unemployment, AI will create massive deflationary pressure, making goods and services cheaper. This will allow people to support their lifestyles by working fewer hours and retiring earlier, leading to a labor shortage as new AI-driven industries simultaneously create new jobs.

Karpathy pushes back against the idea of an AI-driven economic singularity. He argues that transformative technologies like computers and the internet were absorbed into the existing GDP exponential curve without creating a visible discontinuity. AI will act similarly, fueling the existing trend of recursive self-improvement rather than breaking it.

As AI gets exponentially smarter, it will solve major problems in power, chip efficiency, and labor, driving down costs across the economy. This extreme efficiency creates a powerful deflationary force, which is a greater long-term macroeconomic risk than the current AI investment bubble popping.

The primary macroeconomic impact of AI in 2025 was not from supply-side productivity improvements but from demand-side wealth effects. A surge in AI-related stock values boosted the economy. The sustainability of this boost in 2026 depends on whether actual productivity gains materialize to justify high valuations.