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.'

Widespread AI-driven job loss will reduce consumer spending. In response, businesses will be forced to cut costs further by accelerating AI adoption, which in turn leads to more job losses and even lower consumption, creating a vicious cycle.

The memo posits a scenario where AI boosts white-collar productivity, causing layoffs and reduced consumer spending. This forces companies to cut costs further with more AI, creating a downward economic spiral. This highlights a significant "left-tail risk" for investors and the economy.

Contrary to the consensus view of explosive AI-driven growth, AI could be a headwind for near-term GDP. While past technologies changed the structure of jobs, AI has the potential to eliminate entire categories of economic activity, which could reduce overall economic output, not just displace labor.

As companies use AI to do more with fewer people, productivity gains boost profits but don't create jobs at the same rate. This "ghost GDP" concentrates wealth among a few and risks a long-term decline in broad-based consumer spending, as the generated value isn't dispersed to human workers.

The report posits a bearish scenario where hyper-efficient AI leads to widespread job loss, which in turn crushes consumer spending and forces companies into further layoffs, creating a downward economic spiral where being 'too good' is actually bad.

The US economy is currently experiencing near-zero job growth despite typical 2% productivity gains. A significant increase in productivity driven by AI, without a corresponding surge in economic output, could paradoxically lead to outright job losses. This creates a scenario where positive productivity news could have negative employment consequences.

The decline of white-collar jobs, which form the backbone of discretionary spending and credit markets, will create a contagion effect impacting every asset class worldwide, as the system was built on the assumption of their stability.

Historically, economic downturns accelerate technological displacement. During a recession, companies lay off workers and then use the subsequent recovery to evaluate how many roles can be permanently replaced by new technology like AI. The next recession could therefore trigger a significant wave of structural unemployment.