Beyond simple productivity gains, AI will eliminate the need for entire service-based transactions, such as paying for basic legal documents or second medical opinions. This substitution of paid services with free AI output can act as a direct deflationary headwind, a counterintuitive effect to the typical AI-fueled growth narrative.

Drawing on Frédéric Bastiat's "seen and unseen" principle, AI doomerism is a classic economic fallacy. It focuses on tangible job displacement ("the seen") while completely missing the new industries, roles, and creative potential that technology inevitably unlocks ("the unseen"), a pattern repeated throughout history.

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.

Faced with mass job loss from AI, governments are unlikely to seize assets from the wealthy. The politically easier path is to print massive amounts of money for social support, preserving the existing capital structure while devaluing the currency.

An emerging narrative suggests that as AI agents increasingly perform autonomous work and transactions 24/7, they will require 'frictionless money' to operate. U.S. dollar-pegged stablecoins are positioned to fill this role, creating a nascent but potentially massive new channel of non-human demand for the currency as these agents transact.

While innovations like AI are disinflationary in a vacuum, history shows this effect is consistently overwhelmed by expansionary monetary policy. For over 200 years, central banks have created 'man-made' inflation, meaning investors shouldn't count on technology alone to keep prices stable.

Elon Musk argues that AI and robotics will cause such extreme deflationary pressure through hyper-productivity that governments will be forced to accelerate money printing. This won't be for stimulus but to simply keep pace with the explosion in goods and services.

In a high-impact AI scenario, massive productivity growth leads to gluts of goods and services. This causes prices to collapse, creating massive deflation. This deflation acts as a universal pay raise, dramatically increasing everyone's real wealth and purchasing power.

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.