A scenario by Citrini outlines the potential economic impacts of advanced AI agents, leading to significant disruption and a projected market crash by late 2027.
AI Agents and Economic Friction
Increased capabilities of AI agents are anticipated to reduce economic "friction." This reduction could significantly impact various sectors by offering cheaper, in-house automation solutions.
Software-as-a-service (SaaS) companies like Monday.com and Zapier might face challenges as businesses opt for more affordable internal AI tools. This shift is also expected to intensify pricing competition for established businesses such as Oracle.
Personal AI agents are envisioned to bypass intermediary services in several key sectors. Areas such as travel, real estate, food delivery (e.g., DoorDash, Uber), and ride-sharing could see direct interaction between consumers and service providers, cutting out current platforms.
The scenario also suggests AI agents might favor cryptocurrency for transactions due to lower costs, impacting traditional payment providers like Visa and Mastercard.
This preference for cryptocurrency could lead to a significant shift, as it could eliminate traditional app loyalty among machine users, altering the dynamics of digital transactions.
Mass White-Collar Unemployment
AI's development as a general intelligence, capable of tasks traditionally performed by humans, is projected to lead to mass white-collar unemployment. This includes even roles focused on "AI management," suggesting a broad impact across professional fields.
Displaced workers may find themselves transitioning into unstable gig-economy jobs. This influx of labor into less secure roles could potentially suppress wages across these sectors.
A reduction in consumer spending, caused by widespread layoffs, could prompt businesses to invest further in AI rather than human labor.
This creates a self-reinforcing cycle: fewer jobs lead to less spending, which encourages more AI investment, potentially leading to further job losses. The scenario highlights potential far-reaching economic consequences if the spending power of a significant portion of consumers declines.
Broader Economic Ripple Effects
Job losses and the challenges faced by software companies are expected to trigger defaults in private credit and contribute to a mortgage crisis.
Private credit firms, which have restructured software businesses with loans based on future revenue, could face significant defaults. This risk arises if their revenue assumptions are invalidated by AI's disruptive impact on these companies. The 2022 Zendesk acquisition is cited as an example of such a leveraged restructuring.
These defaults, potentially involving capital from life insurance policies and household savings, could contribute to a broader market downturn around 2027.
Simultaneously, a mortgage crisis is anticipated. White-collar workers facing job displacement may struggle to meet mortgage repayments, precipitating a wave of defaults in the housing market.
Downward Spirals and Market Crash
The scenario describes two reinforcing negative feedback loops that could accelerate economic decline.
The first loop involves companies laying off workers, leading to weakened consumer demand and spending. This reduced demand, in turn, encourages more AI investment by businesses and prompts further layoffs, creating a self-perpetuating cycle.
The second loop suggests that private credit turmoil and mortgage concerns could significantly tighten markets. This tightening would reduce consumer confidence, leading to additional layoffs and further mortgage impairments.
Citrini suggests that current financial policy tools may not be equipped to address this crisis, as it stems from AI making human intelligence less scarce and valuable, rather than from traditional financial conditions.
These interconnected factors are predicted to culminate in a substantial market crash in late 2027. Such a crash could potentially reduce the S&P by 57%.