The Citrini effect
A viral research note on AI gets its economics wrong
Too much of a good thing
AS STOCKS wobbled in the last week of February, some found a cause in a note by Citrini Research, a firm of equity analysts.
It imagined a world in 2028 in which artificial intelligence had rendered a lot of white-collar work obsolete—along with firms from American Express to DoorDash and much of the software industry.
The note went viral.
But its economics are shaky.
In Citrini’s near future, output keeps growing, “driven by AI agents that don’t sleep, take sick days or require health insurance”, while consumer spending collapses: workers have no jobs and no incomes to spend.
“Economic pundits popularised the phrase ‘Ghost GDP’: output that shows up in the national accounts but never circulates through the real economy.”
Economists have been here before.
In the early 19th century David Ricardo, a financier, and Thomas Malthus, a clergyman, debated the possibility of a “general glut”.
Grain prices were falling and industrial output surging, but workers were visibly unemployed.
A surge in output was seemingly matched by an absence of spending power.
There was too much of everything all at once.
Ricardo thought such a thing impossible.
It violated Say’s Law, that “production creates its own demand”.
How does a farmer buy textiles?
He produces food and swaps it: real output is the income with which to buy something else.
Only a “partial glut” was possible.
One sector (say software today) might produce so much that its prices collapse and its workers lose jobs, but that should allow another to purchase more.
Some people and firms lose and others win, but that is the nature of economic disruption.
Yet economy-wide recessions do happen.
Later economists, such as John Maynard Keynes, pointed out that money could get in the way.
Production and consumption do not have to be simultaneous: a firm can make something, sell it and then hold on to the cash.
A general glut was therefore possible.
Perhaps this time the owners of AI companies will simply sit on the cash their bots generate.
But that would be deflationary, rather than lead to the surge in nominal GDP Citrini predicts.
Unemployment would indeed rise, but GDP would fall.
Is this a plausible future?
It doesn’t look that way.
If anything AI companies are desperate to redeploy cash to build more data centres, not to hoard it, even though big productivity gains are elusive so far.
Many investors worry that ai companies will run out of funding.
And policymakers have tools of stimulus—interest-rate cuts, bond-buying and handouts—with which to fight demand slumps.
It is unlikely that an AI take-off would bring about an economy that lacks spending.
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