Wall Street had a moment of panic at the start of this week when a Substack post published on Sunday by Citrini, a little-known research firm, prompted a 1 per cent drop in the S&P index. Shares in IBM, Mastercard, American Express and Uber were among the hardest hit before investment banks and others with skin in the game rolled out analysts to calm market nerves.
The Citrini post imagined a world in 2028 where artificial intelligence (AI) had proven so capable that it was wiping out huge numbers of American white collar jobs, driving unemployment to 10 per cent. White collar workers account for half of the workforce in the United States and 75 per cent of discretionary spending, so anything that affects them has a disproportionate impact on the economy.
Citrini declared at the start of its post that it was presenting a scenario, not a prediction. Needless to say, most Wall Street analysts treated it as a prediction and picked it apart on that basis.
But the scenario was not only plausible enough to spark a sell-off, however short-lived; it also highlighted an under-examined dimension to the AI competition between the US and China. This is usually portrayed as a race for technological leadership but an equally important question is which society is better placed to cope with the disruptive impact of AI.
In the Citrini scenario, the destruction of white collar jobs sends the economy into a downward spiral because consumption accounts for almost 70 per cent of it. It triggers a financial crisis because of defaults in mortgages and other loans and a fiscal crisis because individual income tax accounts for 40 per cent of the total tax take.
[ AI is turning Ireland’s graduate recruitment market upside downOpens in new window ]
White collar workers make up only a fifth of the Chinese workforce and consumption accounts for just over half of the economy. And individual income tax accounts for less than 10 per cent of tax revenues in China, where consumption and corporation taxes make up most of the total take.
Many of China’s white collar workers are employed by the government or state-owned enterprises where they enjoy greater protection than those in the private sector. They are less indebted than their American counterparts, partly because they tend to borrow less but also because the housing market collapse and the post-Covid slump have been accompanied by a great deleveraging.
AI is changing the Chinese economy but its impact is mainly seen in manufacturing and logistics, where it enhances the effect of automation and the use of robots. The government encourages public service workers to use AI too but its impact in offices is limited, partly for cultural reasons.
Chinese venture capitalist Bob Chen responded to the Citrini post with a parody that moved the scenario to China in 2028 where those who worked in government offices were not easily shaken by algorithms.
“A lot of information, instructions, and paperwork still moved on paper, and tight confidentiality disciplines blocked AI from meaningfully reading even what had been digitised,” he wrote.
[ Trump’s new tariffs: What do we know now?Opens in new window ]
“Many meetings still happened in old-style, almost antique conference rooms, with staff coming in every ten minutes to top up tea. Nothing was recorded, and nothing made it to the AI-readable digital domain. What eventually filtered out was often just a highly distilled A4 sheet, with just a few lines of text. Much offline information was private, face-to-face, and vivid. It couldn’t be analysed digitally, and it lived in human memory and judgment.”
Chen’s post may be a parody but it reflects the reality that China’s focus on manufacturing rather than services and on investment, conventionally regarded as weaknesses in its economy, could prove to be strengths as AI advances. What he does not mention is that the central role of the Communist Party and the subordination of business and capital to its political leadership could also help China to manage and control any disruption that is on the way.
The financial analysts who rubbished the Citrini post dismiss it as a scary bedtime story or just another AI-doom post. But some of their counter-scenarios, which are meant to be consoling, sound almost as dystopian as Citrini’s.
Evercore ISI sent out a note questioning, among other things, Citrini’s suggestion that as AI became more powerful, its owners would suck more wealth out of the economy and put much less back in.
“The AI wealthy may have a low marginal propensity to consume, but they will consume, and this will generate jobs, even if in occupations that are not common today. In the 19th century, for instance, each rich household employed dozens of personal servants,” the note said.
“Even if there are limits to the consumption of current goods and services, new ones will be invented. The purest case is products or activities that extend a person’s healthy life: there is no limit to the amount of healthy life a wealthy person wishes to consume.”