This is a linkpost for https://www.citriniresearch.com/p/2028gic
New Comment
It's an interesting read and it's good to see someone outside of the AI community taking it seriously, but I'm not sure why the Fed couldn't just fix it with quantitative easing and helicopter money.
And once you realize this, the entire scenario falls apart, and ultimately it's anti-capitalist pablum that has it's bottom line already written, as shown by Alex Armlovich here:
Bad econ. "White collar workers switch to Doordash, driving down real wages there too" is partial equilibrium thinking
Robot firms only grow if they're producing more real goods & services. If production is growing, real incomes are rising not falling. No doom loop!
If production is growing but somehow consumption stalls, that's just a failure of monetary & fiscal policy. Cut rates to zero quickly; below zero, fiscal policy kicks in to redistribute income to consumers & restore consumption growth to trend
Either there's no doom loop in the first place, or else New Keynesian monetary & fiscal policy kicks in to close any emergent wedge between robot output & human consumption
This piece is ultimately just anticapitalist pablum (teasing a belief that most markets are just scams and rent seeking in the intro!)--and after that, the piece simply underrates or misunderstands the stabilizing powers of liberal democratic Keynesian capitalism to keep output & consumption in balance
We don't have to allow what @delong calls "a failure of the exchange mechanism" in the future any more than we did in the 1930s
Remember the top line, where they talked about this being a model of left tail risk (for investors).
They are predicting specifically that there is reasonable odds of a case where the stimulus is underbaked and too late, causing significant deflation, and a large number of past claims on future economic activity do not survive the restructure, and so every actor taking interest rate risk is at risk of getting blown out by deflation, or taking huge nominal losses from a default due to their counterparties getting blown out by deflation.
@Noosphere89 I notice that I am confused. Before the rise of the AIs a car factory would have to pay white-collar workers for things like engineering or management, blue-collar workers for, well, working with the machinery making cars out of metal, plastic, etc, and the companies which produce metal and other resources. After the rise of AI white-collar work flies out of the window, and resources become the main bottleneck. Does it mean that the main aim of altruists is to ensure an egalitarian distribution of property rights to resources on Earth and in space?
They could. In the scenario where they do not, you get Japan like problems of not enough inflationary firepower. To do that with confidence requires the tax base to support it, which means as labor share of income drops, taxing the capital share of income as well.
Taxing the capital share of income is not the end of the world, it is a relatively normal policy, but we would have to generate the political will to actually do so, the government must be able to credibly collect those taxes.
If we think the funds for helicopter money come from government borrowing, and the bond market breaks due to unexpected deflation, the government cannot get the money to pay for the inflation to get the market to get the money (this is what is meant by systemic risk), or default
If we think the funds come from future taxes, if the capital share of income increases and the willingness to consume from accumulated capital drops, the government must increase taxes on the income streams of capital or labor to make up consumption
If you think MMT is correct, and the government can just do helicopter, they will have to do that to keep equilibrium.
All of those cases (helicopter money and capital taxation) as specific policies are major policy shits. There is always a chance that does not happen.
There is a big difference between "The Fed Can" and "The Fed Will", and if you are at 95% odds of the feds getting it right, that is still 5% of not fixing it. That is what is meant by left tail risk.
Is there a practical way to implement helicopter money, instead of the current way of (extremely inefficiently) trickling down the money through bond markets?
1Yes, the IRS has payment info for a very large portion of Americans and we did similar programs during COVID. The hard part is the political will, not the doing.
A number of stocks they mention are substantially down today, including Doordash (-6.60%), Mastercard (-5.77%), Amex (-7.20%), and so on, versus -1.04% for the S&P 500.
Barron's reports that this has been christened the "Citrini selloff" already, and that the report is the "talk of Wall Street;" the WSJ attributes the selloff directly to this post as well.
Edit: It's on the front (online) page of the WSJ.
Viral Doomsday Report Lays Bare Wall Street’s Deep Anxiety About AI Future
Citrini Research’s thought experiment rattled investors already wary of tech disruptions. The Dow industrials fell 822 points.
I am not a money person, I have a better sense for science and the arts. But that article is gold, it's dynamite, it's literature. It has identified, and described in great detail, an extremely logical consequence of the agent economy - mass unemployment among white collar workers, leading to a collapse of everything that depends on their discretionary expenditure... It's also $190/month to be able to comment underneath it, which is why I'm posting here and not there. :-)
I enjoyed reading these financial predictions that I haven't seen in so much detail previously, particularly the part about massive default of fixed rate debt which I think makes a lot of sense. What I think is missing is this future world is the impact of massive deflation.
In a world where "a Claude agent can do the work of a $180,000 product manager for $200/month", most white collar workers are moving into blue collar work, those with even a handful of years of savings will be sitting extremely comfortably in a deflationary spiral if they don't have massive fixed rate debt. In such a situation if the Fed is still targeting 2% inflation, the government could start printing and spending massively (perhaps handouts to stop the mass-default of most fixed rate debt) with minimal increase in the CPI. Perhaps this would be terrible at any other time, but in this case everyone would be wildly rich regardless of bad economic policy (and AI companies would still be even more wildly rich). AI companies could of course hold non-dollars, but they'll still face capital gains taxes denominated in dollars.
In a world where the richest have everything they can desire and those with a modest amount of savings are getting richer faster than they can spend the money, I doubt such a world will be anything but good (assuming alignment was solved). Nominally maybe in that world it would look scary, but in real terms everything would look great. At the very least this has made me realize I need to evaluate the security of my investments that I am using quite a lot of cheap fixed rate debt to obtain currently.
1They are explicitly predicting that if there is massive AI productivity growth, there is no guarantee that the government will take the opportunity to print and spend to generate enough inflation to prevent the breakdown of basically all loans to extreme deflation. Somebody who found a way to exit into something safe from extreme deflation was fine, but everyone who misidentified it is soaked.
it might be that the only safe asset is datacenter shares, or something, and everybody who is not in that has whatever they are holding deflated to nothing.
The deal they predict looks like
- We play musical chairs with all the claims on future production
- There is way more future production to claim.
Even with a fairness guarantee, that can still be scary.
everyone would be wildly rich regardless of bad economic policy
In a world where the richest have everything they can desire and those with a modest amount of savings are getting richer faster than they can spend the money, I doubt such a world will be anything but good
What about the people without savings? It seems like the world in this scenario simply rewards those who are already ahead and punishes those who aren't.
Plus, there's less and less you can do to gain economic mobility and to get ahead of others, simply because everyone is getting better advice from their AI agents and "playing the game more optimally", so to speak, and almost everyone has access to the same AI capabilities to help them with their work.
To me, this scenario seems like a good description of to path that would lead to the kind of extremely unequal future that some people have long warned about with AI development. By no means a good future to the majority of Americans, and even worse for regular people in the rest of the world, as at least in America (as a rich country) you can probably live on welfare.
A popular (#1 in Substack's Finance category) financial analyst - Citrini - published a "Macro Memo from June 2028" plotting a potential future of increasing AI capabilities, with a focus on financial markets.
This is not a person who has typically engaged in the usual LW discourse, making this an interesting outsider's perspective.
Some extracts:
There are other specific sections on bonds, stocks, private credit, sector-specific impacts, job numbers, and different geographies
Links to other vignettes:
https://www.lesswrong.com/posts/6Xgy6CAf2jqHhynHL/what-2026-looks-like
https://www.lesswrong.com/posts/t7zd5EupH4JjcxRH4/dave-kasten-s-agi-by-2027-vignette