The author of the "AI Doomsday Report" speaks out: Market panic exceeded expectations, but the real risk is a "cycle of unemployment."

Author: Zhang Yaqi, Hard AI

Abstract: A report on AI-driven scenarios triggered a global sell-off, with IBM shares plunging 13% in a single day, the biggest drop in 25 years. The report's author, Shah, stated that the market reaction "far exceeded expectations" and warned that white-collar jobs could decrease by 5% over the next 18 months, urging governments to tax AI to curb the negative feedback loop of unemployment—if job losses occur faster than anticipated, the entire consumer economy will face risks. He stated, "Everyone is now heavily invested in AI, and there aren't many new buyers left."

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Following the global market sell-off triggered by a scenario-based report on the impact of AI over the weekend, co-author Alap Shah spoke out publicly on Tuesday, acknowledging that the market reaction far exceeded expectations and calling on governments to tax AI in response to a potential wave of mass unemployment.

In an interview with Bloomberg Television, the chief investment officer of Lotus Technology Management warned that AI advancements could lead to a 5% reduction in white-collar jobs over the next 18 months, with the U.S. being the hardest hit in the absence of policy intervention. He anticipates that service-intensive industries such as insurance and banking will face even greater risks.

Shah stated that the government should consider taxing any incremental or unexpected gains from AI to offset the impact of labor substitution and protect consumer demand. He believes that the substitution of white-collar workers creates a negative feedback loop: companies lay off employees to boost profit margins, reinvest the savings in AI, thus driving further layoffs.

As previously reported by Wall Street News, the report released over the weekend envisions a scenario in 2028, depicting a world where rapid advancements in machine intelligence boost productivity but render large amounts of human labor obsolete, leading to unemployment, a collapse in consumer spending, and a drag on stock indices such as the S&P 500. Shah admitted, "I originally thought there would be a minor reaction—but it actually significantly exceeded our expectations." He stated that considering AI-related transactions have been ongoing for about three and a half years and have generally been on an upward trend, there are very few new buyers left in the market, so this reaction is somewhat reasonable.

01 Market reaction far exceeded expectations

This report, released by Citrini Research on social media , coupled with Nassim Taleb's market warning and statements from AI startup Anthropic, triggered a massive sell-off. IBM's stock price plummeted 13% in a single day, marking its biggest single-day drop in 25 years; DoorDash, American Express, KKR, and Blackstone all fell by more than 6%; related software ETFs dropped 4.8%, and their cumulative decline from their September highs has widened to approximately 35%.

Shah admitted he was surprised by the market reaction. "I had expected a small reaction, but it was definitely bigger than we anticipated," he said on Tuesday.

He analyzed that, considering the level of the US market, this reaction was not too surprising. "AI trading has been going on for three and a half years, basically a straight upward trend. Now everyone is fully invested in long positions, and there aren't many new buyers."

The report sets a hypothetical scenario in 2028, which Shah explains is a point in time that is both far enough to drive discussions about how to learn from past mistakes, and close enough to serve as a wake-up call. Recent market volatility and the decline in tech stocks over the past few weeks due to concerns that AI could disrupt business models have been further amplified by the Citrini report, deepening anxieties about widespread disruption and job losses.

02 White-collar employment is in the "eye of the storm"

Shah pointed out that the US hasn't really created any white-collar jobs in the past three years. "A large number of jobs will be replaced by AI, specifically AI agents. These tools have only really taken off in the last few months."

He believes that information technology workers and their hiring are in the eye of the storm, with employment in information technology jobs down nearly 8% from their 2023 peak. In the report's hypothetical scenario, due to a severe economic contraction, 15% of white-collar workers will lose their jobs and lack other employment opportunities within 18 months.

Shah warned that without policy intervention, this group will be forced into the blue-collar and gig economy, significantly depressing average wages in these markets. Over the next five years, white-collar employment in the US will become a key indicator of the impact of AI, which may manifest most quickly in the US due to its more dynamic labor market. "It's much easier to lay off employees in the US than in other parts of the world," he added.

03. Propose to levy an AI tax to offset the impact of unemployment.

Shah called on the government to take action to address the workforce displacement caused by AI. He suggested considering taxing the incremental or unexpected gains from AI to protect consumer demand.

"If we allow AI to replace these jobs without properly taxing AI, it touches the very core of the consumer economy, and that's the real risk contagion scenario," Shah said. He emphasized:

"We released this report to the market not only because individual stock risks are important, but more importantly, because if jobs are disappearing faster than expected and there are no countermeasures, the overall economy and the consumer economy will face risks."

According to the report's findings, the negative feedback loop created by the replacement of white-collar workers will weaken demand in industries built on intermediary services, such as finance, insurance, and software. Consumer platforms reliant on disposable spending, including food delivery services like DoorDash and Uber Eats, are considered the riskiest sector.

04 Industry differentiation is becoming increasingly apparent

Shah points out that the benefits of AI are no longer evenly distributed, but are beginning to spread, with the market gradually identifying which industries will emerge as winners and which will be pressured. "The software industry is the best example. The market has been selling off software stocks due to the AI ​​threat for almost a year, and this trend has accelerated significantly in recent weeks."

He stated that intermediary industries also face real risks. According to the potential scenarios described in the Citrini report, AI agents could disrupt the payments industry by eliminating transaction fees charged by payment processing companies like Mastercard and Visa, thereby saving users money.

Regarding investment strategy, Shah revealed, "We typically short companies we believe will be disrupted by AI. On the other hand, we hold a significant amount of semiconductor stocks, which we believe will benefit from." He anticipates further market volatility in the short term, including for software companies, as traders assess the long-term impact of AI. "We are entering a period of high market volatility," he said.

According to Bloomberg, Citrini Research was founded by James van Geelen. The report explicitly states that "the following is a scenario assumption, not a prediction," and its sole purpose is to simulate a relatively under-explored scenario. Shah is the CEO of AI company Littlebird and managing partner of Lotus Technology Management. He previously co-founded the food ordering service Thistle and served as CEO and chairman of the financial data platform Sentieo, which was later acquired by AlphaSense.

Related reading: A memo from 2028: If AI wins, what will we lose?