Author: Zhui Feng Trading Platform
When discussing AI, the vast majority of people are still worried about "whether jobs will be taken away." But Deutsche Bank believes this perspective might be a bit narrow.
According to Zhui Feng Trading Desk, the latest report by George Saravelos, Global Head of FX Research at Deutsche Bank, extrapolates two extreme ultimate outcomes for AI development:
The first outcome is "Complete Substitution". Like Marx's prophecy over 180 years ago and Musk's vision today: in the factors of production in economics, "capital" itself becomes "labor" itself, the labor value drops to zero, and capitalism becomes obsolete. AI replaces human jobs on a large scale, wealth and income are highly concentrated in the hands of a few capital owners, the income and demand of ordinary people are weakened, and the economy falls into the dilemma of "plenty of things, but no one can afford them".
Did Marx predict artificial intelligence? About 200 years ago, he wrote a work on "machines," envisioning a scenario of full automation. In this world, the problem of scarcity is solved. However, as the value of labor drops to zero, capitalism becomes obsolete, and we transition to a new world of material abundance. The endpoint envisioned by Marx is strikingly similar to Elon Musk's vision today.
The second outcome is "History Repeats Itself". AI, like previous technological revolutions, improves efficiency but does not completely replace human labor; it merely "empowers" humans. New jobs continuously emerge, and the policy system can still patch up the shocks. In this case, the economic operating logic is similar to the past few decades, and inflation, interest rates, and the stock market are more likely to rise moderately.
Will we head towards an abyss, a utopia, or merely usher in an ordinary industrial upgrade? This Deutsche Bank report provides us with a brand new perspective.
When "Capital Becomes Labor", Why Traditional Economics Might Fail
To understand the ultimate destructive power of AI on the economy, one must return to the starting point of modern economics.
Starting from Adam Smith, all classical economists based their work on one most fundamental assumption: capital and labor are two completely independent factors of production. Whether capital or labor, their prices (interest rates and wages) are determined by their "relative scarcity" in the market.
Looking back at the history of the past two hundred years, all previous waves of technological innovation have basically conformed to this model.
By analogy, the invention of the steam engine eliminated coachmen but created train drivers; the internet destroyed traditional print media but created countless programmers and delivery drivers. In these historical cycles, labor always had something to do. Machines are capital, but those operating, maintaining, and designing the machines are still labor. Capital is merely a "complement" to labor.
But fully autonomous robots with Artificial General Intelligence (AGI) completely break this classification.
"In this scenario, capital becomes labor. It is no longer a complement to labor, but a substitute." George Saravelos pointed out incisively in the report.
When an AI machine can think, produce, and iterate completely autonomously, this machine is both capital and labor. The foundational structure of modern economics fractures at this moment.
The report states bluntly: "When capital equals labor, the value of work falls to zero, and wages fall to zero. Economists call this an unacceptable equilibrium. Scientists call it the singularity. Classical economic theory breaks down. And with it, capitalism as an institution also becomes obsolete."
When the Law of "Supply Creates Its Own Demand" Fails, Growth May Face "Secular Stagnation"
Once labor is replaced on a large scale, what kind of mutation will occur in the gears of macroeconomic operation? Deutsche Bank introduces a deeper level of theoretical extrapolation.
In a pure "AI replaces workers" world, wages fall, but material abundance increases unprecedentedly. Machines tirelessly produce a sea of goods and services for the market.
According to the views of classical economic schools like Say, Walras, and Wicksell, "supply automatically creates its own demand". In their theoretical models, the market has self-correcting capabilities. Commodity prices will fall as production costs decrease, and workers can eventually buy more things with less money, or find jobs in new fields.
However, Deutsche Bank warns that in a fully automated AI world, this self-correcting mechanism will completely fail.
The logic is very straightforward: automation will concentrate wealth and income extremely in a narrow class of "capital owners." And in economic laws, the "marginal propensity to consume" of the rich (capital owners) is far lower than that of ordinary workers.
For example: an AI factory can produce ten thousand cars a day at very low cost. But these profits all go to the AI owner. This owner cannot possibly buy ten thousand cars alone; meanwhile, the vast number of ordinary people who have lost their jobs and have zero income cannot afford to buy a car no matter how cheap it is.
"The transmission chain from supply to demand is broken." Saravelos wrote.
This state of market-clearing equilibrium would manifest as: structurally very low labor income, deflationary price levels, and a massive amount of "excess savings" replacing strong goods demand. Deutsche Bank points out that this is precisely the "secular stagnation" scenario proposed by economists Eggertsson and Mehrotra, and in extreme cases, it might trigger a Marxist-style revolution.
"Keynes Can Save the Day, But Might Not Be Enough", It Depends on the Government's and Institutions' Reaction Speed
Faced with market failure, can another pillar of modern economics - Keynesianism - turn the tide?
Keynes's revolution lay in acknowledging the failure of classical theory. Under the Keynesian framework, economic maladjustment is not permanent but cyclical. When price adjustments are slow and labor retraining cannot keep up, the government must intervene forcefully.
In the AI era, such intervention might manifest as: imposing high "AI taxes" on AI enterprises, using this as a funding pool to distribute "stimulus checks" or Universal Basic Income (UBI) to all citizens. Through this powerful fiscal transfer, the economy eventually reaches a new balance.
But this logic faces huge practical constraints.
The report cites the extensive research by renowned economists Acemoglu and Johnson on the history of technology deployment. History proves that policy and institutional adjustments are often extremely slow.
For example, in the early British Industrial Revolution, due to a lack of corresponding institutional protection, workers' real wages were suppressed for decades.
To prevent a decline in living standards, Deutsche Bank lists the necessary list of institutional reforms: "stronger labor bargaining institutions, competition policies that limit the monopoly power of dominant firms, tax and subsidy structures that do not artificially favor capital over labor, public investment in skills and creative task technologies, and the expansion and even reform of corporate governance."
If the pace of technological change is faster than the adaptation speed of governments and institutions, the Keynesian prescription will not take effect in time.
From Marx to Musk: The End of Property Rights and Scarcity
Even with a highly proactive and responsive government, deeper political economy challenges still exist.
The report raises a highly philosophical phenomenon: Karl Marx's构想 (conception) about "machines" and full automation in his book nearly 200 years ago is strikingly similar to tech giant Elon Musk's ultimate vision for AI today.
In this fully automated endgame, humanity solves the ultimate problem since ancient times - "Scarcity".
But what follows is the disintegration of the basic social consensus. "In this scenario of full automation, the essence of capitalism collapses. Political problems no longer revolve around how to subsidize wages. They become more fundamental to the social structure: if scarcity is solved, what is the meaning of property rights?"
Just as Keynes questioned in his famous 1930 essay "Economic Possibilities for our Grandchildren": When humans no longer need to labor for survival, what is the meaning of human existence?
Although these topics may seem grand, Deutsche Bank emphasizes that given their existential nature, they are absolutely relevant to current financial market pricing.
Deutsche Bank's Two Ultimate Outcome Scenarios and Pricing Logic
For the market, one must consider both the "transition period to the endgame" and the "endgame itself." Deutsche Bank divides the future world into two extreme parallel universes and provides clear asset pricing logic.
Outcome One: AI Completely Replaces Labor (Heading Towards Extreme Disruption)
This is a world where AI can quickly and (almost) completely replace human labor. From a living standard perspective, this is a utopia where the problem of economic scarcity is permanently solved. But Deutsche Bank warns that the path to get there will be "the most destructive and full of uncertainty".
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Macroeconomic Characteristics Rising unemployment, continuous pressure for government intervention, intensified social conflicts. There will be endless博弈 (game/struggle) over resource distribution between capital owners and labor.
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Market Pricing Logic: The macroeconomy will face extremely strong disinflationary pressures, and real interest rates will see a structural and sustained decline. Due to AI's极高 efficiency, corporate profitability will soar.
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Stock Market and FX Market Performance: Despite soaring profits, the stock market will fall into long-term confusion and volatility. The logic is: the risk of "expropriation faced by enterprises (such as extremely high taxes or nationalization)" will increase significantly, and how to distribute profits among different stakeholders will remain unresolved. In the foreign exchange market, Deutsche Bank clearly states: "The currencies of those countries that can most successfully manage this smooth transition are most likely to gain the most."
Outcome Two: AI is Merely an Empowering Technology (History Repeats Itself)
In this world, AI does not trigger a singularity but, like innovations of the 20th century, merely acts as an augmentation technology.
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Macroeconomic Characteristics: This is a world of coherence. Limitations in technology adoption, gradual institutional evolution, and Keynesian countercyclical fiscal policies will work effectively. Although distribution conflicts and labor market pains still exist, humans always find new jobs.
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Market Pricing Logic: Completely opposite to the first outcome, the macro indicators here will point upwards.
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Stock Market and FX Market Performance: Inflation levels, real interest rates, and the stock market are all more likely to move towards higher levels. Deutsche Bank concludes: "History will rhyme, not rupture, just like the past few decades."
What Should We Look At Now?
Deutsche Bank points out that the purpose of this report is not to give an absolute prediction but to establish an analytical framework. In this extremely wide distribution of outcomes, the market debate on the macro impact of AI will definitely not stop in the short term.
From an investor's perspective, how should we observe the progress bar of the AI economy's evolution now? Deutsche Bank提炼出 (extracted) clear "observation waypoints":
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Qualitative Change in Labor Data: Are we beginning to observe a rise in structural unemployment? Has the already declining labor share of income entered a trajectory of accelerated decline?
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Shift in Fiscal and Antitrust Policies: How willing is the government to adopt proactive fiscal and institutional policies? Has it begun to forcefully implement income redistribution? Has it taken substantive antitrust preventive measures against monopolistically concentrated capital conglomerates (tech giants)?
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