Author of 'AI Doomsday Report' Speaks Out: Market Panic Exceeds Expectations, but the Real Risk is the 'Unemployment Loop'

Author: Zhang Yaqi, Hard AI

Summary: A report on AI impact scenarios triggered a global sell-off, with IBM plummeting 13% in a single day, the worst in 25 years. Report author Shah stated that the market reaction "far exceeded expectations" and warned that white-collar jobs could decrease by 5% in the next 18 months, calling on the government to tax AI to curb the negative feedback loop of unemployment—if jobs disappear faster than expected, the entire consumer economy will be at risk. He said, "Everyone is now fully invested in AI, and there are few incremental buyers left."

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After a scenario analysis report on AI impact triggered a global market sell-off storm over the weekend, co-author Alap Shah publicly spoke out on Tuesday, admitting that the market reaction far exceeded expectations and calling on the government to tax AI to address the potential wave of large-scale unemployment.

The chief investment officer of Lotus Technology Management warned in an interview with Bloomberg Television that AI advancements could lead to a 5% reduction in white-collar jobs within the next 18 months, with the U.S. facing the greatest impact in the absence of policy intervention. He predicted that service-intensive industries such as insurance and banking are at higher risk.

Shah stated that governments should consider taxing the incremental or unexpected profits brought by AI to offset the impact of labor substitution and protect consumer demand. He believes that the replacement of white-collar labor will create a negative feedback loop: companies lay off employees to boost profit margins, reinvest the savings into AI, and thereby drive further layoffs.

As previously mentioned by Wall Street News, the report released over the weekend assumed a scenario in 2028, depicting rapid advancements in machine intelligence that increase productivity but render a large amount of human labor obsolete, leading to unemployment, a collapse in consumer spending, and dragging down indices such as the S&P 500. Shah admitted, "I originally thought there would be a slight reaction—but it clearly exceeded our expectations." He said that given that AI-related trading has been ongoing for about three and a half years and has basically been rising all the way, there are few incremental buyers left in the market, making this reaction somewhat understandable.

01 Market Reaction Far Exceeds Expectations

This report, released by Citrini Research on social media, combined with Nassim Taleb's market warning and related statements from AI startup Anthropic, triggered a large-scale sell-off. IBM's stock price plummeted 13% in a single day, the largest single-day drop in 25 years; DoorDash, American Express, KKR, and Blackstone all fell more than 6%; related software ETFs fell 4.8%, with the cumulative decline from last September's high expanding to about 35%.

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

He analyzed that, considering the level of the U.S. market, this reaction is not entirely unexpected. "AI trading has been going on for three and a half years, basically rising in a straight line. Now everyone is fully invested long, and there are few incremental buyers left."

The report set the hypothetical scenario in 2028. Shah explained that this timeframe is far enough away to drive discussions on how to make amends, but close enough to serve as a warning. Recent market volatility has intensified, with tech stocks falling over the past few weeks due to concerns that AI could disrupt business models. The Citrini report further deepened concerns about widespread disruption and unemployment.

02 White-Collar Jobs in the "Eye of the Storm"

Shah pointed out that the U.S. has not really created any white-collar jobs in the past three years. "A large number of positions will be replaced by AI, specifically AI agents. These tools have only truly landed in the past few months."

He believes that information workers and their recruitment are in the eye of the storm, with the number of information-related jobs falling nearly 8% from the 2023 peak. In the report's hypothetical scenario, due to a severe economic contraction, 15% of white-collar workers will be unemployed within 18 months with no other job opportunities.

Shah warned that without policy responses, this group will be forced into the blue-collar and gig markets, significantly depressing the average wage levels in these markets. Over the next five years, U.S. white-collar employment will be a key indicator for measuring AI impact, with effects likely to appear fastest in the U.S. because its labor market is more dynamic. "It's much easier to fire employees in the U.S. than in other parts of the world," he added.

03 Proposing an AI Tax to Counter Unemployment Impact

Shah called on the government to take action to address the labor substitution brought by AI. He stated that consideration should be given to taxing the incremental or unexpected profits brought by AI to protect consumer demand.

"If we allow AI to replace these jobs without properly taxing AI, it will hit the core of the consumer economy. This is the real risk propagation scenario," Shah said. He emphasized:

"We released this report to the market not only because individual stock risks are important, but more crucially, if jobs disappear faster than expected and there is a lack of countermeasures, the overall economy and the consumer economy will face risks."

Based on the report's discussion results, the negative feedback loop formed by white-collar labor substitution will weaken demand in industries built on intermediary services, such as finance, insurance, and software. Consumer platforms relying on discretionary spending, including delivery services like DoorDash and Uber Eats, are seen as the areas with the greatest risk.

04 Increasing Industry Divergence

Shah pointed out that the benefits of AI are no longer evenly distributed but are beginning to disperse. The market is gradually discerning which industries will become winners and which will face pressure. "The software industry is the best example. The market has been selling software stocks for almost a year due to AI threats, and this trend has clearly accelerated in recent weeks."

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

Regarding investment strategy, Shah revealed: "We typically short companies that we believe will be disrupted by AI. On the other hand, we hold a large number of semiconductor stocks, which we believe will benefit from this." He expects further market volatility in the short term, including among 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 clearly states that "the following content is a scenario assumption, not a prediction," and its sole purpose is to simulate a relatively underexplored scenario. Shah is the CEO of AI company Littlebird and managing partner of Lotus Technology Management. He previously co-founded the meal subscription 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: What Do We Lose If AI Wins?