AI Productivity Boom: Wolfe Presents Counterarguments to Citrini's Doomsday Scenario

Investing.com — On Monday, a stern warning issued by Citrini Research shook parts of the market. The organization depicted a hypothetical “Global Smart Crisis” scenario, where rapid adoption of artificial intelligence would trigger mass layoffs, credit pressures, and a significant market correction by mid-2028.

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Citrini’s scenario—clearly stated as an exploration rather than a prediction—envisions the S&P 500 falling 38%, with unemployment soaring above 10%, and a collapse in the private credit market, as AI-driven productivity shocks surpass the economy’s adjustment capacity. This analysis resonated with investors already uneasy about disruption risks in payments, software, and cybersecurity sectors.

One day later, Wolfe Research Chief Economist Stephanie Roth urged investors to consider a more balanced path. Roth acknowledged that this thought experiment highlights a reasonable concern.

“This argument is compelling because it highlights a real risk: what happens if AI adoption outpaces the economy’s ability to adjust?” she wrote. However, she emphasized that the same forces supporting a bearish scenario could lead to very different macro outcomes.

“Today, we offer an alternative story—not a rebuttal, but a complementary scenario—exploring how rapid AI adoption could evolve into a productivity-driven expansion supporting growth rather than demand shocks,” Roth stated.

In Wolfe’s baseline narrative, the early stages of AI adoption between 2025 and 2026 indeed appear unsettling. White-collar hiring freezes emerge, productivity surges, profit margins temporarily expand, giving the impression that returns disproportionately flow to capital. Tech companies cut hiring targets, consulting firms automate entry-level tasks, and financial firms increasingly rely on AI-driven research tools.

Brief Fears

Roth predicts that as adoption accelerates between 2026 and 2027, competitive forces will unexpectedly erode early profit margins. What initially seemed like excess profitability increasingly manifests in lower prices, faster services, and new product offerings. Advanced AI capabilities quickly become standard features in enterprise software and customer workflows.

Under this path, the macro outlook is much more moderate than feared. Wolfe’s scenario projects only a slight increase in unemployment to about 4.5%, with inflation cooling to around 1.8% year-over-year by May 2028. The productivity boom is less a demand shock and more a positive supply shock.

Labor market adjustments are also more gradual than the bearish narrative suggests. Tech, finance, and business services see phased layoffs, but new hiring occurs in construction, manufacturing, and logistics. Companies find that AI works best alongside experienced employees who can guide and verify outputs, rather than fully replacing teams.

Demographic and labor supply constraints serve as key buffers. As aging populations and tighter immigration policies persist, automation tends to fill ongoing labor gaps rather than replace surplus workers. Healthcare systems deploy AI to support diagnostics and scheduling, manufacturers use automation to offset skilled labor shortages, and infrastructure projects rely on AI-supported project management.

Importantly, the productivity boom eventually extends into tangible investment cycles. Spending expands on data centers, power grids, semiconductors, and automation equipment, supporting demand in construction, engineering, and industrial sectors.

By 2028, Wolfe’s alternative path points to a new equilibrium. As AI improves supply chain and service efficiencies, inflationary pressures ease, and as price growth slows faster than nominal wages, real wages begin to rise. Roth notes that the economy is not without disruption or inequality, but the feared negative spiral has not materialized.

Roth believes AI will follow the trajectory of previous general-purpose technologies: initially disruptive, then exerting deflationary effects over time, and once widely adopted, supporting growth.

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