The AI “Ghost-GDP” Panic Roiling the Markets

Axios, Bloomberg, Business Insider, the Financial Times, and Fortune contributed to this report.

A short, sharp explainer: a tiny research shop and a co-author rolled out a hair-raising “what if” about AI that went viral — and traders listened. The scenario argues that cheap, rampant AI could turbocharge output on paper while hollowing out wages and demand in the real economy, eventually triggering a deep market crash and a credit mess.

Here’s the thesis in plain English. Citrini Research and Alap Shah sketch a future where firms slash white-collar payrolls fast, companies buy more AI gear (which doesn’t spend), consumer demand falls, mortgages and private credit strain, and the S&P tumbles — a modeled 38% drawdown from recent highs in their worst-case timeline.

The idea — “ghost GDP,” output that exists in reports but doesn’t circulate through people’s wallets — is deliberately provocative. It’s meant as a stress test, not a forecast, but the paper’s viral spread has pushed the thought experiment from nerdy Slack channels into mainstream market chatter and headline coverage.

Why markets care: if AI really did hollow out the paychecks of high-earners who spend big, knock-on effects could hit housing, payments, and credit — and that’s a recipe for volatile equities and tighter lending conditions. That transmission chain is the memo’s core gamble; critics say its timing and speed assumptions are aggressive.

Policymakers and economists are already squaring up to the debate. Some, including a prominent Fed nominee, argue AI’s productivity gains might let central bankers ease rates without sparking inflation. Others warn that productivity without broad income gains could raise structural unemployment and limit the Fed’s room to maneuver. Expect this argument to influence policy chatter this year.

Bottom line: the range of outcomes is huge. The report is a useful red-team exercise — a reminder that even bullish tech shocks can have weird, nonobvious macro effects — but it leans on fast, pessimistic transmission channels that many economists doubt will happen overnight. Don’t treat it as prophecy; do treat it as a loud alarm bell worth stress-testing in boardrooms and policy shops.

If you want the one-minute takeaway: plan for wide uncertainty. Markets are pricing probabilities right now; the memo widened those odds. Whether that matters to your portfolio or policy depends on how quickly automation replaces spenders — and nobody knows that for sure.