AI Could Eliminate 15% of Jobs and Trigger a New Financial Crisis

Carson Block's Forecast on the Impact of Artificial Intelligence

According to ХВИЛЯ: In a column for The Economist, short-seller Carson Block-founder of the research firm Muddy Waters Research-warns that artificial intelligence may force out a large number of high-paid white-collar workers. He argues this could spark a financial market collapse comparable to the 2007–2009 crisis. The biggest casualties, he says, will be leading tech companies like Nvidia, Microsoft, and Amazon, which are aggressively rolling out cutting-edge AI technologies.

Block points out that the valuations of these firms heavily rely on a steady inflow of money into passive funds. He highlights that large language models can already write code for their own successors, raising automation levels across the tech sector. As a result, teams in tech companies are shrinking from half a dozen people to just one, confirming a declining need for human labor.

Major Shifts in the Labor Market

According to Block's projections, within three to four years, AI could replace roughly 15% of jobs in the U.S. knowledge economy. AI models, which double in power about every six months, are poised to bring serious changes to the labor market. Research by Michael Green of Simplify Asset Management shows that passive investing has already damaged the stock market. Block also stresses that flows into retirement accounts could turn negative, as workers who lose their jobs stop saving for retirement and start withdrawing their savings.

'The S&P 500 has turned into a concentrated volatility trap' - Carson Block

He warns that we may witness 'not just a massive market correction, but the end of the existing social contract.' The main blow from negative retirement account flows will hit passive funds tracking the S&P 500 index. This could lead to a collapse in stock prices, troubles in private lending, disruptions to insurance company balance sheets, and deflationary pressure.

The core threat Block identifies is the restructuring of society after widespread displacement of productive labor. He points to two main counterarguments: the Jevons paradox and doubts about the speed of new technology adoption. Still, despite these points, the expected changes could have a major impact on the economy and labor market in the coming years.

This forecast underscores the importance of monitoring AI's influence on the labor market and financial systems. Economists and analysts must consider the potential risks tied to automation, which could lead to serious social and economic consequences. Accordingly, it is crucial to develop strategies to support workers who may be affected by technological change and to adapt financial systems to new market realities.

As the impact of artificial intelligence continues to unfold, major tech companies are already implementing significant workforce reductions. The rapid advancements in AI technology suggest that the job market may undergo drastic changes, potentially leading to widespread layoffs and a redefined employment landscape in the near future.