Perspectives on the good and ills of AI have flooded social media and news networks for months, if not years. However, a new thought piece has ignited a major eruption of noise about the economic consequences of artificial intelligence (AI).

In an effort to minimize emotional reactions, I’ve outlined some widely covered concerns about AI, and how we recommend approaching this rise in technological advancements from an investments perspective.

The outcry: AI implementation leading to economic collapse?

The most recent piece to generate headlines was published by Citrini‡, a firm that provides investing and trading insights. Their narrative is a worst-case scenario exercise on what the AI-filled future could bring for jobs, the economy and more. It details a rapid destruction of white-collar jobs, leading to falling incomes and spiking unemployment – resulting in a collapse of consumption. According to this piece, shortly thereafter comes defaults in the home mortgage space, followed by crisis in the private credit and insurance sector, and even the U.S. government becoming severely constrained by budget/deficit issues.

Of course, this is all speculative, but it has certainly garnered emotional reactions in the media and markets, tumbling the Dow by more than 800 points‡ in the days after its publication.

The reality: Level-headed reasoning

It is important to highlight that the think piece closes with the line: “We are certain that some of these scenarios will not materialize.” However, it is still probable that some versions of Citrini’s scenarios will occur (at some point). AI will continue to disrupt many industries and job categories – as we’ve already witnessed during the past three years.

Yet, as the authors of the piece themselves acknowledge, it is highly improbable that their precise “perfect storm” series of events will occur in a very short timeframe as they presented.

Below I’ve noted areas of the economy we believe will experience impacts and what we’re accounting for based on those in our forecasts.

1. AI will drive productivity and profit margins higher for most companies. Owners of equity will likely enjoy a period of expanding earnings and market valuations due to AI.

2. AI will inevitably lead to the elimination of many jobs. Notably, for the first time, the job losses will be concentrated in white-collar, highly educated areas. For instance, data entry roles, customer service, legal assistance, administrators and software programming are at the top of the very long list of potential targets.

AI is already supplanting the need for new employees in many sectors, which is driving down job openings and hiring activities‡. The full scope of AI’s impact on the labor force will be better understood over time. That said, some forecasters remain optimistic that AI will ultimately create as many jobs as it eliminates, but these views are in the minority.

3. It is reasonable to expect rising structural unemployment over the next several years. Estimates vary widely, but an unemployment rate increase from 4.5% to 7-10% is not out of the question.

4. AI is not likely to wipe out entire job sectors in the immediate future, as some are forecasting. The physical buildout of AI architecture has resource limitations (energy, water, labor) that will likely prevent the full impact of AI from being realized for several years. Additionally, there are unknown data security risks incumbent in the deployment of AI that still need to be unpacked and addressed. These issues will take time to resolve, perhaps years for some sectors.

The business world will most likely evolve through a period of rising profits being generated by a shrinking workforce during the next 3-7 years, with unknown challenges to AI implementation likely to arise as the technology matures.

5. In aggregate, the equity markets should benefit from higher profits and lower overhead because of AI deployment. As this occurs, the U.S. will have to develop strategies for managing a climbing unemployment rate – which could potentially entail higher corporate tax rates to help fund government support programs.

Stay the course

Amidst all this speculation and uncertainty, what we do know is that AI is here to stay. It is too valuable in driving productivity to be dialed back and has already becoming enmeshed into consumers’ daily lives. Additionally, there is a global AI race that requires further development of AI to counter the efforts of the U.S.’s global competitors like China.

As is always the case with major technological advancement, there will be winners and losers as the story unfolds. Yet, that doesn’t mean investors should make knee-jerk reactions to market moves. If the past decade has taught us anything, it’s that a steady hand is required to survive and thrive in the midst of volatility, wars, pandemics, crises, conflicts – and everything else that’s been thrown at the markets.

We are keeping our eyes on AI, and we encourage you to keep your eyes on the long-term horizon.

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