Will artificial intelligence trigger a consumer recession or usher in a prosperous golden age?

The Kobeissi Letter published a lengthy article on X, exploring the economic impact of AI development. Market concerns about automation triggering layoffs and consumer downturns have led to sharp declines in the stock market. However, from a historical perspective, AI reducing cognitive costs will expand demand and boost productivity. It will not destroy the economy; instead, it may create an unprecedented era of prosperity.

Claude Triggers Software Stock Market Collapse

Recently, market fears of AI “taking over the world” have indirectly caused the top 500 companies to lose up to $800 billion in market value. This panic-driven decline mainly stems from the belief that AI will lead to a vicious cycle of layoffs and weakened consumer spending. For example, after Anthropic launched Claude’s automatic vulnerability scanning feature “Claude Code Security,” cybersecurity giant CrowdStrike (CRWD) lost $20 billion in market value within two trading days. IBM and Adobe (ADBE) also faced sharp stock declines after Anthropic announced Claude could simplify COBOL code.

However, commodification of cognitive abilities does not equate to economic collapse. Just like personal computers and the internet in the past, lowering costs often marks the beginning of technological proliferation and economic expansion.

From a macroeconomic history perspective: Will productivity improvements lead to market contraction?

The “Doomsday Economic Cycle” hypothesis creates a simplified linear model: AI gets better, companies reduce staff and wages, purchasing power declines, and companies reinvest in AI to defend profit margins, leading to a negative cycle. This assumes a completely stagnant economy.

But The Kobeissi Letter believes the biggest flaw in this hypothesis is the mistaken assumption that market demand is fixed. Historically, when the cost of a product or service drops sharply, demand tends to multiply. For example, the price of personal computers in 1980 was 99.9% cheaper, yet we did not cut spending; instead, we created vast new industries.

Currently, services account for nearly 80% of US GDP. Tasks such as healthcare administration, legal work, tax filing, marketing, and programming rely heavily on expensive knowledge workers. In the future, AI will reduce the scarcity of knowledge. As service costs decrease, purchasing power will increase. If operational costs for businesses fall, small enterprises will find it easier to survive. Companies relying solely on high-cost cognitive labor to maintain profits may face challenges, but overall, the economy will benefit from lower service costs and increased demand.

AI Will Lower Barriers to Entrepreneurship and Drive Economic Growth

Reduced service costs will lead to lower living expenses. Even if wage growth slows, household real purchasing power will still increase as prices fall faster. While markets worry that AI will significantly replace white-collar jobs, there remains strong structural demand for technical work, healthcare, and advanced manufacturing in the physical world. More importantly, AI will automate high-threshold tasks like accounting, marketing, and programming, greatly lowering the barriers for micro-enterprises to start up.

Just as the internet eliminated some old jobs but created many new ones, AI’s impact on the labor market will be a “restructuring” rather than destruction, and may even be a solution to current wealth disparities.

Productivity Explosion Could Reduce Global Conflicts

For a long time, conflicts and trade wars between nations have stemmed from competition over scarce resources. If AI can significantly lower costs in energy management, logistics, and manufacturing design, the global economic pie will expand. The industrial revolution after World War II reduced the motivation for direct confrontation among great powers. In a high-productivity environment rich in resources, protectionist measures like tariffs will become economically unviable.

As automation makes production more resilient locally, national economic security will improve, and geopolitical aggression will decrease substantially. The world will find ways to adapt. AI will not bring a dystopian future but will instead herald the greatest expansion of productivity in modern history.

This article originally appeared on Chain News ABMedia: Will Artificial Intelligence Trigger Consumer Recession or Create an Era of Prosperity?