Why AI Could Cause an Economic Collapse

FUTURE

Why AI Could Cause an Economic Crisis

Everyone seems to agree about AI’s huge positive impact on the economy. But, as more people look into this question, the reality becomes grimmer.

In fact, AI could send the global economy into a terrific economic crisis.

But how is that possible? How could the all-problem-solving technology, humanity’s “greatest achievement,” actually backfire? The main reason is that, ironically, AI might have appeared at the worst time possible.

In an industry not short of insufferable hype, today we take a look at AI’s dark side. Or, as I call it, the consequences of running too damn fast.

Let’s dive in.

AI is a GPT. But a different one?

The general assumption, to which I assume both of us agree, is that Artificial Intelligence is going to be a profoundly transformative technology, one that will literally turn the world upside down (hopefully for the better).

Goldman Sachs Research (2023) projects that the diffusion of generative AI tools could “drive a 7 percent, almost $7 trillion, increase in global GDP and lift productivity growth by 1.5 percentage points a year over the next decade.”

The McKinsey Global Institute (2023) estimates that generative AI could unlock $2.6–$4.4 trillion in value annually and, when combined with broader work-automation technologies, raise labor productivity growth by 0.5 to 3.4 percentage points each year.

A Federal Reserve Bank of Dallas analysis (2025) notes economists at Goldman Sachs expect AI adoption to boost U.S. productivity growth by 0.3 – 3.0 percentage points a year for a decade, with a median scenario of 1.5 points, implying a sizeable lift to living standards if realised.

JP Morgan Private Bank (2024) argues AI’s diffusion could show up in macro data within about seven years, far faster than past GPTs, and models a 17.5 percent upside to long-run productivity relative to a no-AI baseline, eclipsing the personal-computer era.

Although we also have a fair share of skepticism, even coming from Nobel laureates, the general sentiment is highly positive.

And the reason is that there is global consensus that AI is one of the considered ‘GPTs’, or general-purpose technologies.

But what are these, and why does it matter so much?

Trip down memory lane

Economic historians classify GPTs as technological inventions that become ubiquitous across industries, spawn complementary innovations, and ultimately reshape aggregate productivity.

The canonical list (steam power, electricity, and the Internet) all showed a broadly similar pattern of invention, slow diffusion, followed by economy-wide takeoff, but with markedly different timetables and magnitudes.

Just to give a handful of examples:

While James Watt’s improved design was patented in 1769, steam horsepower remained a niche until about 1830.

The first power station was built in 1882, but it wasn’t until four decades later that electricity became the dominant form of horsepower.

Thirty years was also what it took for personal computers to become mainstream (After the invention of the microchip in 2971, only 20 million PCs were sold worldwide by 1990).

Simply put, some technologies are…

Enjoyed the introduction? Subscribe or sign in to continue with this edition.