AI might create 'Ghost GDP'—where the economy looks like it's growing on paper, but nobody actually has any money to spend.
Because our financial institutions are built on the assumption that human labor is scarce, AI-generated abundance creates a paradox where supply skyrockets but demand collapses. This creates a wedge between measured output and actual spendable income, potentially triggering a collapse in the $13 trillion mortgage market as high-earning 'exposed' workers lose their consumption power.
Abundant Intelligence and Deficient Demand: A Macro-financial Stress Test of Rapid AI Adoption
SSRN · 6349718
We formalize a macro-financial stress test for rapid AI adoption. Rather than a productivity bust or existential risk, we identify a distribution-and-contract mismatch: AI-generated abundance coexists with demand deficiency because economic institutions are anchored to human cognitive scarcity. Three mechanisms formalize this channel. First, a displacement spiral with competing reinstatement effects: each firm's rational decision to substitute AI for labor reduces aggregate labor income, which r