"AI End-of-Day Report" author speaks out: Market panic exceeds expectations, calls for an "AI tax" to address unemployment

After a weekend market sell-off triggered by a scenario report on AI disruption, co-author Alap Shah publicly spoke on Tuesday, admitting that market reactions far exceeded expectations and calling on governments to tax AI to prepare for a potential wave of mass unemployment.

In an interview with Bloomberg Television, the Chief Investment Officer of Lotus Technology Management warned that within the next 18 months, AI advancements could reduce white-collar jobs by 5%, with the U.S. being hit hardest if no policy interventions are implemented. He predicted that service-intensive industries like insurance and banking face greater risks.

Shah stated that governments should consider taxing the incremental or unexpected gains brought by AI to offset the impact of labor displacement and protect consumer demand. He believes that replacing white-collar workers will create a negative feedback loop: companies lay off workers to boost profit margins, then reinvest the savings into AI, leading to further layoffs.

As previously reported by Wallstreetcn, the weekend report envisioned a 2028 scenario where rapid AI progress boosts productivity but renders many human jobs obsolete, triggering unemployment, a collapse in consumer spending, and declines in indices like the S&P 500. Shah admitted, “I thought the market would react mildly — but it actually far exceeded our expectations.” He added that considering AI-related trading has been ongoing for about three and a half years with a generally upward trend, the market’s incremental buyers are nearly exhausted, so this reaction is somewhat understandable.

Market Reaction Far Exceeds Expectations

A report published by Citrini Research on social media, combined with Nassim Taleb’s market warnings and statements from AI startup Anthropic, triggered a large-scale sell-off. IBM’s stock plummeted 13% in a single day, its largest one-day drop in 25 years; DoorDash, American Express, KKR, and Blackstone all fell more than 6%; related software ETFs declined 4.8%, widening the year-over-year decline from September’s highs to about 35%.

Shah expressed surprise at the market’s response. “I expected a small reaction, but it was definitely larger than we anticipated,” he said on Tuesday.

He analyzed that, given the level of the U.S. market, such a reaction isn’t too surprising. “AI trading has been ongoing for three and a half years, mostly on an upward trajectory. Now everyone is fully long, and there are few incremental buyers left.”

The report’s hypothetical scenario is set in 2028, Shah explained, a timeframe far enough to spark discussions on how to remedy the situation but close enough to serve as a warning. Recent market volatility has intensified, with tech stocks falling over concerns that AI could disrupt business models, and Citrini’s report deepens fears of widespread upheaval and unemployment.

White-Collar Jobs in the “Eye of the Storm”

Shah pointed out that the U.S. has not truly created any new white-collar jobs in the past three years. “A large number of positions will be replaced by AI—specifically AI agents. These tools have only become truly operational in recent months.”

He believes that information workers and their recruitment are at the eye of the storm, with employment in information-related jobs down nearly 8% from the 2023 peak. In the scenario outlined in the report, due to severe economic contraction, 15% of white-collar workers will be unemployed within 18 months with no other job opportunities.

Shah warned that without policy responses, these individuals will be forced into blue-collar and gig markets, significantly depressing average wages in related sectors. Over the next five years, U.S. white-collar employment will be a key indicator of AI’s impact, likely to manifest fastest in the U.S. because of its more dynamic labor market. “It’s much easier to lay off employees in the U.S. than in other parts of the world,” he added.

Proposal for AI Tax to Hedge Unemployment Shock

Shah called on governments to take action against AI-driven labor displacement. He suggested considering taxing the incremental or unexpected gains from AI to protect consumer demand.

“If AI replaces these jobs without proper taxation, it hits the core of the consumer economy — that’s the real risk of contagion,” Shah said. He emphasized:

“We released this report to the market not just because of individual stock risks, but more importantly, because if jobs disappear faster than expected and there are no measures to respond, the entire economy and consumer spending will be at risk.”

According to the report’s findings, the negative feedback loop from white-collar job displacement will weaken demand in industries built on intermediary services, such as finance, insurance, and software. Consumer platforms reliant on disposable income, including DoorDash and Uber Eats, are seen as the most vulnerable sectors.

Industry Segmentation Becomes More Apparent

Shah noted that the benefits of AI are no longer evenly distributed but are beginning to diverge, with markets gradually identifying which industries will thrive and which will face pressure. “The software industry is a prime example. Markets have been selling software stocks for nearly a year due to AI threats, and this trend has accelerated in recent weeks.”

He also pointed out that intermediary industries face tangible risks. According to Citrini’s scenario, AI agents could save users money by eliminating transaction fees charged by payment processors like Mastercard and Visa, disrupting the payments industry.

In terms of investment strategy, Shah revealed: “We typically short companies we believe will be disrupted by AI. On the other hand, we hold a large number of semiconductor stocks, as we think these companies will benefit.” He expects further market volatility in the short term, including in software stocks, as traders assess AI’s long-term impact. “We are entering a period of high market volatility,” he said.

According to Bloomberg, Citrini Research was founded by James van Geelen. The report explicitly states that “the following is a scenario hypothesis, not a prediction,” with the sole purpose of exploring a relatively under-discussed scenario. Shah is CEO of AI company Littlebird and managing partner at Lotus Technology Management. He previously co-founded meal delivery service Thistle and served as CEO and Chairman of financial data platform Sentieo, which was later acquired by AlphaSense.

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