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+---
+type: archive
+source: "Michael Bloch (@michaelxbloch)"
+url: https://michaelxbloch.substack.com/p/the-2028-global-intelligence-boom
+date: 2026-02-22
+tags: [rio, ai-macro, deflation, labor-displacement, scenario-analysis]
+linked_set: ai-intelligence-crisis-divergence-feb2026
+---
+
+# THE 2028 GLOBAL INTELLIGENCE BOOM — Michael Bloch
+
+Bull scenario counterpart to Citrini's crisis memo. Also written from June 2028 perspective. Argues technology-driven deflation expands purchasing power, and the same AI that destroys jobs creates replacements faster than any prior technology cycle.
+
+## Core Thesis
+
+AI is "the most powerful deflationary force in human history." Technology-driven deflation (costs fall because production costs collapsed) is categorically different from demand-driven deflation (costs fall because nobody's buying). The former has produced prosperity every time it's been tested over 200 years.
+
+## Key Mechanisms
+
+### Technology-Driven Deflation ≠ Demand-Driven Deflation
+- When prices fall because cost of production collapsed → living standard boom
+- Historical precedent: automobiles, televisions, air travel, computing, mobile phones
+- Each time: deflation coincided with MORE economic activity because affordability unlocked new demand
+- AI did this to the entire services economy simultaneously (70% of consumer spending)
+
+### The Purchasing Power Reframe
+- Bears focused on wages. What matters is purchasing power = wages AND prices
+- Household earning $100K in 2025 only needs $85K in 2027 for same standard of living
+- AI-driven services deflation running 8-12% annualized
+- Average household spending $8-12K/year on services whose value proposition was navigating complexity (tax prep, insurance, financial advice, real estate commissions)
+- AI agents compressed these costs 40-70% — equivalent to $4-7K annual raise, tax-free
+- "The intelligence tax did" unwind — not the intelligence premium
+
+### Intermediation Repricing (Not Collapse)
+- DoorDash take rate collapsed → restaurants kept more, consumers paid less, drivers earned more per delivery
+- Real estate commissions compressed from 2.5-3% to under 1% → $42B/year flowing to homebuyers instead of intermediaries
+- Mastercard: per-transaction interchange compressed but total volume accelerated — people buy MORE things at better prices
+- "The intermediation economy didn't collapse. It got competed down to its actual value and the surplus went to everyone else."
+
+### Labor Market Recovery Through New Business Formation
+- Unemployment peaked at 5.8% (Feb 2027) — genuinely concerning but short-lived (~9 months)
+- Same AI tools that eliminated roles made it dramatically cheaper to START things
+- Cost of launching a business fell 70-80% in 18 months
+- Census Bureau: 7.2M new business applications in 2027, shattering 5.5M record from 2021
+- "Minimum viable ambition" dropped to nearly zero — laptop + credit card + domain expertise
+- "AI-assisted" prefix for every professional services category — substantive roles, not "prompt engineer" memes
+- "AI didn't just destroy jobs faster; it created the replacement jobs faster too"
+
+### SaaS Repricing as Feature
+- Software spending is an INPUT, not output
+- When cost of input drops, businesses deploy more toward expansion, R&D, new hires
+- Long tail of SaaS (Monday, Asana, Zapier) decimated, but total economic activity INCREASED
+- By Q3 2027, total enterprise tech spending recovered but composition unrecognizable
+
+### Private Credit: Contained
+- Zendesk default was real, but concentrated in narrow vintage (2021-23 LBOs) in specific sector (horizontal SaaS)
+- Total exposure ~$80-100B against $2.5T private credit AUM = 3-4% loss rate
+- Broader portfolio (real estate, infrastructure, asset-backed) performing fine or better due to AI productivity
+- Insurance regulatory response proportionate — concentration limits, not forced deleveraging
+- No forced selling mechanism → no contagion
+
+### Mortgage Market: Held
+- White-collar income disruption was transitional (9 months), not structural
+- Household with 10% income drop but 20% non-housing expense drop is BETTER positioned for mortgage payments
+- 30-day prime delinquency peaked at 2.1% (vs 5%+ for systemic distress)
+- National home price index positive; only expensive coastal metros softened modestly
+
+## Key Data Points (fictional, scenario-based)
+- S&P 500: crossed 12,000; Nasdaq above 40,000
+- Unemployment: peaked 5.8%, recovered by Q3 2027
+- Real median household purchasing power: up 18% since 2025
+- New business applications: 7.2M (2027 record)
+- Services deflation: 8-12% annualized
+- Consumer confidence: rebounded to pre-2020 levels by Q3 2027
+
+## What Bears Got Right (per Bloch)
+- Transition was painful
+- SaaS was overvalued
+- Intermediation businesses built on friction were in trouble
+- PE-backed software was a ticking time bomb
+- Labor market went through genuine disruption
+
+## Where Bears Went Wrong (per Bloch)
+- Assumed companies would uniformly fire rather than redeploy
+- Assumed displaced workers would stay displaced rather than adapt
+- Assumed reduced spending in one category = reduced spending overall
+- Assumed deflation is always contractionary
+- Treated economy as closed system where AI is zero-sum substitution
+- "The deepest error was in treating the economy as a closed system"
+
+## Connections to Knowledge Base
+- Purchasing power reframe directly challenges Citrini's Ghost GDP mechanism
+- New business formation thesis validates [[cryptos primary use case is capital formation not payments or store of value]] — but through traditional business, not tokens
+- Deflation thesis supports [[internet finance generates 50 to 100 basis points of additional annual GDP growth]] — abundance creates more economic activity
+- Intermediation repricing validates Belief #5 (legacy intermediation is rent-extraction) AND shows it can be bullish
+- "Intelligence tax" framing connects to [[giving away the intelligence layer to capture value on capital flow]]