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

6.2 KiB Raw Blame History