The model

How it works

Each quarter, spending in each economy responds to what happened the quarter before:

• The AI investment bust. Share prices fall, investment stops and lenders lose capital. The US boom is measured net of imported computers (0.3 points of GDP above its 2015–22 trend), so much of a collapse in it lands on the countries that make the equipment.
• Lost wages. People who lose their jobs spend less, which costs more jobs. Unemployment benefits soften this; an income guarantee replaces most of the lost wage.
• Jobs that do not come back. In a downturn, firms automate some of the jobs they cut instead of rehiring. AI also takes jobs steadily, whatever the economy is doing. Office work can be automated from the start; physical work only once robots arrive.
• Leaving the workforce. In the United States most people whose jobs AI takes stop looking for work: 94% of the fall in employment since Sep 2024 has taken this form. They lose the same income, so spending and bank losses count them; the unemployment rate does not, and neither does support that starts when unemployment rises. Jobs lost in the downturn itself stay unemployment. Elsewhere every job lost counts as unemployment.
• Banks. Loan losses eat into bank capital, and weaker banks charge more for credit. Rescues cap the damage. Without deposit insurance, bank runs shrink the money people spend.
• Trade. A slump in one economy cuts the exports of the others. Tariffs cut them further.
• Prices and debts. Falling prices make debts heavier. Central banks cut rates, but not below their floor.
• Care. Health care and social assistance keep hiring at their usual pace unless budgets are cut. With funding, the state can hire more, up to Norway's share of jobs in care.

The model was tested with one set of parameters on the United States in 1929–33 and in 2008–10: