Chips and Dips
It was a tale of two economies. America is experiencing a boom-bust cycle. But instead of happening sequentially, we’re basically booming and busting at the same time. In the NYT (Gift Article), Natasha Sarin, president of the Budget Lab at Yale, explains how we’re overcoming a lot of bad policy decisions and attacks on financial norms: “The economy is being bolstered by a remarkable investment boom in artificial intelligence. A credible estimate suggests that A.I. capital expenditures may reach 2 percent of the gross domestic product in 2025, up from most likely less than 0.1 percent in 2022. To provide some sense of scale, that means the equivalent of about $1,800 per person in America will be invested this year on A.I. The coat of A.I. gloss is giving the administration runway to double down on bad ideas: America’s effective overall tariff rate is nearly back to the levels announced in April, the vice president has called for the administration to be involved in the Federal Reserve’s interest rate decisions and Mr. Trump fired the head of the Bureau of Labor Statistics after a disappointing jobs report. The situation is worse than having all of your economic eggs in one basket. It’s closer to putting all of your eggs in one basket and stomping on all the other baskets.” (In the humanties department, we call this a total basket case.) There Are Two Economies: A.I. and Everything Else. Basically, it’s Big Tech vs Big Dreck.
+ “Despite mounting threats to the US economy — from high tariffs to collapsing immigration, eroding institutions, rising debt and sticky inflation — large companies and investors seem unfazed. They are increasingly confident that artificial intelligence is such a big force, it can counter all the challenges. Lately, this optimism has become a self-fulfilling prophecy. The hundreds of billions of dollars companies are investing in AI now account for an astonishing 40 per cent share of US GDP growth this year. And some analysts believe that estimate doesn’t fully capture the AI spend, so the real share could be even higher. AI companies have accounted for 80 per cent of the gains in US stocks so far in 2025.” FT ($): America is now one big bet on AI.
+ Every day, we see warning signals in terms of inflation, tariffs, jobs reports, etc. And every day we see the other side of the market. AMD signs AI chip-supply deal with OpenAI, shares surge over 34%. The chips vs the dips.
+ What happens if the one industry propping up the economy hiccups? I’m asking you, not ChatGPT… Morgan Stanley warns the AI boom may be running out of steam. And, The AI bubble is 17 times the size of the dot-com frenzy – and four times subprime.
+ For now, the AI boom is making the already massive economic divide even more divided. Consider this problem currently facing San Francisco: We don’t have enough mansions.
