The Elephant in the Boom

I’m thinking of changing my name to DAIve. These days, you can’t get anywhere in business without having AI as a core ingredient. AI isn’t just driving startup fundraising, innovation, and you crazy. It’s the engine that’s basically driving the global economy. Because of the financial scope of this endeavor, it’s not only a story about where money is going. It’s also a story about where it isn’t. It’s pretty simple math: If all the investment and lending dollars are going to DAIve, Dave is shit out of luck. And if DAIve doesn’t work out, the hit to the economy will take Dave (and everyone else) with it. “Many economists believe that at a time of rising inflation, a weakening job market and global unrest, this boom is keeping the U.S. economy afloat … A.I. is vacuuming up so much of our land, talent, semiconductor chips, building materials — and, above all, so much of our money, that it is beginning to crowd out the rest of the economy. In other words, A.I. isn’t merely compensating for the weakness in the rest of the economy. It is, at least in part, causing it.” Jennifer M. Harris in the NYT (Gift Article): The Generational Force Hollowing Out the Economy. We’ve seen this story play out before. Recently, the dotcom boom led to a recession in the early 2000s. And a little further back, railroads followed a similar track. “All the investment funneling into A.I. bears similarities to the early years of railroad expansion and the internet. The railroad buildout that began in the 1820s absorbed a yearly average of 2 percent of America’s gross domestic product during the 1850s. But years later, when the railroad boom didn’t deliver the financial benefits investors promised, the economy sank into a depression. Roughly 18,000 businesses vanished within two years. By 1876, unemployment had reached about 14 percent.” (And Railroad even has AI in it…)

+ The Bank for International Settlements “drew parallels to earlier technology cycles, including canal construction in the 1830s, British railways in the 1840s, electrification in the late 1920s, and the dot-com boom of the late 1990s — all of which ended in investment reversals that triggered economy-wide recessions.” The central bank for central banks warned that the AI spending frenzy could crash markets.