Derek Thompson

Today, the AI bubble.

This year, American tech companies will spend about $300 to $400 billion on artificial intelligence.

That's more in nominal dollars than any group of companies has ever spent to do just about anything.

And notably, these companies are not anywhere close to earning back that $400 billion that they're about to spend.

This is why you're starting to hear some people wonder if the AI build-out is turning into the mother of all economic bubbles.

Sometimes you'll hear this case from critics of the technology.

Critics will sometimes point out that we're on track to spend trillions of dollars this decade building something that might be all smoke and mirrors.

I'm more interested, though, in the boosters of artificial intelligence.

They'll sometimes argue that we are living through a transformative tech akin to the creation of the internet or the railroad or the telegraph.

I think they might be right.

I also think they don't realize what being right would imply.

The infrastructure build out of the internet created an enormous bubble in the late 1990s and early 2000s.

The infrastructure build out of the telegraph created another bubble in the 19th century.

The construction of the transcontinental railroad system, as we explained in a previous episode, created several bubbles, ending in the Panic of 1857, the Panic of 1873, and the Panic of 1893, a half century of panics.

In the 20th century, radio was a bubble.

The dawn of automobiles and aviation companies, also quite bubblicious.

In short, if AI's boosters are right with their comparison of AI to the greatest technology of the last 150 years, their own analogy anticipates that their product too will pass through a calamitous crash on the way to changing the world.

This should absolutely scare you if you care about the US economy.

Half of GDP growth comes from infrastructure spending on AI, on data centers, chips, and energy.

More than half of stock market appreciation in the last few years comes from companies associated with AI.