Jared Bernstein

So the idea that you have a lot of investment flowing in is consistent with a potential bubble.

It's what I was just saying.

Every time you buy a stock, you're speculating on its future earnings, of course.

Sure.

What happens here is that large swaths of investors just continuously pour more investment into this asset without a ton of regard for how much it could reasonably pay back and by when.

Critically important distinction you've just made, because I wouldn't want anyone listening to this or reading our piece to think that we are disparaging AI's potential innovative or economically transformational impact, which could be huge.

One bubble we haven't talked about is the railroads back in the 1800s.

And same thing, huge investment bubble.

It burst, it created tremendous economic havoc, and then it productively transformed the economies that were building it out.

What we're talking about is very specifically whether the financing, the level of financing is justified given the amount of returns that it implies.

And if it's not, if investors start to get worried about this particular bet,

They could unwind that bet.

And if enough of them do that at the same time, then you have a bursting bubble.

There's no question it could trigger a recession.

And in fact, past bubbles have clearly done so.

When the Internet bubble burst, the unemployment rate went up a couple of points.

That was not as bad as the housing bubble, which led to a shutdown of global credit markets and an unemployment rate in this country that went up over five points.

What we worry about in the case of the AI bubble is something called the wealth effect.

And that means that if the stock market tumbles enough so that people feel and in fact are a lot less wealthy, they're going to spend less.

And real consumer spending has been driving this economic recovery.