Bytes: Week in Review – Are we in an AI bubble?
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Is AI currently in a bubble?
Giving the AI boom a bubble score. From American Public Media, this is Marketplace Tech. I'm Megan McCarty Carino.
Is AI a bubble? It's the trillion-dollar question in the economy. So we decided to look to history for some answers. David A. Kirsch is a historian and management professor at the University of Maryland. He co-authored the book Bubbles and Crashes, the Boom and Bust of Technological Innovation. He looked at patterns over 150 years of technological breakthroughs, from broadcast radio to rayon, and came up with a model of the conditions that most often lead to bubbles.
The four factors that we looked at were the presence of uncertainty, so uncertainty
What historical patterns lead to technological bubbles?
Is it a technology that people know how to use or is it a technology that people don't know how to use or how it will generate value? Does it happen in the presence of novice investors? These are investors who might be inexperienced or might not have seen technologies similar to the new technology in the past. Does the technology arrive in a way that investors can invest in it? So is it something where we can go to our Schwab account and buy something that reflects the technology? Finally, what are the nature of the narratives surrounding the technology? Is it a technology that has a magic to it that says, oh, we can do this, we can do that? There are lots of narratives, or is it a pretty straightforward technology?
So when we look at those four factors and we say, well, that can be the recipe for a boom if all four of those factors are there. And if there's a boom, then there can be a bust. We don't actually have a theory of the bust because it's very hard to know when you have a boom, will the technology kind of catch up and in fact deliver on its promise? Or will there be an over-commitment, over-investment overenthusiasm, and even a very impressive technology may still not be able to deliver in the timeframe that investors require.
You have focused on bubbles that kind of bubble up around technological innovations, but some of the best-known bubbles in history have formed around things that aren't techie at all, you know, tulip mania, of course, the housing bubble. But are technological innovations kind of especially prone to bubble dynamics?
Yes, they are, for the reason that new technology destroys expertise. It naturally generates a type of uncertainty. Lots of people call and ask, well, is there an AI bubble, this and that? And I said, the first thing, if anyone tells you they know the answer, they're wrong because nobody has seen what AI does to the highly developed capitalist economy. This is happening for the first time. So there's because in technological innovations are by nature new. Nobody knows what's going to happen. So in that sense, that uncertainty piece is more likely to ride in on the back of technology. OK, tulips, who knew what color tulip would spring from the bulb? But that's a different type of uncertainty than uncertainty associated with technological change.
What role has infrastructure played historically in these tech booms and busts?
It's been very important as almost like a timekeeper for the bubbles. If you think about, you know, it took decades to build out the railways or took decades to build out the electrical distribution infrastructure for electricity. I think in a way what we're seeing now is a very accelerated build out of the infrastructure, but I think we shouldn't anticipate that we're going to get the answers, the sort of how valuable is AI until we have more time to see the AI be incorporated into our organizations and into markets and into businesses. In that sense, you know, infrastructure is kind of that limiter that says we have the idea. Now, how does it diffuse? It diffuses through infrastructure and infrastructure takes time.
When you look at your criteria for kind of the conditions of bubbles, how does AI, the AI boom, line up with that? In what ways is it in line with those?
You know, we did it in the book, you know, zero to eight. Zero, no bubble, no speculation, no pure plays, no stories.
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Chapters
5 chapters
1
Is AI currently in a bubble?
0:00–0:58
2
What historical patterns lead to technological bubbles?
0:58–5:27
3
What are the four key factors that indicate a bubble?
5:27–10:59
4
How do narratives affect technology bubbles?
10:59–12:41
5
What role does infrastructure play in tech booms and busts?
12:41–12:57