Part of me feels the fact that EVERYONE is saying that there’s a huge AI bubble makes me wonder if there’s actually a possibility there isn’t an AI bubble. Because I was around for the dot com and GFC bubbles and no one (not really) saw those coming. Also, China is pretty much doing everything right these days, and they seem to believe in AI too.
And I’m not against AI in any and all forms. Like, I think there’s huge potential in translating foreign languages. I think it would be cool if people could talk in their native languages but have AI translate things perfectly - which I understand is something AI can do. There are some simple functions in my job (like searching through and summarizing things from our very massive list of policies). But even thinking about the absolute best case scenarios for AI, I can see how the current expectations are even close to what the reality can be.
So what is the argument that we’re not in a bubble, even if we don’t actually believe it?
To make it clear, I think AI is a bubble, and I believe it is mostly an unproductive sector (there are studies that have pointed out that companies don’t actually become more productive after implementing AI into their business, though there are some uses that cannot be denied).
However I am not competent enough about AI to tell what’s going to happen eventually. As you pointed out, Varoufakis’s cloud capitalism could be an interesting starting point, and I have been reading his work of late to educate myself on that. It is true that there is an entire surveillance industry that co-emerges with the AI bubble, perhaps the “real” part of the AI economy itself.
The problem with the subprime crisis was that it was a bubble fueled by bank lending - which means that the money had to be repaid somehow. So when people could no longer afford to service their debt, the entire industry collapsed.
And even then, the Obama’s administration made it a point to punish the 9 million American homeowning families (mostly low income black and Hispanic families) while the entire Wall Street that crashed the system got away with impunity.
The situation in the US is quite different now. Since Covid, the US government has created trillions and trillions of dollars out of thin air and spent them into existence that ultimately prevented an economic depression in the US during Covid. Then the rate hike after Ukraine war caused even more interest payments in the trillions as the Biden administration struggled to fight inflation (which was mostly caused by oil shortage due to the war, supply chain disruption during the pandemic, and monopolists raising their prices btw, rather than government “printed too much money”). Most of those money, of course, went to the top 10%.
Unlike bank lending, these government-spent money do not need to be repaid - they can only be taken out of the circulation through taxation. As such, there is a large mass of dollars in circulation right now and despite the Fed attempting to tighten the balance sheet, there is still $6.6T on the asset side compared to the $4T before Covid. These money has got to go somewhere, and a lot of that went into stock market.
Meanwhile, right wing economists thought “money printing” was madness, that’s why they all predicted double digit inflation and 100% recession back in 2023. It didn’t happen because even if so much money went to rich people, when the volume is in the trillions, even tiny leakages that trickle down is still enough to prevent the system from going into recession. This is simply the power of deficit spending, when you don’t care about balancing the budget.
Of course, Trump is a true wildcard and a lot of his actions can be seen as madness that don’t make sense. We can only tell what the consequences will be when enough time has passed.