Speculative Growth and the AI Bubble: When Valuation Drives Real Legacy

Speculative Growth and the AI "Bubble" [pdf]

I explore a third path between rational fundamentals and a bubble, showing how temporary AI overvaluation can permanently boost our economy. Even if prices correct, the capital installed during the boom creates a self-sustaining high-capital state with higher wages and lower interest rates. The key is whether enough investment happens before beliefs fade, turning speculative optimism into lasting real wealth.

"While some part of the investment which was going on in the world at large was doubtless ill-judged and unfruitful, there can, I think, be no doubt that the world was enormously enriched by the constructions of the quinquennium from 1925 to 1929; its wealth increased in these five years by as much as in any other ten or twenty years of its history."