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.
- Animats
"Workers supply labor, hold no assets, and consume their wage." Ouch. There was a time in the US when most capital was the assets backing workers' pensions.
We've seen speculative over-growth with a good legacy at least three times in the
last three decades. First was the dot-com boom. Overpromotion made it necessary for every business to have a web site. That wasn't pre-ordained. The Web could have maxed out as a distribution system for catalogs, data sheets, academic papers, and similar business to business info. Overpromotion created the business to consumer web, which turned out to be useful.
The second overbuild was long-haul fiber optics. Look up Global Crossing. So much fiber was put into the ground and water that intercontinental spam is not a problem. That didn't have to happen. If traffic was billed, it wouldn't have happened. It turned out to be useful, but was not pre-ordained from the economics.
A third overbuild was the solar panel industry, especially in China. So much money was thrown at solar panel manufacturing that the price became very, very low. Solar deployment accelerated and started to take over, after decades of panels costing too much.
Now China has a solar panel glut. They're dealing with it intelligently - minimum efficiency standards are coming into effect, and pollution controls on panel manufacturing are being tightened.
- fwlr
If enough capital has been installed before learning removes the wedge, the economy lands in the high-capital state,
I’m gonna need an honest caveat on the load-bearing assumption here.
- AloysB
I won't pretend to fully understand the paper, but I did try to read it.
A few notes:
1. This assumes that there is notable ROI on 'AI labor'. That is still up for debate.
2. This assumes that the interests are currently falling, unless I misread the paper.
3. This affirms that we are in an over valuated, speculative bubble which will inevitably correct; but it needs to "correct" at the exact right time defined by multiple factors.
First, "correction" can be an euphemism for a disastrous financial crisis. It could take years and years for most people to see the end of the tunnel.
I don't know if the end justify the means.
Do we really need to engineer a financial crisis to build more energy facilities? And will they be built the 'right way', using renewable energy for example? What if we invested half of those trillions directly in socially impactful measures, instead of having the money flow through a speculative bubble first?
Finally, I am not an economist, but I wonder how accurate a mathematical model is to the real world - i.e. what happens to the model when Donald keep changing the opening hours of the Hormuz?
It does feel a bit like trying to read tea leaves to me.
This reminds me of Hari Seldon's psychohistory:
> In Foundation (1951), famed mathematician and psychologist Hari Seldon has developed the science of psychohistory, which uses sophisticated mathematics and statistical analysis to predict future trends on a galactic scale. He has predicted the unavoidable an […]
- dankai
No word about taxes and the paper describes workers as being “protected on the downside.” while the model has removed the downside risk that workers actually face. I could write a long essay with all the issues this "paper' has.
Truly dismal science of an Economics professor at MIT.
- jeffreyrogers
Seems like this is basically the same theory as what happened in the late 90s internet boom. Lots of speculative investment, over build out of core technology like fiber networks, then a crash, and an eventual recovery where that additional capacity was eventually put to use. Similar thing happened with railroads and the airline industry to some extent (pretty sure airlines as a whole had net negative investment returns until recently).