I'm not sure the comparison is apples to apples, but this article claims the current AI investment boom pales compared to the railroad investment boom in the 19th century.
> Next, Kedrosky bestows a 2x multiplier to this imputed AI CapEx level, which equates to a $624 billion positive impact on the US GDP. Based on an estimated US GDP figure of $30 trillion, AI CapEx is expected to amount to 2.08 percent of the US GDP!
Do note that peak spending on rail roads eventually amounted to ~20 percent of the US GDP in the 19th century. This means that the ongoing AI CapEx boom has lots of legroom to run before it reaches parity with the rail road boom of that bygone era.
decimalenough · 2h ago
There is obvious utility to railroads, especially in a world with no cars.
The net utility of AI is far more debatable.
gruez · 2h ago
>The net utility of AI is far more debatable.
I'm sure if you asked the luddites the utility of mechanized textile production you'd get a negative response as well.
decimalenough · 2h ago
Railroads move people and cargo quickly and cheaply from point A to point B. Mechanized textile production made clothing, a huge sink of time and resources before the industrial age, affordable to everybody.
What does AI get the consumer? Worse spam, more realistic scams, hallucinated search results, easy cheating on homework? AI-assisted coding doesn't benefit them, and the jury is still out on that too (see recent study showing it's a net negative for efficiency).
azeirah · 2h ago
For learning with self-study it has been amazing.
gamblor956 · 2h ago
Until you dive deeper and discover that most of what the AI agents provided you was completely wrong...
There's a reason that AI is already starting to fade out of the limelight with customers (companies and consumers both). After several years, the best they can offer is slightly better chatbots than we had a decade ago with a fraction of the hardware.
rockemsockem · 23m ago
I almost always validate what I get back from LLMs and it's usually right. Even when it isn't it still usually gets me closer to my goal (e.g maybe some UX has changed where a setting I'm looking for in an app has changed, etc).
IDK where you're getting the idea that it's fading out. So many people are using the "slightly better chatbots" every single day.
Btw if you only think chat GPT is slightly better than what we had a decade ago then I do not believe that you have used any chat bots at all, either 10 years ago or recently because that's actually a completely insane take.
Gud · 1h ago
That has not been the case for me. I use LLMs to study German, so far it’s been an excellent teacher.
I also use them to help me write code, which it does pretty well.
trod1234 · 1h ago
Apples to oranges.
Luddites weren't at a point where every industry sees individual capital formation/demand for labor trend towards zero over time.
Prices are ratios in the currency between factors and producers.
What do you suppose happens when the factors can't buy anything because there is nothing they can trade. Slavery has quite a lot of historic parallels with the trend towards this. Producers stop producing when they can make no profit.
You have a deflationary (chaotic) spiral towards socio-economic collapse, under the burden of debt/money-printing (as production risk). There are limits to systems, and when such limits are exceeded; great destruction occurs.
Malthus/Catton pose a very real existential threat when such disorder occurs, and its almost inevitable that it does without action to prevent it. One cannot assume action will happen until it actually does.
bgwalter · 2h ago
The mechanical loom produced a tangible good. That kind of automation was supposed to free people from menial work. Now they are trying to replace interesting work with human supervised slop, which is a stolen derivative work in the first place.
The loom wasn't centralized in four companies. Customers of textiles did not need an expensive subscription.
Obviously average people would benefit more if all that investment went into housing or in fact high speed railways. "AI" does not improve their lives one bit.
shadowgovt · 2h ago
With this generation of AI, it's too early to tell whether it's the next railroad, the next textile machine, or the next way to lock your exclusive ownership of an ugly JPG of a multicolored ape into a globally-referenceable, immutable datastore backed by a blockchain.
peab · 1h ago
the goal of the major AI labs is to create AGI. The net utility of AGI is at least on the level of electricity, or the steam engine. It's debatable whether or not they'll achieve that, but if you actually look at what the goal is, the investment makes sense.
jcgrillo · 57m ago
what? crashing the economy for a psychotic sci-fi delusion "makes sense"? how?
rockemsockem · 18m ago
How exactly is AI crashing the economy....? Do you walk around with these beliefs every day?
rockemsockem · 2h ago
I'm continually amazed to find takes like this. Can you explain how you don't find clear utility, at the personal level, from LLMs?
I am being 100% genuine here, I struggle to understand how the most useful things I've ever encountered are thought of this way and would like to better understand your perspective.
agent_turtle · 2h ago
There was a study recently that showed how not only did devs overestimate the time saved using AI, but that they were net negative compared to the control group.
Anyway, that about sums up my experience with AI. It may save some time here and there, but on net, you’re better off without it.
rockemsockem · 26m ago
I'm not talking about time saving. AI seems to speed up my searching a bit since I can get results quicker without having to find the right query then find a site that actually answers my question, but that's minor, as nice as it is.
I use AI in my personal life to learn about things I never would have without it because it makes the cost of finding any basic knowledge basically 0. Diet improvement ideas based on several quick questions about gut functioning, etc, recently learning how to gauge tsunami severity, and tons of other things. Once you have several fundamental terms and phrases for new topics it's easy to then validate the information with some quick googling too.
How much have you actually tried using LLMs and did you just use normal chat or some big grand complex tool? I mostly just use chat and prefer to enter my code in artisanally.
>This implies that each hour spent using genAI increases the worker’s productivity for that hour by 33%. This is similar in magnitude to the average productivity gain of 27% from several randomized experiments of genAI usage (Cui et al., 2024; Dell’Acqua et al., 2023; Noy and Zhang, 2023; Peng et al., 2023)
Our estimated aggregate productivity gain from genAI (1.1%) exceeds the 0.7% estimate by Acemoglu (2024) based on a similar framework.
To be clear, they are surmising that GenAI is already having a productivity gain.
agent_turtle · 58m ago
The article you gave is derived from a poll, not a study.
As for the quote, I can’t find it in the article. Can you point me to it? I did click on one of the studies and it indicated productivity gains specifically on writing tasks. Which reminded me of this recent BBC article about a copywriter making bank fixing expensive mistakes caused by AI: https://www.bbc.com/news/articles/cyvm1dyp9v2o
tharmas · 58m ago
Isn't the US economy far more varied than it was in the 19th century? More dense? And therefore wouldn't be more difficult for one industry to dominate the US economy today than it was in the 19th century?
0cf8612b2e1e · 4h ago
Over the last six months, capital expenditures on AI—counting just information processing equipment and software, by the way—added more to the growth of the US economy than all consumer spending combined. You can just pull any of those quotes out—spending on IT for AI is so big it might be making up for economic losses from the tariffs, serving as a private sector stimulus program.
Wow.
gruez · 2h ago
It's not as bad as the alarmist phrasing would suggest. Consider a toy example: suppose consumer spending was $100 and grew by $1, but AI spending was $10 and grew by $1.5, then you can rightly claim that "AI added more to the grow of the US economy than all consumer spending combined"[1]. But it's not as if the economy consists mostly of AI, or that if AI spending stopped the economy will collapse. It just means AI is a major contributor to the economy's growth right now. It's not even certain that the AI bubble popping would lead to all of that growth evaporating. Much of the AI boom involves infrastructure build out for data centers. That can be reallocated to building houses if datacenters are no longer needed.
[1] Things get even spicier if consumer growth was zero. Then what would the comparison? That AI added infinitely more to growth than consumer spending? What if it was negative? All this shows how ridiculous the framing is.
agent_turtle · 1h ago
> That can be reallocated to building houses if data centers are no longer needed
That’s not at all how these things work.
Further, your theory about the bubble doesn’t make a lot of sense either. Have you heard of the Dunning-Kruger effect?
gruez · 1h ago
>Have you heard of the Dunning-Kruger effect?
Have you heard of the disagreement hierarchy? You're somewhere between 1 and 3 right now, so I'm not even going to bother to engage with you further until you bring up more substantive points and cool it with the personal attacks.
One of the major reasons there’s such a shortage of homes in the US is the extensive permit process required. Pivoting from data centers to home construction is not a straightforward process.
Regarding the economics, the reason it’s a big deal that AI is powering growth numbers is because if the bubble pops, jobs go poof and stock prices with it as everyone tries to salvage their positions. While we still create jobs, on net we’ll be losing them. This has many secondary and tertiary effects, such as less money in the economy, less consumer confidence, less investment, fewer businesses causing fewer jobs, and so on. A resilient economy has multiple growth areas; an unstable one has one or two.
While you could certainly argue that we may already be in rough shape even without the bubble popping, it would undoubtedly get worse for the reasons I listed above,
gruez · 11m ago
>One of the major reasons there’s such a shortage of homes in the US is the extensive permit process required. Pivoting from data centers to home construction is not a straightforward process.
Right, I'm not suggesting that all of the datacenter construction will seamlessly switch over to building homes, just that some of the labor/materials freed would be allocated to other sorts construction. That could be homes, amazon distribution centers, or grid connections for renewable power projects.
>A resilient economy has multiple growth areas; an unstable one has one or two.
>[...] it would undoubtedly get worse for the reasons I listed above,
No disagreement there. My point is that if AI somehow evaporated, the hit to GDP would be less than $10 (total size of the sector in the toy example above), because the resources would be allocated to do something else, rather than sitting idle entirely.
>Regarding the economics, the reason it’s a big deal that AI is powering growth numbers is because if the bubble pops, jobs go poof and stock prices with it as everyone tries to salvage their positions. While we still create jobs, on net we’ll be losing them. This has many secondary and tertiary effects, such as less money in the economy, less consumer confidence, less investment, fewer businesses causing fewer jobs, and so on.
That's a fair point, although to be fair the federal government is pretty good at stimulus after the GFC and covid that any credit crunch would be short lived.
bravetraveler · 3h ago
Tepidly socially-acceptable welfare
troyastorino · 2h ago
I've seen this quote in a couple places and it's misleading.
So, non-seasonally adjusted consumer spending is flat. In that sense, yes, anything where spend increased contributed more to GDP growth than consumer spending.
If you look at seasonally-adjusted rates, consumer spending has grown ~$400 billion, which might outstrips total AI CapEx in that time period, let alone growth. (To be fair the WSJ graph only shows the spending from Meta, Google, Microsoft, and Amazon. But it also says that Apple, Nvidia, and Tesla combined "only" spent $6.7 billion in Q2 2025 vs the $96 billion from the other four. So it's hard to believe that spend coming from elsewhere is contributing a ton.)
If you click through the the tweet that is the source for the WSJ article where the original quote comes from (https://x.com/RenMacLLC/status/1950544075989377196) it's very unclear what it's showing...it only shows percentage change, and it doesn't even show anything about consumer spending.
So, at best this quote is very misleadingly worded. It also seems possible that the original source was wrong.
electrondood · 2h ago
For context though, consumer spending has contracted significantly.
intended · 3h ago
Yes, wow. When I heard that data point I was floored.
rglover · 2h ago
> There could be a crash that exceeds the dot com bust, at a time when the political situation through which such a crash would be navigated would be nightmarish.
If the general theme of this article is right (that it's a bubble soon to burst), I'm less concerned about the political environment and more concerned about the insane levels of debt.
If AI is indeed the thing propping up the economy, when that busts, unless there are some seriously unpopular moves made (Volcker level interest rates, another bailout leading to higher taxes, etc), then we're heading towards another depression. Likely one that makes the first look like a sideshow.
The only thing preventing that from coming true IMO is dollar hegemony (and keeping the world convinced that the world's super power having $37T of debt and growing is totally normal if you'd just accept MMT).
margalabargala · 2h ago
> Likely one that makes the first look like a sideshow.
The first Great Depression was pretty darn bad, I'm not at all convinced that this hypothetical one would be worse.
agent_turtle · 1h ago
Some of the variables that made the Great Depression what it was included very high tariff rates and lack of quality federal oversight.
Today, we have the highest tariffs since right before the Great Depression, with the added bonus of economic uncertainty because our current tariff rates change on a near daily basis.
Add in meme stocks, AI bubble, crypto, attacks on the Federal Reserve’s independence, and a decreasing trust in federal economic data, and you can make the case that things could get pretty ugly.
margalabargala · 43m ago
Sure, you can make the case that things could get pretty ugly. You could even make the case that things could get about as bad as the Great Depression.
But for things to be much worse than the Great Depression, I think is an extraordinary claim. I see the ingredients for a Great Depression-scale event, but not for a much-worse-than-Great-Depression event.
Hikikomori · 2h ago
Ai bubble, economy in the trash already, inflation from tariffs. Dollar might get real cheap when big holders start selling stocks and exchanging it, nobody wants to be left holding their bag, and they have a lot of dollars.
Which is their (Thiel, project2025, etc) plan, federal land will be sold for cheap.
decimalenough · 2h ago
Selling stocks for what? If the dollar is going down the toilet, the last thing you want to have is piles of rapidly evaporating cash.
marcusestes · 2h ago
Never totally discount _deflationary_ scenarios.
lenerdenator · 3h ago
And that's why there's a desire to make interest rates lower: cheap money is good for propping up bubbles.
Now, it does that at the expense of the average person, but it will definitely prop up the bubble just long enough for the next election cycle to hit.
bluecalm · 2h ago
I am curious, why do you think lower interest rates are bad for an average person?
mason_mpls · 2h ago
We want interest rates as close to zero as possible. However they’re also the only reliable tool available to stop inflation.
Youre implying the country exerting financial responsibility to control inflation isn’t good.
Not using interest rates to control inflation caused the stagflation crisis of the 70s, and ended when Volcker set rates to 20%.
nr378 · 1h ago
Interest rates set the exchange rate between future cashflows (i.e. assets) and cash today. Lower interest rates mean higher asset values, higher interest rates mean lower asset values. Higher asset values generally disproportionately benefit those that own assets (wealthy people) over those that don't (average people).
Of course, this is just one way that interest rates affect the economy, and it's important to bear in mind that lower interest rates can also stimulate investment which help to create jobs for average people as well.
tharmas · 40m ago
> it's important to bear in mind that lower interest rates can also stimulate investment which help to create jobs for average people as well.
Precisely! Yet the big problem in the Anglosphere is that most of that money has been invested in asset accumulation, namely housing, causing a massive housing crisis in these countries.
verdverm · 2h ago
more money in the economy drives inflation, which largely affects those with less disposable income
This is why in a hot economy we raise rates, and in a not economy we lower them
(oversimplification, but it is a commonly provided explanation)
tharmas · 36m ago
>more money in the economy drives inflation
Not necessarily. Sure, it that money is chasing fixed assets like housing but if that money was invested into production of things to consume its not necessarily inflation inducing is it? For example, if that money went into expanding the electricity grid and production of electric cars, the pool of goods to be consumed is expanding so there is less likelihood of inflation.
micromacrofoot · 1h ago
Low interest rates make borrowing cheap, so companies flood money into real estate and stocks, inflating prices. This also drives up costs for regular people, fuels risky lending (remember subprime mortgages?), and when the bubble bursts... guess who gets hit the hardest when companies start scaling back and lenders come calling?
decimalenough · 3h ago
You really think the AI bubble can be sustained for another three years?
dylan604 · 2h ago
15 months. Mid-terms are next November. After that, legacy cannot be changed by election. If POTUS loses control of either/both chambers, he might have some 'splanin to do. If POTUS keeps control and/or makes further gains, there might not be an election in 3 years.
tick_tock_tick · 2h ago
> he might have some 'splanin to do
About what? Like seriously what would they even do other then try and lame duck him?
The big issue is Dem approval ratings are even lower then Trumps so how the hell are they going to gain any seats?
dylan604 · 36m ago
Gerrymandering helps. Just look at Texas
Hikikomori · 2h ago
Gerrymandering in Texas and elsewhere they might stay in power, if they do it's unlikely to change. Basically speed running a fascist takeover.
smackeyacky · 2h ago
It's not really a speed run.
The seeds were planted after Nixon resigned and it was decided to re-shape the media landscape and move the overton window rightwards in the 1970s, dismantling social democracy across the west and leading to a gradual reversal of the norms of governance in the US (see Newt Gingrich).
It's been gradual, slow and methodical. It has definitely accelerated but in retrospect the intent was there from the very beginning.
tharmas · 31m ago
Excellent post.
You could say that was when things reverted back to "normal". The FDR social reconstruction and post WW2 economic boom were the exception, anomaly. But the Scandinavian countries seem to be doing alright. Sure, they have some big size problems (Sweden in particular) but daily life for the majority in those countries appears to be better than a lot of people in the Anglosphere.
mathiaspoint · 1h ago
The way most of you define "fascism" America has always been fascist with a brief perturbation where we tried Democracy and some Communism.
If you see it that way this is just a reversion to the mean.
smackeyacky · 42m ago
True. We have collectively forgotten segregation was a thing in the US. Perhaps it has always been a right wing country that flirts with fascism.
dylan604 · 2h ago
Interesting to see if California follows suit. Governor Newsom has his eye on the 2028 prize it seems. If the Dems do not wake up and start playing the same game the GOP is playing, they will never win. Taking the higher ground is such a nice concept, but it's also what losers say to feel good about not winning. Meanwhile, those willing to break/bend/change rules to ensure they continue to win will, well, continue to win.
tick_tock_tick · 2h ago
Honestly it's not really bubbling like we expected revenues are growing way too fast income from AI investment is coming back to these companies way sooner then anyone thought possible. At this rate we have another couple of 20+% years in the stock market for there to be anything left of a "bubble".
Nvidia the poster-child of this "bubble" has been getting effectively cheaper every day.
icedchai · 2h ago
Possibly. For comparison, how long did the dot-com bubble last? From roughly 1995 to early 2000.
thrance · 3h ago
Trump and his administration harassing the Fed and Powell over interest rates is like a swarm of locust salivating at ripened wheat fields. They want a quick feast at the expense of everything and everyone else, including themselves over the long term.
dylan604 · 2h ago
Trump knows that the next POTUS can just reverse his decisions much like he's done in both of his at bats. Only thing is there is no next at bat for Trump (without major changes that would be quite devastating), so he's got to get them in now. The sooner the better to take as much advantage of being in control.
pessimizer · 2h ago
The left is almost completely unanimous in their support for lowering interest rates, and have been screaming about it for years, since the first moment they started being raised again. And for the same reasons that Trump wants it, except without the negative connotations for some reason.
Recently, I've heard many left wingers, as a response to Trump's tariffs, start 1) railing about taxes being too high, and that tariffs are taxes so they're bad, and 2) saying that the US trade deficit is actually wonderful because it gives us all this free money for nothing.
I know all of these are opposite positions to every one of the central views of the left of 30 years ago, but politics is a video game now. Lefties are going out of their way to repeat the old progressive refrain:
> "The way that Trump is doing it is all wrong, is a sign of mental instability, is cunning psychopathic genius and will resurrect Russia's Third Reich, but in a twisted way he has blundered into something resembling a point..."
"...the Fed shouldn't be independent and they should lower interest rates now."
mason_mpls · 2h ago
I have not heard a single left wing pundit demand interest rates go down
rockemsockem · 2h ago
Elizabeth Warren has gone on several talk shows insisting interest rates should be lowered. If you look at video from the last time Powell was being questioned by Congress there were many other Democratic congress-people asking him why he wouldn't lower rates.
Personally I trust Jerome Powell more than any other part of the government at the moment. The man is made of steel.
mason_mpls · 1h ago
Jerome Powell belongs on Mt Rushmore if you ask me
Animats · 2h ago
"Over the last six months, capital expenditures on AI—counting just information processing equipment and software, by the way—added more to the growth of the US economy than all consumer spending combined."
If this isn't the Singularity, there's going to be a big crash. What we have now is semi-useful, but too limited. It has to get a lot better to justify multiple companies with US $4 trillion valuations. Total US consumer spending is about $16 trillion / yr.
Remember the Metaverse/VR/AR boom? Facebook/Meta did somehow lose upwards of US$20 billion on that. That was tiny compared to the AI boom.
* Even with all this infra buildout all the hyperscalers are constantly capacity constrained, especially for GPUs.
* Surveys are showing that most people are only using AI for a fraction of the time at work, and still reporting significant productivity benefits, even with current models.
The AGI/ASI hype is a distraction, potentially only relevant to the frontier model labs. Even if all model development froze today, there is tremendous untapped demand to be met.
The Metaverse/VR/AR boom was never a boom, with only 2 big companies (Meta, Apple) plowing any "real" money into it. Similarly with crypto, another thing that AI is unjustifiably compared to. I think because people were trying to make it happen.
With the AI boom, however, the largest companies, major governments and VCs are all investing feverishly because it is already happening and they want in on it.
Animats · 1h ago
> Even with all this infra buildout all the hyperscalers are constantly capacity constrained, especially for GPUs.
Are they constrained on resources for training, or resources for serving users using pre-trained LLMs? The first use case is R&D, the second is revenue. The ratio of hardware costs for those areas would be good to know.
rockemsockem · 2h ago
Tbf I think most would say that the VR/AR boom is still ongoing, just with less glitz.
Edit: agree on the metaverse as implemented/demoed not being much, but that's literally one application
throwmeaway222 · 3h ago
- Microsoft’s AI-fueled $4 trillion valuation
As someone in an AI company right now - Almost every company we work with is using Azure wrapped OpenAI. We're not sure why, but that is the case.
guidedlight · 3h ago
It’s because most companies already have a lot of confidence with Microsoft contracts, and are generally very comfortable storing and processing highly sensitive data on Microsoft’s SaaS platforms. It’s a significant advantage.
Also Microsoft Azure hosts its own OpenAI models. It isn’t a proxy for OpenAI.
ElevenLathe · 3h ago
MS salespeople presumably already have weekly or monthly meetings with all the people with check-cutting authority, and OpenAI doesn't. They're already an approved vendor, and what's more the Azure bill is already really really big, so a few more AI charges barely register.
It's the same reason you would use RDS at an AWS shop, even if you really like CloudSQL better.
This is the main reason the big cloud vendors are so well-positioned to suck up basically any surplus from any industry even vaguely shaped like a b2b SaaS.
hnuser123456 · 3h ago
Nobody gets fired for choosing Microsoft
chung8123 · 2h ago
All of their files are likely on a Microsoft store already too.
GianFabien · 33m ago
There's only two reasons to buy stocks:
1) for future cashflows (aka dividends) derived from net profits.
2) to on-sell to somebody willing to pay even more.
When option (2) is no longer feasible, the bubble pops and (1) resets the prices to some multiple of dividends. Economics 101.
BigglesB · 2h ago
I also wonder the extent to which "pseudo-black-box-AI" is potentially driving some of these crazy valuations now due to it actually being used in a lot algorithmic trading itself... seems like a prevalence of over-corrected models, all expecting "line go up" from recent historical data would be the perfect way to cook up a really "big beautiful bubble" so to speak...
xg15 · 1h ago
So what will happen to all those massive data centers when the bubble bursts? Back to crypto?
GianFabien · 39m ago
After the dot bomb of 2000, the market got flooded with CISCO and Sun gear for pennies on the dollar. Lots of post 2000 startups got their gear from those auctions and were able to massively extend their runway. Same could happen again.
kogasa240p · 2h ago
Surprised the SVB collapse wasn't mentioned, the LLM boom gained a huge amount of steam right after that happened.
asdev · 2h ago
look at the S&P 500 chart when ChatGPT came out. We were just on our way to flushing out the Covid excess money and then the AI narrative saved the market. AI narrative + inflation that is definitely way more than reported is propping up this market.
micromacrofoot · 3h ago
This is going to be an absolute disaster, the government is afraid of regulating AI because it's so embedded in our economy now too
jcgrillo · 1h ago
I think we're already starting to see the cracks with OpenAI drastically tightening their belt across various cloud services. Depends how long it takes to set in, but seems like it could be starting this quarter.
johng · 2h ago
There has to be give and take to this as well. The AI increase is going to cost jobs. I see it in my work flow and our company. We used to pay artists to do artwork and editors to post content. Now we use AI to generate the artwork and AI to write the content. It's verified by a human, but it's still done by AI and saves a ton of time and money.
These are jobs that normally would have gone to a human and now go to AI. We haven't paid a cent for AI mind you -- it's all on the ChatGPT free tier or using this tool for the graphics: https://labs.google/fx/tools/image-fx
I could be wrong, but I think we are at the start of a major bloodbath as far as employment goes.... in tech mostly but also in anything that can be replaced by AI?
I'm worried. Does this mean there will be a boom in needing people for tradeskills and stuff? I honestly don't know what to think about the prospects moving forward.
gamblor956 · 2h ago
This is backwards.
The AI bubble is so big that it's draining useful investment from the rest of the economy. Hundreds of thousands of people are getting fired so billionaires can try to add a few more zeros to their bank account.
The best investment we can make would be to send the billionaires and AI researchers to an island somewhere and not let them leave until they develop an AI that's actually useful. In the meanwhile, the rest of us get to live productive lives.
Discounting the evidence of it being explicitly cited as a reason for layoffs and that its purpose to business is to replace human labor, there's no evidence that its replacing human labor. Got it.
https://wccftech.com/ai-capex-might-equal-2-percent-of-us-gd...
> Next, Kedrosky bestows a 2x multiplier to this imputed AI CapEx level, which equates to a $624 billion positive impact on the US GDP. Based on an estimated US GDP figure of $30 trillion, AI CapEx is expected to amount to 2.08 percent of the US GDP!
Do note that peak spending on rail roads eventually amounted to ~20 percent of the US GDP in the 19th century. This means that the ongoing AI CapEx boom has lots of legroom to run before it reaches parity with the rail road boom of that bygone era.
The net utility of AI is far more debatable.
I'm sure if you asked the luddites the utility of mechanized textile production you'd get a negative response as well.
What does AI get the consumer? Worse spam, more realistic scams, hallucinated search results, easy cheating on homework? AI-assisted coding doesn't benefit them, and the jury is still out on that too (see recent study showing it's a net negative for efficiency).
There's a reason that AI is already starting to fade out of the limelight with customers (companies and consumers both). After several years, the best they can offer is slightly better chatbots than we had a decade ago with a fraction of the hardware.
IDK where you're getting the idea that it's fading out. So many people are using the "slightly better chatbots" every single day.
Btw if you only think chat GPT is slightly better than what we had a decade ago then I do not believe that you have used any chat bots at all, either 10 years ago or recently because that's actually a completely insane take.
I also use them to help me write code, which it does pretty well.
Luddites weren't at a point where every industry sees individual capital formation/demand for labor trend towards zero over time.
Prices are ratios in the currency between factors and producers.
What do you suppose happens when the factors can't buy anything because there is nothing they can trade. Slavery has quite a lot of historic parallels with the trend towards this. Producers stop producing when they can make no profit.
You have a deflationary (chaotic) spiral towards socio-economic collapse, under the burden of debt/money-printing (as production risk). There are limits to systems, and when such limits are exceeded; great destruction occurs.
Malthus/Catton pose a very real existential threat when such disorder occurs, and its almost inevitable that it does without action to prevent it. One cannot assume action will happen until it actually does.
The loom wasn't centralized in four companies. Customers of textiles did not need an expensive subscription.
Obviously average people would benefit more if all that investment went into housing or in fact high speed railways. "AI" does not improve their lives one bit.
I am being 100% genuine here, I struggle to understand how the most useful things I've ever encountered are thought of this way and would like to better understand your perspective.
Anyway, that about sums up my experience with AI. It may save some time here and there, but on net, you’re better off without it.
I use AI in my personal life to learn about things I never would have without it because it makes the cost of finding any basic knowledge basically 0. Diet improvement ideas based on several quick questions about gut functioning, etc, recently learning how to gauge tsunami severity, and tons of other things. Once you have several fundamental terms and phrases for new topics it's easy to then validate the information with some quick googling too.
How much have you actually tried using LLMs and did you just use normal chat or some big grand complex tool? I mostly just use chat and prefer to enter my code in artisanally.
>This implies that each hour spent using genAI increases the worker’s productivity for that hour by 33%. This is similar in magnitude to the average productivity gain of 27% from several randomized experiments of genAI usage (Cui et al., 2024; Dell’Acqua et al., 2023; Noy and Zhang, 2023; Peng et al., 2023)
Our estimated aggregate productivity gain from genAI (1.1%) exceeds the 0.7% estimate by Acemoglu (2024) based on a similar framework.
To be clear, they are surmising that GenAI is already having a productivity gain.
As for the quote, I can’t find it in the article. Can you point me to it? I did click on one of the studies and it indicated productivity gains specifically on writing tasks. Which reminded me of this recent BBC article about a copywriter making bank fixing expensive mistakes caused by AI: https://www.bbc.com/news/articles/cyvm1dyp9v2o
[1] Things get even spicier if consumer growth was zero. Then what would the comparison? That AI added infinitely more to growth than consumer spending? What if it was negative? All this shows how ridiculous the framing is.
That’s not at all how these things work.
Further, your theory about the bubble doesn’t make a lot of sense either. Have you heard of the Dunning-Kruger effect?
Have you heard of the disagreement hierarchy? You're somewhere between 1 and 3 right now, so I'm not even going to bother to engage with you further until you bring up more substantive points and cool it with the personal attacks.
https://paulgraham.com/disagree.html
Regarding the economics, the reason it’s a big deal that AI is powering growth numbers is because if the bubble pops, jobs go poof and stock prices with it as everyone tries to salvage their positions. While we still create jobs, on net we’ll be losing them. This has many secondary and tertiary effects, such as less money in the economy, less consumer confidence, less investment, fewer businesses causing fewer jobs, and so on. A resilient economy has multiple growth areas; an unstable one has one or two.
While you could certainly argue that we may already be in rough shape even without the bubble popping, it would undoubtedly get worse for the reasons I listed above,
Right, I'm not suggesting that all of the datacenter construction will seamlessly switch over to building homes, just that some of the labor/materials freed would be allocated to other sorts construction. That could be homes, amazon distribution centers, or grid connections for renewable power projects.
>A resilient economy has multiple growth areas; an unstable one has one or two.
>[...] it would undoubtedly get worse for the reasons I listed above,
No disagreement there. My point is that if AI somehow evaporated, the hit to GDP would be less than $10 (total size of the sector in the toy example above), because the resources would be allocated to do something else, rather than sitting idle entirely.
>Regarding the economics, the reason it’s a big deal that AI is powering growth numbers is because if the bubble pops, jobs go poof and stock prices with it as everyone tries to salvage their positions. While we still create jobs, on net we’ll be losing them. This has many secondary and tertiary effects, such as less money in the economy, less consumer confidence, less investment, fewer businesses causing fewer jobs, and so on.
That's a fair point, although to be fair the federal government is pretty good at stimulus after the GFC and covid that any credit crunch would be short lived.
Using non-seasonally adjusted St. Louis FRED data (https://fred.stlouisfed.org/series/NA000349Q), and the AI CapEx spending for Meta, Alphabet, Microsoft, and Amazon from the WSJ article (https://www.wsj.com/tech/ai/silicon-valley-ai-infrastructure...):
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Q4 2025 consumer spending: ~$5.2 trillion
Q4 2025 AI CapEx spending: ~$75 billion
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Q1 2025 consumer spending: ~$5 trillion
Q1 2025 AI CapEx spending: ~$75 billion
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Q2 2025 consumer spending: ~$5.2 trillion
Q2 2025 AI CapEx spending: ~$100 billion
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So, non-seasonally adjusted consumer spending is flat. In that sense, yes, anything where spend increased contributed more to GDP growth than consumer spending.
If you look at seasonally-adjusted rates, consumer spending has grown ~$400 billion, which might outstrips total AI CapEx in that time period, let alone growth. (To be fair the WSJ graph only shows the spending from Meta, Google, Microsoft, and Amazon. But it also says that Apple, Nvidia, and Tesla combined "only" spent $6.7 billion in Q2 2025 vs the $96 billion from the other four. So it's hard to believe that spend coming from elsewhere is contributing a ton.)
If you click through the the tweet that is the source for the WSJ article where the original quote comes from (https://x.com/RenMacLLC/status/1950544075989377196) it's very unclear what it's showing...it only shows percentage change, and it doesn't even show anything about consumer spending.
So, at best this quote is very misleadingly worded. It also seems possible that the original source was wrong.
If the general theme of this article is right (that it's a bubble soon to burst), I'm less concerned about the political environment and more concerned about the insane levels of debt.
If AI is indeed the thing propping up the economy, when that busts, unless there are some seriously unpopular moves made (Volcker level interest rates, another bailout leading to higher taxes, etc), then we're heading towards another depression. Likely one that makes the first look like a sideshow.
The only thing preventing that from coming true IMO is dollar hegemony (and keeping the world convinced that the world's super power having $37T of debt and growing is totally normal if you'd just accept MMT).
The first Great Depression was pretty darn bad, I'm not at all convinced that this hypothetical one would be worse.
Today, we have the highest tariffs since right before the Great Depression, with the added bonus of economic uncertainty because our current tariff rates change on a near daily basis.
Add in meme stocks, AI bubble, crypto, attacks on the Federal Reserve’s independence, and a decreasing trust in federal economic data, and you can make the case that things could get pretty ugly.
But for things to be much worse than the Great Depression, I think is an extraordinary claim. I see the ingredients for a Great Depression-scale event, but not for a much-worse-than-Great-Depression event.
Which is their (Thiel, project2025, etc) plan, federal land will be sold for cheap.
Now, it does that at the expense of the average person, but it will definitely prop up the bubble just long enough for the next election cycle to hit.
Youre implying the country exerting financial responsibility to control inflation isn’t good.
Not using interest rates to control inflation caused the stagflation crisis of the 70s, and ended when Volcker set rates to 20%.
Of course, this is just one way that interest rates affect the economy, and it's important to bear in mind that lower interest rates can also stimulate investment which help to create jobs for average people as well.
Precisely! Yet the big problem in the Anglosphere is that most of that money has been invested in asset accumulation, namely housing, causing a massive housing crisis in these countries.
This is why in a hot economy we raise rates, and in a not economy we lower them
(oversimplification, but it is a commonly provided explanation)
Not necessarily. Sure, it that money is chasing fixed assets like housing but if that money was invested into production of things to consume its not necessarily inflation inducing is it? For example, if that money went into expanding the electricity grid and production of electric cars, the pool of goods to be consumed is expanding so there is less likelihood of inflation.
About what? Like seriously what would they even do other then try and lame duck him?
The big issue is Dem approval ratings are even lower then Trumps so how the hell are they going to gain any seats?
The seeds were planted after Nixon resigned and it was decided to re-shape the media landscape and move the overton window rightwards in the 1970s, dismantling social democracy across the west and leading to a gradual reversal of the norms of governance in the US (see Newt Gingrich).
It's been gradual, slow and methodical. It has definitely accelerated but in retrospect the intent was there from the very beginning.
You could say that was when things reverted back to "normal". The FDR social reconstruction and post WW2 economic boom were the exception, anomaly. But the Scandinavian countries seem to be doing alright. Sure, they have some big size problems (Sweden in particular) but daily life for the majority in those countries appears to be better than a lot of people in the Anglosphere.
If you see it that way this is just a reversion to the mean.
Nvidia the poster-child of this "bubble" has been getting effectively cheaper every day.
Recently, I've heard many left wingers, as a response to Trump's tariffs, start 1) railing about taxes being too high, and that tariffs are taxes so they're bad, and 2) saying that the US trade deficit is actually wonderful because it gives us all this free money for nothing.
I know all of these are opposite positions to every one of the central views of the left of 30 years ago, but politics is a video game now. Lefties are going out of their way to repeat the old progressive refrain:
> "The way that Trump is doing it is all wrong, is a sign of mental instability, is cunning psychopathic genius and will resurrect Russia's Third Reich, but in a twisted way he has blundered into something resembling a point..."
"...the Fed shouldn't be independent and they should lower interest rates now."
Personally I trust Jerome Powell more than any other part of the government at the moment. The man is made of steel.
If this isn't the Singularity, there's going to be a big crash. What we have now is semi-useful, but too limited. It has to get a lot better to justify multiple companies with US $4 trillion valuations. Total US consumer spending is about $16 trillion / yr.
Remember the Metaverse/VR/AR boom? Facebook/Meta did somehow lose upwards of US$20 billion on that. That was tiny compared to the AI boom.
* Even with all this infra buildout all the hyperscalers are constantly capacity constrained, especially for GPUs.
* Surveys are showing that most people are only using AI for a fraction of the time at work, and still reporting significant productivity benefits, even with current models.
The AGI/ASI hype is a distraction, potentially only relevant to the frontier model labs. Even if all model development froze today, there is tremendous untapped demand to be met.
The Metaverse/VR/AR boom was never a boom, with only 2 big companies (Meta, Apple) plowing any "real" money into it. Similarly with crypto, another thing that AI is unjustifiably compared to. I think because people were trying to make it happen.
With the AI boom, however, the largest companies, major governments and VCs are all investing feverishly because it is already happening and they want in on it.
Are they constrained on resources for training, or resources for serving users using pre-trained LLMs? The first use case is R&D, the second is revenue. The ratio of hardware costs for those areas would be good to know.
Edit: agree on the metaverse as implemented/demoed not being much, but that's literally one application
As someone in an AI company right now - Almost every company we work with is using Azure wrapped OpenAI. We're not sure why, but that is the case.
Also Microsoft Azure hosts its own OpenAI models. It isn’t a proxy for OpenAI.
It's the same reason you would use RDS at an AWS shop, even if you really like CloudSQL better.
This is the main reason the big cloud vendors are so well-positioned to suck up basically any surplus from any industry even vaguely shaped like a b2b SaaS.
These are jobs that normally would have gone to a human and now go to AI. We haven't paid a cent for AI mind you -- it's all on the ChatGPT free tier or using this tool for the graphics: https://labs.google/fx/tools/image-fx
I could be wrong, but I think we are at the start of a major bloodbath as far as employment goes.... in tech mostly but also in anything that can be replaced by AI?
I'm worried. Does this mean there will be a boom in needing people for tradeskills and stuff? I honestly don't know what to think about the prospects moving forward.
The AI bubble is so big that it's draining useful investment from the rest of the economy. Hundreds of thousands of people are getting fired so billionaires can try to add a few more zeros to their bank account.
The best investment we can make would be to send the billionaires and AI researchers to an island somewhere and not let them leave until they develop an AI that's actually useful. In the meanwhile, the rest of us get to live productive lives.