Think of this as the early stages of a wartime economy
Nathan Rice’s argument in this piece is that AI is, effectively, a proxy war with China and that the US is way behind. As a result — for many, reasons, including ego, the Silicon Valley AI companies' profits are being guaranteed by the American taxpayer.
That’s a dangerous bet, especially when (as he points out near the start of the article) that “If it wasn’t for AI investments, it’s likely the United States would be in a recession right now.” I don’t think that AI is going to completely transform economies in the timeframe that boosters are talking about and, therefore, agree with Rice that the deflation or bursting of the bubble is going to be very tough.
I just hope that we, in the UK (and Europe) have the good sense to realise that good things happen slowly and bad things happen fast.
Between Elon Musk, David Sacks, Sriram Krishnan, Peter Thiel and his acolyte J.D. Vance, Trump has been sold the story that AI dominance is a strategic asset of vital importance to national security (there’s probably also a strong ego component, America needs “the best AI, such a beautiful AI”). I’m not speculating, this is clearly written into the BBB and the language of multiple executive orders. These people think AI is the last thing humans will invent, and the first person to have it will reap massive rewards until the other powers can catch up. As such, they’re willing to bend the typical rules of capitalism. Think of this as the early stages of a wartime economy.
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How much of a “war” this is is debatable; if you think we’re going to reach peak AI with GPT6, it’s a nothingburger, but if you believe AI is the next industrial revolution, that framing is fairly accurate, as failure to adapt would be an economically existential threat. The Chinese will not pull back on AI investment, and because of their advantages in robotics and energy infrastructure, they don’t have to. Unlike us, they’re able to do it sustainably. US households don’t have sufficient surplus income to support consumer robotics at scale and our industrial base is likely insuffient to drive robotics investments at the scale required, and with the administration’s crusade against solar energy and America’s unwillingness to build nuclear power, we’re at a crippling disadvantage in the energy race. We have a head start in AI, but China can train for less, soon they’ll have more training capacity, and they’ll be able to use their lead in robotics to capture far more economic value from AI than we will. That means the longer the AI race drags on, the more likely China is to beat us. The people in power aren’t willing to risk that outcome, and they’ve been bewitched by the idea of being the only ones to have superintelligence, so they’re willing to go all-in to win big and fast.
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Where does all this leave us? For one, you better hope and pray that AI delivers a magical transformation, because if it doesn’t, the whole economy will collapse into brutal serfdom. When I say magic here, I mean it; because of the ~38T national debt bomb, a big boost is not enough. If AI doesn’t completely transform our economy, the massive capital misallocation combined with the national debt is going to cause our economy to implode.
If you think I’m being hyperbolic calling out a future of brutal serfdom. Keep in mind we basically have widespread serfdom now; a big chunk of Americans are in debt and living paycheck to paycheck. The only thing keeping it from being official is the lack of debtor’s prison. Think about how much worse things will be with 10% inflation, 25% unemployment and the highest income inequality in history. This is fertile ground for a revolution, and historically the elites would have taken a step back to try and make the game seem less rigged as a self-preservation tactic, but this time is different. As far as I can tell, the tech oligarchs don’t care because they’re banking on their private island fortresses and an army of terminators to keep the populace in line.
Source: Sibylline Software