There are two mistakes you can make with predictions: claiming that something will happen when it won’t, or that it won’t happen when it will. The economist Paul Samuelson joked in 1966 that the stock markets predicted nine of the last five recessions. What, then, should we make about forecasts that the AI boom will burst, and that the world as we know it will end?
Rather than predictions, let’s focus on what we know. The coming of AI is the biggest structural shift happening to the global economy right now. If the massive AI investments currently under way in the US succeed, the payoff for the world will be enormous. If they fail, we will go into recession. There is a scenario where they fail in the short-term but succeed in the long-run. Remember the dotcom bubble in the late Nineties? The bubble burst. Dotcom didn’t.
Big financial crises generally do not happen when the stock market falls, but when people and governments take on too much debt. The global financial crisis started with a subprime mortgage bubble. Today’s equivalent could be the rise in debt to fund the AI boom.
One of the few Wall Street insiders to predict the 2008 crash was Steve Eisman, who featured prominently in Michael Lewis’ book The Big Short, and who was portrayed by Steve Carell in the subsequent film. Eisman said in a recent podcast that he predicted Armageddon once in his life — but isn’t quite ready to do it again.
Written by: Wolfgang Munchau @UnHerd
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