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CounterPunch Exclusives

The AI Bubble, Like the Housing Bubble, is a Big Problem and It’s not Complicated

Photo by Zoe Stanford

A bit less than 20 years ago, a nationwide housing bubble collapsed, giving us the Great Recession. Millions of homeowners had their houses foreclosed. We had high unemployment for the better part of a decade. And the subsequent falloff in construction created the basis for another extraordinary run-up in house prices during the pandemic. In other words, it was pretty bad news.

The current bubble in AI is laying the groundwork for another bad story. As was the case both before and after the collapse of the housing bubble, there is a tremendous premium in intellectual circles on making the problem more complicated than it is.

My latest poster child for this point is a column in the New York Times by Richard Bookstaber, a hedge fund manager who had predicted the financial crisis that followed the collapse of the housing bubble. His column notes the AI bubble, but then argues that the big problem is that we are also facing risks from the private credit market, as well as geopolitical risks, like the fact that China could cut off the supply of chips from Taiwan and also the price shock associated with the cutoff of the oil flow through the straits of Hormuz.

The collapse of the stock prices of the companies that are big factors in AI will then have huge spillover effects, devastating people’s 401(k)s, as well as whacking pension funds. This will lead to a huge fall in consumption, which would likely lead to a recession.

The warnings are well-taken, but the story is actually not complicated. Bookstaber tells us at the start of his piece:

“Yet they [the potential problems he notes] are different entry points into the same underlying........

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