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Over the last few years, artificial intelligence (AI) has become extremely popular in Silicon Valley and is widely regarded as the most transformative technology in the 21st century. In fact, it is already reshaping sectors like education, transportation, finance, health care, media, and telecommunications. Indeed, it is estimated that about 60 percent of jobs in advanced economies may be impacted by AI, which means that it could affect economic growth, employment, and wages. As a result, investment in AI is booming across industries, echoing the late-1990s dot-com era, with investors pouring billions into AI in the hope for a big payday. Nearly $1.6 trillion has been put into this technology since 2013, and Big Tech companies are expected to add over $400 billion into AI efforts before the year ends, with even bigger spending planned for 2026.

Unsurprisingly, there are concerns about an AI bubble, and there are indeed some striking similarities between the AI market today and the dot.com bubble of the 1990s that imploded in 2000, resulting in massive losses for investors and the collapse of major companies, with the U.S. economy eventually entering an economic recession in 2001. If the AI bubble were to burst, not only would virtually every company be affected, but the entire economy could collapse like a house of cards. So is the AI boom a looming bubble? What causes bubbles? How do they work? Professor Gerald Epstein, a world-leading authority on banking, finance, and financial crises, addresses these questions in the exclusive interview for Truthout that follows. Epstein is professor of economics and co-director of the Political Economy Research Institute at the University Massachusetts Amherst. This interview has been lightly edited for clarity.

C.J. Polychroniou: There are growing concerns about an AI bubble and what may happen if it bursts. In your own view, are we in an AI speculative bubble, and what are the real threats behind a bubble?

Gerald Epstein: Concerns about AI are certainly understandable. But to be clear on what the true threats (and possible benefits) are and what to do about them, we need to distinguish among the short, medium, and long term.

In the short term, the potential problem is that our current economic growth and performance generally has gotten far too tied up with the AI boom in capital expenditure. Capital expenditure in new manufacturing plants, equipment, and technology is a major driver of both our current economy — including job creation — and also of our longer-term growth of productivity and the economy overall. In recent months, AI-related expenditures account for a significant percent of our capital expenditures, with most of this being for the building of data centers (more on this in a moment). So, the short-term state of our economy has become highly dependent on one industry, and a new and untested one at that. If that industry were to severely falter, it could lead to a significant short-term decline in the economy overall and even perhaps cause a recession.

To make the short-term risks even greater, as is often the case with a building frenzy such........

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