The AI boom isn’t like other bubbles

1 Have you heard?

2 We are living through a rerun of the great railroad mania of the 19th century.

3 Or the electrification boom of the 1920s.

4 Or the dot-com bubble of the early 2000s.

5 It has become fashionable for analysts to compare the huge sums of money artificial intelligence companies are spending on infrastructure to the rollouts of earlier transformative technologies.

6 But the AI frenzy may be one of a kind.

1 Comparisons to the past aren’t inherently wrong.

2 If humanity can’t learn from history, there isn’t much point in studying it.

3 And technology booms of ages past hold some striking parallels.

4 The United States is spending roughly 2 percent of its gross domestic product on building AI infrastructure.

5 The data is murky, but that is of the same order of magnitude as the railroad bubble at its peak.

6 Likewise, electrification and the beginning of the internet sparked manias of similar sizes.

1 The U.S. has been through this cycle before, which should signal how this one will end.

2 Right?

1 The trouble is, certain elements of this boom are unprecedented.

2 First, the AI build-out is almost entirely American, with some competition from China.

3 Most of the earlier investment booms were global.

4 Railroads were pioneered in Britain, and nearly every developed country in the world was laying down tracks as fast as it could.

5 Likewise, plenty of nations installed electricity infrastructure at the same time as the U.S.

6 With the AI boom, the risk is almost entirely concentrated in one country and one financial system.

1 Second, the AI boom is happening at lightning speed.

2 It took four decades from the opening of America’s first passenger rail line, the Baltimore and Ohio Railroad, in 1830 to the completion of the first transcontinental railroad in 1869.

3 It was a slow process, with plenty of time for entrepreneurs to figure out their business models, for banks to control their balance sheets and for the government to think about regulation.

4 By contrast, the AI build-out has happened over less than five years.

5 If AI companies and investors are making mistakes — and they almost certainly are — no one has any time to discover them, let alone fix them.

1 Finally, earlier booms created far more jobs than they destroyed.

2 At the railroad industry’s peak in 1916, it employed 1.6 million people.

3 Sure, it was a bad time to be in the stagecoach business, and the demand for saddles was starting to wobble.

4 But overall, no one was writing about the “railroad jobs apocalypse” in the way people are about the AI boom.

5 The job loss hasn’t happened yet, but Goldman Sachs estimates AI could displace nearly a tenth of the U.S. workforce.

1 Next to that prediction, parallels to past market crashes are reassuring.

2 The history books say that while there was a lot of froth around railroads, electricity and the internet, they were also important technologies that ended up making a lot of money and creating a far more productive economy.

3 It is a fundamentally reassuring story.

1 Yet it isn’t true about AI.

2 The U.S. has never seen a boom like this one before.

3 The global economy has no real experience with so much money being invested in just a single country, at such speed and scale, and with the potential to destroy so many well-paid, secure jobs.

4 True, it may end well.

5 Let’s hope so.

6 Just don’t look to history for evidence that it will.