Just How Bad Would an AI Bubble Be?

I don’t think its doing so much propping up because the spend is being thrown into a couple of piles. When companies hire some ai superstar for millions it isn’t like much of that money is circulating in the wider economy like if you invested it into a diversified portfolio or hired a lot of lower wage people who spend a much higher share of their paycheck on stuff that keeps it circulating in local economies. Likewise if that spend is going to server racks or electricity. The money just doesn’t have a lot of avenues to spill out into different subsets of the economy.

This is probably what is going on when we see McD executives say there are basically two economies in the US at the moment, one doing very well for itself and the other experiencing a lot of hardship.

>Business spending on AI is more than all consumer spending combined as a share of GDP.

Your phrasing there is misleading. The article says, "In the first half of this year, business spending on AI added more to GDP growth than all consumer spending combined," and the key is the "added more to GDP growth" part.

Growth in consumer spending was sluggish, while growth in business AI spending was insane, so in terms of how much the economy grew, the rise in AI spending exceeded the rise in consumer spending. Which is pretty amazing, actually. But, as far as the total amount of spending, business AI is at most only a few percentage points of GDP (and that's if you interpret "business AI spending" very broadly), while consumer spending is somewhere around 67-70% of GDP.

I dont know why you keep on bringing up soap. Soap, something anyone with knowledge can create in their own home, is not comparable to gpus and ai models which both require massive capital investments and skills to produce and thus are able to command massive margins.

> Spending on AI data centers is so massive that it's taken a bigger chunk of GDP growth than shopping

You havent compared this to previous bubbles like the internet, smart phones and personal computing in general. Your argument isnt convincing.

I think that misses the nuance of what happens as this shakes out. We have ghost towns all over the west and cities with a fraction of their historic population in the middle of the country. Maybe employment is 95% in whatever county that ghost town is in, but that is only because people have left for other jobs and not stuck around to be destitute. And this was made possible thanks to there being other jobs available someplace else.

Now, what happens if there are no jobs available someplace else? Would the sort of leadership we have in power these days consider a New Deal esque plan for mass public work projects and employment opportunities when the private sector has none available? Or would they see it as an opportunity to bring back a sort of feudalism or plantation economy where people aren’t really compensated at all and allowed to starve if not immediately economically useful?

Please wait, the ai is typing a response...

"Is it a hype?" is a different question, that's just not very interesting to me. Anything will be described as both hyped and good, depending on who you ask.

You were previously talking about AI being a bubble and also useful For reference, wikipedia defines a bubble as: "a period when current asset prices greatly exceed their intrinsic valuation". I find that hard to reason about. One way to think about it is that all that AI does is create economic value, and for it to be useful it would have to create more economic value than it destroys. But that's hard to reason about without knowing the actual economics of the business, which the labs are not super transparent about. On the other hand I would imagine that all that infra building by all big players shows some level of confidence that we are way past "is it going to be useful enough?". That is not what reasonable people do when they think there's a bubble, at least that would be unprecedented.

And that's why I was asking.

a few possibilities for me are: over engineering, rabbit holes, trying to build on top of something that only 80% works, and trying to fix something you don't understand how it works. also integrating in with existing code bases. it will ignore field name capitalization, forget about fields, other things like that.

I prefer working with AI but it ain't prefect for sure.

> What if it turns out to be more of a, say, tens of billions of dollars market?

If it was treated as a multi-trillion dollar market, and that was necessary to justify the current investments, then it turning out to be a tens of billions of dollar market would make it not useful.

We can go to the most extreme example: Human life, that presumably is invaluable, which would mean that, no matter what, if we have an effective treatment for a life threatning diseases, that's useful. But it clearly is not: If the single treatment cost the GDP of the entire country, we should clearly not do it, even if we technically could. The treatment is simply not useful.

For AI the case is much simpler: If the AI, that we are currently building, will in effect have destroyed economic value, then it will not have been useful (because, as far as I can tell, at a minimum the promise of AI has to be positive economic value).

I mean, surely, if and when they demonstrably work, the sceptic can just adopt them, having lost nothing? There seems to be a new one every month anyway, so it’s not like experience from using the one from three years ago is going to be particularly helpful.

There seems to be an attitude, or at least a pretended attitude, amongst the true believers that the heretics are dooming themselves, left behind in a glorious AI future. But the AI coding tools du jour are completely different from the ones a year ago! And in six months they'll be different again!

LLMs have been existing for 5-6 years already in some shape and form. How long do I have to wait for Claude to actually do something and me starting it to see it in OSS?

- Cause currently what we see in OSS is LLM trash. https://www.reddit.com/r/webdev/comments/1kh72zf/open_source...

- And a large majority of users don't want that copilot trash in their default github experience: https://www.techradar.com/pro/angry-github-users-want-to-dit...

At what point that trash will become gold? 5 more years? And if it doesn't, at what point trash stays trash?

- When there is a study showing that trash is actually sapping 19% of your performance? https://metr.org/blog/2025-07-10-early-2025-ai-experienced-o...

- When multiple studies show using it makes you dumb? https://tech.co/news/another-study-ai-making-us-dumb

Cause I am pretty sure NFT still has people who swear by them and say "just give it time". At what point can we confidently declare that NFTs are useless without the cultist fanbase going hurr durr? What about LLMs?

It has already been a couple of years. What time period should we revisit? And also how would we measure success?