Just How Bad Would an AI Bubble Be?

Is it even a question that we’re in a bubble?

The effects of the technology would have to rival that of.. idk, soap and the locomotive combined? In order for us not to be in a bubble.

It has swallowed nearly all discourse about technology and almost all development, nearly every single area of technology is showing markers of recession.. except AI, which has massively inflated salaries and valuations.

I can’t even think of a scenario where we don’t look back on this as a bubble. What does the tech need to be able to do in order to cover its investment?

> would have to rival that of.. idk, soap

soap + water = bubble

> The effects of the technology would have to rival that of.. idk, soap and the locomotive combined? In order for us not to be in a bubble.

Can you quantify this or are you going based on vibes? If I were to compare this to previous bubbles (ie crypto, dot com bubble), in valuation multiple terms we haven't gotten started. And a number of tech companies eventually grew into and surpassed their bubble valuations.

AI can be a bubble and a real technological revolution at the same time, there is absolutely no reason these two things need to be mutually exclusive. The most recent example is the Internet in the late 90s-early 2000s. It was a bubble, it did crash and it did eventually fulfill all af its promises and more. There is no contradiction here

Soap was essentially the onset of what we’d consider urban living, before soap (and even for a long time after to be fair) medical operations had a stupidly hi morbidity and city life was also quite.. unsurvivable. Soap itself may not have been an investment, but it unlocked a lot of capabilities for our civilisation. Almost impossible to quantify how much.

Locomotives were something that had a definite upfront cost, unlike soap, and we invested so much money - up to 3% of GDP in some years in the 1800s.. but the economic benefits were ridiculous.

Spending on AI data centers is so massive that it's taken a bigger chunk of GDP growth than shopping! (according to Yahoo!: https://consent.yahoo.com/v2/collectConsent?sessionId=3_cc-s...)

I mean, it’s really apples to oranges, but I can’t imagine us getting the returns anywhere close to what rail gave us in the 1800s.

Replace a significant portion of the workforce reliably (IMHO). And if that happens, I wonder what's next. I mean, if we automate say 30% of jobs these people won't be employable anymore without a drastic change in their careers' trajectories (I mean, they have been automated out of work once, any company would eventually do the same).

When that happens they will end up overcrowding other jobs sectors pushing salaries down for people already in these fields. Once that happens, the lost of purchase power will hit every sector and drag down economies anyway.

So, if I have to summarize my thoughts, we are either in a bubble that will pop and drag down AI related stocks, or it is not a bubble because the tech will actually deliver on what CEOs are touting and there will be high unemployment/lower salaries for many which in turn will mess up other parts of the economy.

Happy to be wrong, but given the hype on AI the winning conditions have to be similarly high, and millions losing their jobs will for sure have huge repercussions.

The issue is:

1) Overhype can cause a “winter” where the word itself will become toxic once the bubble pops, leading to significant underinvestment for the period following. This actually has already happed twice with AI, and is part of why we use “Machine Learning” for concepts that used to be called AI… because AI was a toxic word that investors ran from.

2) A bubble sucks all the oxygen out of the room for all other technological endeavours. It’s strictly a bad thing as it can crush the entire technology sector (or potentially even the economy).

3) Bubbles might cause a return to form, but the internet was more like the railroads. Once built the infrastructure was largely existing and it being sold “for cheap” lead to a resurgence. AI has fewer of these core bits of infrastructure that will become cheap in a bust.

Yeah, this basically continually happens.

Look at history, there’s so many jobs that have been automated yet we still have 95%+ employment in most countries and effectively “double” the workforce as we’re pushing dual-income households as a standard.

I’m not sure how our obscenely wealthy overlords think things will play out when we’re all wage-slaves barely able to scrape by. It hasn’t worked out for any society historically.

I think we're in a bubble.

That said: In principle, if the tech did what the strongest proponents forecast it would do, it would change "the economy" in a manner for which we don't even have a suitable metaphor, let alone soap and locomotives.

Now, I do not believe the AI on the horizon at the moment[0] will do any of that. The current architectures are making up for being too stupid to live[1] by doing its signal processing faster than anything alive by the same degree to which jogging is faster than continental drift[2].

As for "minimum" needed for this to not be a bubble, it needs to provide economic value in the order of 0.1 trillion USD per year, but specifically in a way that the people currently investing the money can actually capture that as profit.

The first part of that, providing economic value, I can believe: Being half-arsed with basic software development, being first line customer support, supplying tourist-grade translation services, etc. I can easily belive this adds up to a single percentage point of the world GDP, 10x what I think it needs to be.

Capturing any significant fraction of that, though? Nah. I think this will be like spreadsheets (Microsoft may be able to charge for Office, but Google Docs and LibreOffice are free) or Wikipedia. Takes an actual business plan to turn any of this into income streams, and there's too many people all competing for the same space, so any profit margin is going to be ground to nothing until any/all of them actually differentiate themselves properly.

[0] Not that this says very much given how fast the space is moving; it's quite plausible a better architecture has already been found but it isn't famous yet and nobody's scaled it up enough to make it look shiny and interesting, after all Transformers took years before anyone cared about them.

[1] Literally: no organic brain could get away with being this slow vs. number of examples needed to learn anything

[2] Also literally

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?

The difference with the .com era is that a website is and was immediately useful when it came out. Yes there was too much speculative investment, but the inherent merits of the technology were plainly obvious.

This is not the case with AI. It is not even clear if these tools are useful. This really is much more an “Emperor has no clothes” situation, which is why this bubble is perhaps more dangerous.

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 have in my other comments.

But AI investment is outpacing all the things you mentioned.

I mentioned soap not because of capital investments, but because of what the GDP growth was following the invention. If AI is qualitatively lower than the GDP growth caused by SOAP then we're going to see a lot of unemployment. So, it's a bubble- nothing could possibly match soap.

I always love the the solution thrown out is we're all going to be plumbers...