Things Will Have To Change
Giuseppe Tomasi di Lampedusa | AI Is Eating the Economy | Factoids | Elsewhere
If we want things to stay as they are, things will have to change.
| Giuseppe Tomasi di Lampedusa
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If we are to steer the economy away from a possible catastrophe in AI spending, government and corporate policies will have to change. See Paul Kedrosky’s thoughts, below.
AI Is Eating the Economy
Paul Kedrosky has run the numbers, and it looks like AI capital expenses (capex) are rapidly approaching the level of investments made by the railroad barons of the 1880s, as a percentage of the economy.
Kedrosky points out a key problem [emphasis in the original]:
The U.S., however, leads the capex spending way. One analyst recently speculated (via Ed Conard) that, based on Nvidia's latest datacenter sales figures, AI capex may be ~2% of US GDP in 2025, given a standard multiplier. This would imply an AI contribution to GDP growth of 0.7% in 2025.
[…]
Compare this to prior capex frenzies, like railroads or telecom. Peak railroad spending came in 19th century, and peak telecom spending was around the 5G/fiber frenzy. It's not clear whether we're at peak yet or not, but... we're up there. Capital expenditures on AI data centers is likely around 20% of the peak spending on railroads, as a percentage of GDP, and it is still rising quickly. And we've already passed the decades ago peak in telecom spending during the dot-com bubble.
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We are in a historically anomalous moment. Regardless of what one thinks about the merits of AI or explosive datacenter expansion, the scale and pace of capital deployment into a rapidly depreciating technology is remarkable. These are not railroads—we aren’t building century-long infrastructure. AI datacenters are short-lived, asset-intensive facilities riding declining-cost technology curves, requiring frequent hardware replacement to preserve margins.
And this surge has unintended consequences. Capital is being aggressively reallocated—from venture funding to internal budgets —at the expense of other sectors. Entire categories are being starved of investment, and large-scale layoffs are already happening. The irony: AI is driving mass job losses well before it has been widely deployed.
The large-scale layoffs are not solely being driven by expectations of new efficiencies that AI will bring: the tech companies making these investments are diverting funds away from non-AI related operations and investments, and pouring it into building (or renting) datacenters. And those data centers do not have a long half-life, like railroads or telephone infrastructure.
Is it all just a ‘madness of the crowds’ phenomenon, like the Tulip craze? What if these firms never see the return-on-investment from this massive diversion of funds from everything else?
Factoids
Resurgence in tech employment.
From Azeem Ahzar:
Contrary to expectations, graduate tech employment is rising in the US [X/John Burn-Murdoch]
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Retirement is broken.
A 2024 survey conducted by the AARP found that 20 percent of respondents over 50 had no retirement savings at all, and more than half said they would not be able to support themselves when they could no longer work.
| Charlotte Cowles, What Life Is Like for Four Young Adults Supporting Their Aging Parents
When a fifth of over-50 Americans have zero retirement funds set aside, there is something profoundly broken in the market economy. [See The World Is Cracked.]
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How many Russians?
A study in June found that nearly one million Russian troops had been killed or wounded in the war.
| Ivan Nechepurenko, Constant Méheut, Russia Makes Gains in Ukraine in Summer Offensive
How long can this go on before the Russian people say enough?
Elsewhere
Another Take on Brokenism | Stowe Boyd
Brokenism is the real debate: do you buy it, or not?
The real debate today isn’t between the left and right. It’s between those invested in our current institutions, and those who want to build anew.
| Alana Newhouse, Brokenism
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Bring Out The Best | Stowe Boyd
Elinor Ostrom | China Shock 2.0 | Substack
A core goal of public policy should be to facilitate the development of institutions that bring out the best in humans. We need to ask how diverse polycentric institutions help or hinder the innovativeness, learning, adapting, trustworthiness, levels of cooperation of participants, and the achievement of more effective, equitable and sustainable outcomes.
| Elinor Ostrom
It is nearly impossible to imagine that those responsible for dismantling American institutions, in this administration, have considered the ideas behind Elinor Ostrom’s appeal to bring out the best in humans.
Nice one