We've seen speculative over-growth with a good legacy at least three times in the last three decades. First was the dot-com boom. Overpromotion made it necessary for every business to have a web site. That wasn't pre-ordained. The Web could have maxed out as a distribution system for catalogs, data sheets, academic papers, and similar business to business info. Overpromotion created the business to consumer web, which turned out to be useful.

The second overbuild was long-haul fiber optics. Look up Global Crossing. So much fiber was put into the ground and water that intercontinental spam is not a problem. That didn't have to happen. If traffic was billed, it wouldn't have happened. It turned out to be useful, but was not pre-ordained from the economics.

A third overbuild was the solar panel industry, especially in China. So much money was thrown at solar panel manufacturing that the price became very, very low. Solar deployment accelerated and started to take over, after decades of panels costing too much. Now China has a solar panel glut. They're dealing with it intelligently - minimum efficiency standards are coming into effect, and pollution controls on panel manufacturing are being tightened.

    If enough capital has been installed before learning removes the wedge, the economy lands in the high-capital state,

Interest rates in fiat currency, these days, are not due to scarcity of lendable funds. Saving rates by consumers actually are just a low-risk or high-risk form of rent seek8ng., depending on the economy.

There's no world these days where a vast amount of collected wealth by a few makes credit suddenly cheap for all consumers.

All wage earners will still be able to drive up inflation if they demand goods that are not able to keep up easily... therefore pressure to save (to not take out debt) will raise interest rates fine by itself.

Unless we are talking about fiscal-based government spending (and interest on fiscal debt), no increased access to credit will become "better for all". Businesses can absorb all the credit offered during good times and consumers may see none.

Business failures will suddenly dump some assets on the market at fire sale prices, but a lost job makes those fire sales of little solace.

A few notes:

1. This assumes that there is notable ROI on 'AI labor'. That is still up for debate.

2. This assumes that the interests are currently falling, unless I misread the paper.

3. This affirms that we are in an over valuated, speculative bubble which will inevitably correct; but it needs to "correct" at the exact right time defined by multiple factors.

First, "correction" can be an euphemism for a disastrous financial crisis. It could take years and years for most people to see the end of the tunnel. I don't know if the end justify the means.

Do we really need to engineer a financial crisis to build more energy facilities? And will they be built the 'right way', using renewable energy for example? What if we invested half of those trillions directly in socially impactful measures, instead of having the money flow through a speculative bubble first?

Finally, I am not an economist, but I wonder how accurate a mathematical model is to the real world - i.e. what happens to the model when Donald keep changing the opening hours of the Hormuz?

It does feel a bit like trying to read tea leaves to me. This reminds me of Hari Seldon's psychohistory:

> In Foundation (1951), famed mathematician and psychologist Hari Seldon has developed the science of psychohistory, which uses sophisticated mathematics and statistical analysis to predict future trends on a galactic scale. He has predicted the unavoidable and relatively imminent fall of the Galactic Empire, and intends to establish the Foundation, "a repository of crucial, civilization-preserving knowledge" that will enable society to revive itself more quickly and efficiently [...] [1]

---

[1](https://en.wikipedia.org/wiki/Foundation_universe#Psychohist...)

Truly dismal science of an Economics professor at MIT.

However, GPUs and memory chips are some of the fastest-depreciating capital investments one can make. Overinvesting in this generation's GPU model will either be wasted (because the chips are worthless in a few years) or result in a lot of underinvestment in future years (because instead of replacing those GPUs with newer models you keep using them, unwilling to admit you bought several times as much as you should have).

If we have reached the point in the cycle where the boom's proponents are trying to argue that even if it was all a mistake, maybe it's ok, then one suspects were might be late in the boom part of the cycle.

https://press.stripe.com/boom

I am looking to test if there are several second order effects of rising oil prices and supply chain issues that can exacerbate financial contagion from an AI bubble (assuming we are in one) and, to the best of my understanding, it depends on what kind of mechanisms fail to contain the fall out.

I don't think it is reasonable to assume doom, but I would imagine there needs to be considerations from a much broader perspective as to discuss the possibility of 'a larger capital stock, higher wages, and a lower interest rate' that is paper is asserting.

I could be wrong (I am still trying to assess my hypothesis), but I am skeptical that the increased value/productivity from AI can overcome a rising cost of living if the war is sustained.

"workers operate with a larger conventional capital stock and wages rise even as the worker share falls."

Liberal Democratic capitalism splits power into two primary buckets: political and economic.

Marx provided the critique of consolidated economic power. The Soviet union proved the dangers of consolidated political power and Hayek made the mechanism explicit.

The "election tampering" BS is their attempt to try to undermine plutocratic political power. This looks like an attempt to justify the insane concentration of economic power that clearly goes against Hayek's description of free markets as a mechanism to discover preferences. Whose preferences?

If worker share is falling, workers are losing their share of the economic voting mechanism. Whether or not the emerging capital ownership class chooses to keep rents and subscriptions affordable to the new working subclass if and when they accomplish this power grab is immaterial, no matter how much math they try to wrap the propaganda in.

A temporary overvaluation can build enough real capital that the economy lands in a permanently higher-capital equilibrium, even after the inflated valuations correct. The future for AI companies may look rather iffy, but the whole economy may not be as screwed as some fear.