Not a Finance Expert, but History and Politics Sometimes Resonate …
I don’t want to turn idle speculation about the future – either apocalyptic or utopian – into a commercial ploy, but I do occasionally drift into such speculation myself. What if all the talk of AI bubbles and public antipathy to new data centers in their neighborhoods, or Silicon Valley elites claiming wondrous new worlds of AI only to cash in on the bubble, are both real? Our new oligarchy clearly is dominated by the Sam Altmans and Peter Thiels of the world – alongside a President who comes from the world of real estate speculation himself! It’s hard to ignore.
I’m not an active investor (mutual funds dominate my portfolio), but I do claim to understand (sort of) economic history – especially the stuff related to markets. Apparently, there is a frequent cause and effect relationship between financial speculation waves (like current AI enthusiasm) and horrendous losses leading to things like bank failures and even Great Depressions (or Great Recessions, take your pick). And I do sincerely believe that economic conditions influence voting behavior in democracies and even cause violent revolutions or coups in less democratic societies. When those conditions change abruptly for the worse, people notice. The political out group (Democrats these days in U.S.) can easily invent code words to use in their campaigns – like “affordability” – which everybody can quickly equate with their personal immiseration. Then symbols of that immiseration are also easy to find — like big, ugly data centers on formerly pristine farmland and meadows. And those data centers consume huge quantities of energy – straining electricity supply and causing utilities to raise your rates. To say nothing of climate impacts.
Data centers become an obvious blemish associated with the affordability crisis, along with Trump’s tariffs, and his open courting of the wealthiest speculative entrepreneurs in the country – those Silicon Valley types. Massive corruption seems to be the result – all causing our cost of living to increase. And more: to date there aren’t even any clearly identifiable gains in productivity from all the AI investment we’ve seen – the economic growth it causes is limited to a few big Wall Street investors (actually, my mutual funds have been going up, too).
It seems to many in the commentariat that the primary return on AI investment may be widespread unemployment – the ultimate “cost savings” in a capitalist economy. So far, this has not transpired, but there are worrying signs in job growth numbers (causing the President to fire the head of the Bureau of Labor Statistics, among other things). It is true that recently the primary growth vector in the economy has been that AI speculation – especially Altman’s grand design for OpenAI. It’s all financial risk, so far. But there is that pesky fact of new jobs … and layoffs, even among the Silicon Valley “magnificent seven.” Unfounded speculation or not, this investment picture has impact on the pocketbooks of many consumers.
In early 19th century England, textile manufacturers were rapidly adopting steam and water-powered machinery – looms and related equipment. This resulted in a rapid and severe decline in mill jobs. It was an automation-related economic disruption in much of the country. It was, in fact, the direct cause of an organized resistance of textile workers known as the “Luddite Revolt.” This revolt was brutally suppressed by authorities, even extending to the halls of Parliament in London. Tampering with machines became a capital crime. Brian Merchant, in his book Blood in the Machine, tells the story quite clearly. Eventually, the revolt died along with its leaders. Of course, over time the disruption caused by mill unemployment was mitigated by other factors, like people simply migrating out of the area. Sustained economic growth, we are told, especially for low-skill jobs, will benefit all in the end. But is it just automation that causes the disruption? Or is there something else at work? I think of my boyhood in Flint, Michigan – automating the GM factories actually resulted in increased overall population of the city through the 1950s, ‘60s, and ‘70s; was the UAW also responsible? The GM Board (i.e., Wall Street) decided in the 1980s to close the plants – to abandon the city of its birth. The city died. True, life went on, people moved away, began new lives, etc. But local history in Flint was forever changed. That’s the historian’s approach.
The objective of these big financial adventures is not producing more and better goods and services for customers but cutting costs. That’s what investors care about. It’s the nature of capitalism, of market-driven decision-making. It was true for the Luddites, for mid-century General Motors, and for Silicon Valley in the early 21st century. Regarding the latter, we had a market shakeout around 2000, known today as the “dot com bubble,” where it is argued that excessive speculation in startup tech firms ultimately caused more failures than successes – resulting in a mild recession. Nothing, of course, compared to the “subprime mortgage bubble” which led to the financial crisis of 2007-08. That was due to excessive speculation by banks and other financial institutions – too many bad loans! Is that what’s happening again? Too many Sam Altmans influencing too many billions of dollars?
Regarding the politics of impending bubbles: nobody notices billions (even trillions?) of dollars sloshing around markets – but, when it comes down to family budgets, cost of groceries, utilities, car loans, that is when political movements get going. Are we there now with AI? It won’t be the climate stress of too many data centers, and it won’t be whether OpenAI or Google or Meta win or lose their lame competition with each other, but it will be our monthly utility bill, or the ability to stream the entertainment we want, that determine who we vote for. The goal of AI research is not to make my life better, but to enrich those investors and oligarchic entrepreneurs – those who control the billions, not those who pay my bills. And it’s beginning to show. It may be mostly the messaging ability of different politicians (perhaps themselves augmented by AI) that will make the difference over the next few years. My guess is that culture wars and tribalism will decline over the remainder of the Trump years, and those “pocketbook” issues will rise in importance. Let the consumer, not the oligarch, determine my future!
— William Sundwick
Warp and Woof 