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After the Bubble Bursts
Paul Krugman | Substack • • business
Key Points:
- There are growing concerns that the recent surge in AI-related investments, particularly in data centers, may be unsustainable and could lead to a financial downturn similar to past bubbles like the dot-com crash and housing crisis.
- Recent market indicators, including a 27% drop in hyperscaler stock prices and rising default insurance costs on AI company bonds, suggest increasing investor nervousness about AI's financial prospects.
- If the AI investment bubble bursts, historical evidence indicates it will likely trigger a recession, potentially more severe than the late 1990s tech slump, with a slow and painful recovery marked by prolonged elevated unemployment.
- The article plans to explore the economic consequences of an AI bubble burst by reviewing historical recessions, the slow recovery from bubbles, comparisons to the dot-com bust, and the probable inadequacy of policy responses to mitigate a recession.
