There’s no hard delimiter on financially induced sector collapse, and it’s often not directly attributable to the sector that collapses. The dot com crash was tied to federal reserve interest rate increases that resulted in a sell off as investors moved towards less speculative investments.
AI is in a fairly safe position right now through sheer variety of vested interests. Government, construction, infrastructure, computing hardware, software, and early corporate adopters of AI are all doing everything they can to keep the ball rolling. They’ve crossed a line where sunk costs have an outsized role in future decisions. There’s also the wildcard of AI being deemed a strategic defense asset.
The present state of spending will continue until there’s some catastrophic event that scares people off or public pressure forces a reduction in scale.
My money is on public pressure leading to change. Data centers are being publicly subsidized and the general public is beginning to push back. One or two public service commissions refusing to comply with energy and water subsidies will lead to wide scale changes that will put the brakes on. Things will move out of startup mode and into the realm of actual business.
The dot com crash was tied to federal reserve interest rate increases that resulted in a sell off as investors moved towards less speculative investments.
I was working in the industry during the dotcom boom. And I can say with confidence that by the start of 2000, the startups had gotten very, very dumb. In many cases, they were dumber than the also-ran crypto and AI startups we’ve seen recently. A couple of them back in 2000 were my clients, though I tried to get rid of the dumb ones quickly.
There’s a critical moment in every bubble where you start hearing investment advice from normies at cocktail parties, and people start publishing books insisting, “This time is different and the market will go up forever!” When your non-technical grand-uncle starts button-holing you about obscure cryptocurrencies, then the market has run out of suckers. And a crash is coming.
The Fed will generally cut interest rates around this point, on the theory that if people have enough money to invest in ideas that dumb, it’s time to “take the punchbowl away.” There’s a bunch of economic modeling behind this, of course. But a good intuition is that if there’s enough money in the system to invest in thousands of extremely dumb companies, we probably have too much liquidity.
I suppose the AI bubble could genuinely be different, in that we might build SkyNet before the bubble collapses on its own. That would, I guess, represent the popping of the 10,000-year Homo sapiens bubble. But I’d prefer to avoid that.
There’s no hard delimiter on financially induced sector collapse, and it’s often not directly attributable to the sector that collapses. The dot com crash was tied to federal reserve interest rate increases that resulted in a sell off as investors moved towards less speculative investments.
AI is in a fairly safe position right now through sheer variety of vested interests. Government, construction, infrastructure, computing hardware, software, and early corporate adopters of AI are all doing everything they can to keep the ball rolling. They’ve crossed a line where sunk costs have an outsized role in future decisions. There’s also the wildcard of AI being deemed a strategic defense asset.
The present state of spending will continue until there’s some catastrophic event that scares people off or public pressure forces a reduction in scale.
My money is on public pressure leading to change. Data centers are being publicly subsidized and the general public is beginning to push back. One or two public service commissions refusing to comply with energy and water subsidies will lead to wide scale changes that will put the brakes on. Things will move out of startup mode and into the realm of actual business.
I was working in the industry during the dotcom boom. And I can say with confidence that by the start of 2000, the startups had gotten very, very dumb. In many cases, they were dumber than the also-ran crypto and AI startups we’ve seen recently. A couple of them back in 2000 were my clients, though I tried to get rid of the dumb ones quickly.
There’s a critical moment in every bubble where you start hearing investment advice from normies at cocktail parties, and people start publishing books insisting, “This time is different and the market will go up forever!” When your non-technical grand-uncle starts button-holing you about obscure cryptocurrencies, then the market has run out of suckers. And a crash is coming.
The Fed will generally cut interest rates around this point, on the theory that if people have enough money to invest in ideas that dumb, it’s time to “take the punchbowl away.” There’s a bunch of economic modeling behind this, of course. But a good intuition is that if there’s enough money in the system to invest in thousands of extremely dumb companies, we probably have too much liquidity.
I suppose the AI bubble could genuinely be different, in that we might build SkyNet before the bubble collapses on its own. That would, I guess, represent the popping of the 10,000-year Homo sapiens bubble. But I’d prefer to avoid that.
I like the idea of cocktail party investment advice as an economic bellwether. That’s a good observation.