The AI Gold Rush: Is It a Revolution or a Reckoning?
The air is thick with talk of Artificial Intelligence. From crafting code to composing prose, AI is touted as the next great disruptor, promising to reshape every corner of our economy. Venture capital is flowing, valuations are soaring, and the whispers of an impending "AI bubble" are growing louder. But beyond the headlines and the billion-dollar investments, what’s truly happening beneath the surface? What are the real-world consequences of this unprecedented technological surge?
To get a grounded perspective, we sat down with Joe Weisenthal, co-host of Bloomberg’s insightful "Odd Lots" podcast. Known for his deep dives into economic nuances and his passionate, sometimes boisterous, engagement with market trends, Weisenthal offers a sobering yet illuminating look at the forces shaping our financial future. His concerns extend beyond the speculative frenzy of AI, delving into the broader health of the US economy.
The Quirks of Economic Indicators: Cardboard Boxes and Census Spikes
Weisenthal’s approach to understanding the economy is refreshingly unconventional. He eschews the jargon-laden pronouncements for tangible, often overlooked, indicators. When asked about the weirdest market indicator he takes seriously, he points to the humble cardboard box. "You can really dive deeply into cardboard box volume sales," he explains, connecting it to the boom in e-commerce. The types of boxes – for individual packages versus larger grocery orders – offer a granular insight into consumer behavior and logistical pressures.
He also has a fondness for the chart of public sector employment over the last hundred years. It’s not just a dry statistic; it’s a fascinating puzzle. "There is a little spike every 10 years," he notes, which, after a bit of thought, reveals itself to be the decennial US Census. This exemplifies his knack for finding meaning in unexpected places, treating economic data as a form of engaging trivia.
When it comes to financial clichés, Weisenthal has a clear target: "The stock market is not the economy." He argues this couldn’t be further from the truth. "The stock market is a very important part of the economy. It’s not just a scoreboard; it’s an engine. It is a driver." He emphasizes how financial markets influence investment, innovation, and overall economic activity, echoing sentiments from economic thinkers like John Maynard Keynes, a dinner guest he’d dearly love to host.
The Hidden Costs of the AI Build-Out: Crowding Out and Supply Chain Strain
The headlines are dominated by AI, but Weisenthal highlights a less discussed, yet critical, consequence: the "crowding out" effect. The insatiable demand for data centers, the physical backbone of AI, is straining the supply of essential infrastructure. "Basic electrical equipment," he explains, "cooling gear, heating gear, water filtration, doors, gas turbines – all of this is in incredibly short supply right now."
He cites the ISM manufacturing report, a key economic indicator, where electrical equipment has been consistently listed as in short supply for five years, with only brief exceptions. This means that while big tech can outbid others for these critical components, other industries – like the developer building a drive-through coffee shop – are left waiting. This isn’t about waste; it’s about the fundamental mechanics of a market economy where price signals dictate allocation. The AI boom, in this sense, is directly impacting the ability of other sectors to build and expand.
This supply crunch isn’t just about electrical components. "The alternative is to build another factory, make a big bet on upfront capital outlays," Weisenthal says. "But in times of uncertainty, building a big factory is very risky." Companies producing essential goods often find it more profitable to simply raise prices and manage existing capacity, rather than invest in expansion. This, he suggests, is a consequence of "persistent underinvestment" over many years, a phenomenon he also sees in the housing market.
Tariffs: A Baffling Factor in the Global Supply Chain
Adding another layer of complexity to the global supply chain are tariffs. Weisenthal describes them as a "baffling phenomenon," particularly under the Trump administration. He notes that while tariffs might not be high enough to spur massive domestic industrial investment, they are significant enough to disrupt established import relationships. "Someone who had been importing them from China or Vietnam, maybe they’re looking for a supplier in India," he explains.
While this often means the goods still arrive, it’s a costly and complex process. Finding new suppliers, building relationships, and rerouting trade takes time and effort. Crucially, new suppliers may be hesitant to make long-term commitments if future tariff rates remain uncertain. "The way I think about tariffs overall," Weisenthal concludes, "is not that they’ve raised the cost of specific goods dramatically… it’s more that they’ve really raised the cost of doing business in the United States."
AI’s Economic Impact: Hype vs. Reality
The conversation inevitably turns to AI itself. Is the current fervor justified by tangible economic gains? Weisenthal expresses skepticism about AI’s immediate, significant impact on the global economy, particularly concerning hiring. "I just don’t see the technology being equipped to eliminate 10,000 white-collar jobs right now," he asserts.
He suggests that many announcements of AI-driven job cuts are often "air cover" for layoffs, using AI as a convenient justification. Instead of AI directly replacing workers, he sees a different dynamic: companies feeling pressure to demonstrate AI adoption and spending. "We know we’re gonna spend more on AI tools and services… so that means we’re gonna allocate less to hiring."
However, he acknowledges the power of financial markets as an "accelerant" and a "force of production." The surge in asset prices, particularly in tech stocks like Nvidia, is undeniable and deeply linked to the AI narrative. The disconnect arises when tangible corporate productivity gains from AI remain elusive. "Intuitively, it’s really hard to imagine that these big AI companies… that the AI premium that they’re receiving, can persist forever if there aren’t more clear-cut examples of companies saying, ‘This is a valuable thing that I want to keep paying more and more for.’"
Even Weisenthal, who uses AI for research, struggles to pinpoint a "killer use case" that demonstrably enhances his personal productivity. He draws parallels to the internet and mobile phones, technologies that profoundly changed society without immediately triggering a measurable aggregate productivity boom in economic statistics.
The Psychology of Bubbles and the Search for Optimism
The discussion touches upon the psychology of investing in what appears to be an AI bubble. Weisenthal notes the stress associated with bubbles, whether you’re on the outside looking in with envy or inside trying to time your exit. He wonders if the retail investor mindset has shifted towards embracing bubbles, remembering the "buy the dip" mantra that proved successful through market downturns.
Looking for optimism, Weisenthal points to the sheer material wealth and natural resources of the United States. "America is just such an insanely wealthy country," he says, highlighting its potential for self-sufficiency. However, he also acknowledges the economic pressures: an aging population straining the labor force, rising costs of living, and a lack of economic diversification beyond the tech sector.
Global Competition and the Fading Industrial Muscle
The conversation then broadens to global competition, particularly with China. Weisenthal dismisses the more apocalyptic AI scenarios as "hysteria," but takes seriously the concerns about industrial competition and national sovereignty. "It’s hard to imagine a country truly being sovereign without manufacturing capacity," he states.
He expresses concern about the US "losing the muscle to build things," using the struggles of companies like Boeing and Intel as examples. This decline, he suggests, might be more profound than just "corporate incompetence" or a focus on Wall Street. It could signal a broader erosion of advanced manufacturing capabilities.
The Future of Europe and Emerging Markets
Looking beyond the US, Weisenthal identifies the future of Europe as a critical, under-discussed story. Europe is caught between the US and China, facing intense competition for its industrial powerhouses, particularly Germany. He poses two paths for Europe: deeper integration with the US or greater internal integration to achieve scale. The rise of nationalism, however, complicates the latter.
He also highlights the burgeoning emerging markets like Indonesia, Vietnam, and Brazil. These nations are navigating booming trade with China while grappling with concerns about national sovereignty and protecting their own domestic industries. Their decisions about their economic relationships with global powers will shape the future economic landscape.
Control, Alt, Delete: A Tech Takeover
In a lighter moment, Weisenthal plays "Control, Alt, Delete," a game where he designates a tech element to each action.
- Delete: Sports gambling and its associated apps. He doesn’t have a problem with it personally but dislikes its constant presence and the potential for unhealthy engagement.
- Alter: Social media. As a parent, he’d cap daily usage at one hour for everyone, acknowledging its importance to his career while recognizing its potential downsides.
- Control: The cryptocurrency industry. While acknowledging legitimate developments like stablecoins and tokenization, he believes the sector requires guidance towards more positive and productive applications.
The Underlying Stresses: A Call for Diversification
Weisenthal’s outlook for the US economy is one of cautious realism. The current boom is heavily concentrated in big tech and AI, leaving other sectors "creaking." The "price we paid for under-investment in the 2010s" is evident, and the economy faces structural issues like an aging population and rising costs.
The prospect of the AI bubble bursting, while not an immediate apocalypse, raises the critical question: "What else is working right now?" If the current primary growth driver falters, and with industrial sectors facing fierce global competition, the US could face significant challenges. The path forward, he implies, requires greater economic diversification and a re-evaluation of its industrial might.
Despite the challenges, Weisenthal offers a glimmer of hope: the enduring wealth and resources of the United States. This inherent strength, coupled with its technological prowess, provides a foundation, but it’s a foundation that needs broader support from a diversified and robust economy.