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View all search resultsManias, panics and artificial intelligence
As technology companies push ahead to map the course of AI, sitting on the sidelines may seem safe for now, but taking this option risks losing out in the future.
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A man tries AI glasses on July 29 during the World Artificial Intelligence Conference (WAIC) 2025 at the Shanghai World Expo and Convention Center in Shanghai, China. (AFP/Hector Retamal)
I
n 1978, Charles Kindleberger published Manias, Panics and Crashes, an instant classic history of investment booms and subsequent busts. Such booms can be divided between those that end up building something useful, such as a railway system Britain, the United States and elsewhere in the mid-19th century, and those that do not, such as the Netherlands’ infamous tulip mania in the 17th century and the subprime mortgage madness of the early 2000s.
By any metric, the US and by implication, the world, is now in an intense artificial intelligence speculative boom. But will all the investment pouring into the industry build something useful? To whom, and for what purpose? And if there is a downside, what will it look like?
Kindleberger’s work, and everything that has happened since 1978, suggests that three salient questions should be used to assess investment booms.
First, does the boom involve more than just a run-up in asset prices (such as happened with US housing prior to the 2008 global financial crisis)?
On this front, today there is definitely a big wave of investment in plants and equipment, such as data centers, in the US and elsewhere. Moreover, investment in information technology infrastructure, an important input for firms and government, could boost productivity and therefore help underpin economic growth. (An unfortunate corollary is a potentially significant environmental impact, owing especially to increased demand for electricity and water.)
Second, is the investment boom financed primarily by issuing debt (a major factor in the 2008 crisis)?
For AI, the answer is decidedly mixed. While the biggest companies involved do have sufficient positive cash flow to cover what has already been spent, much supplier finance is apparently already being provided by some tech companies (to enable other companies to buy computer chips, for example). The credit risks involved in these relationships are murky, to say the least. Some of the collateral involved may become obsolete before the loans are paid off.
