If AI and crypto were to collapse, it would likely cause a global collapse of unimaginable proportions. Two months before Black Monday, the market crash that led to the Great Depression, a Massachusetts economist named Roger Babson, worried about the flood of investors borrowing money to buy stocks, declared that «sooner or later there will be a crash, and it could be a terrible one.» Subsequently, the market fell by 3%. But in the weeks that followed, markets brushed aside Babson's premonition in part because of optimism about mass-market products like the radio and the automobile. Today, there are many similar warnings about AI in particular. The magnitude of the excitement surrounding AI, whose prospects for generating profits remain entirely hypothetical, is staggering many investors. And yet, now, as a century ago, the idea of missing out on the next big trend has convinced many companies to ignore such dark prophecies. If a speculative bubble is defined as any phenomenon in which the value of a certain asset rises unsustainably beyond a definable fundamental value, then there are bubbles everywhere, and they seem to inflate and deflate at the same time, writes Bloomberg. There is probably a bubble in gold, whose price rose nearly 64% in the year to December 12, and one in government bonds, according to Borge Brende, CEO of the World Economic Forum. Many financiers believe that there is a private credit bubble. The most obvious absurdities have materialized, where there is no easy way to assess the intrinsic value of an asset. Bitcoin's total market value, for example, rose to $636 billion from the start of the year to October 6, before the currency lost all of that value and more on December 12. Transaction volume in memcoins peaked at $170 billion in January, but by September it had fallen to $19 billion. Many investors have evaluated these cryptocurrencies not for their potential to create value for shareholders and the world at large, but for the chance to generate a lot of money quickly. Perhaps there are demographic reasons why investors try to «play» the financial markets as if they were casinos. A recent survey shows that 6 in 10 Americans aspire to amass extreme wealth, and 70% of GenZs and Millennials say they want to become billionaires. Everyone globally is now aware of opportunities to make money at the same time. This seems fine in principle, but it has led to a frenzy of imitation, mass competition and herd behavior. The traditional economy has been replaced by the attention economy. In the business world, all attention is focused on AI. In popular culture, there is also the Labubu doll bubble. In the food world, there is definitely a protein bubble. In the media there could be a bubble of Substack newsletters, of podcasts hosted by celebrities. The stakes are higher for AI than Labubu dolls, of course. Suddenly, the cumulative impact of an AI bubble starts to look more severe. Carlota Perez, a British-Venezuelan researcher who has been writing about boom/bust economic cycles for decades, is as worried as others. It says that innovation in the technology sector is being turned into high-stakes speculation in a casino economy that is over-indebted, fragile and prone to bubbles ready to burst once active doubts begin to spread. «If AI and crypto were to collapse, it would probably cause a global collapse of unimaginable proportions,» she writes in an email. «Historically, only when the financial world suffers the consequences of its own behavior, instead of being perpetually bailed out, and when society brings it under control with appropriate regulations, do truly productive golden ages occur.»
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