There is really no comparison. Frozen credit markets would have dragged the global economy into depression. A crash in tech stocks will just cause investors to lose some wealth. Nobody depends on AI for core operations. Not yet at least.
Also, we did a long-term fix for a 2007-style crisis already with Dodd-Frank. Government can now invoke "orderly liquidation" before a crisis happens. When commercial banks failed a few years ago, FDIC solved it in a matter of weeks with no outlay of money from Congress.
> A crash in tech stocks will just cause investors to lose some wealth.
The number of broader funds that are heavily invested in these companies as well, plus the unprecedented municipal, state, and national investment in data centers and the like, make this far more rippling than you think.
That's my horror/worry. The 2008 was started by the collapse of the real estate market. Banking collapsed because they were absurdly overleveraged.
Are the banks currently being stress tested? Is the testing honest?
Is anyone evaluating the potential impact to the other funds? Or are people being sidelined if they're not on the bandwagon, given that the non-AI market is in overall decline? Are pensioners _not_ going to receive help if an AI collapse tanks their retirement, despite them having basically zero control over the investment?
^^This. The ignorance of those who don't really understand is troubling.
I don't know about that. Consumer spending is being held up by stock market gains. And most of those gains are tech.
Propping up the stock market to fuel consumer spending is extremely regressive. The top 10-20% make up ~50% of consumer spending. [1] Effectively you're giving the wealthy a risk-free bet with huge payoff if it succeeds. If that bet succeeds it consequentially means a ton of job displacement which will mostly affect the other 90%.
1. https://www.wsj.com/economy/consumers/us-economy-strength-ri...
I didn't advocate for propping up the stock market. I only disputed OP's assertion that a tech selloff wouldn't be so bad and wouldn't affect much else. This is what they said
> A crash in tech stocks will just cause investors to lose some wealth. Nobody depends on AI for core operations. Not yet at least.
which government lever can increase the wealth of the lower 80% of income earners in the way you want? the problem with the kind of progressive taxation to fuel "wealth redistribution" (really, job programs) you're imagining is that government spending is inefficient - do we want to pay the prices it costs to convince people to do backbreaking work building ghost cities and bridges to nowhere, it's not like in China where everything is driven by fakery and coercion. compare that to the seemingly unlimited cushy office bullshit jobs that bloat in the private sector creates.
Just because I am anti-propping-up-the-stock-market does not mean I am a communist. I am a liberal who believes in capital markets.
For the 10%, the stock market crashing just means cutting back on primarily discretionary spend - think no new car and maybe not buying the family new iPhones every year - they're not in any danger of going hungry, especially if they have any sense.
There are plenty of arguments to be made for infrastructure projects, for example, why not build out more power generation and transmission?
i don't mean to engage in this rhetoric where you have to worry about being flamed. i'm just asking you to sincerely answer the question and not worry about how it looks.
for example one big lever is student loan debt relief. another is mortgage and auto loans relief. another is reducing the exclusivity period for pharmaceutical patents. so these are taxes in only the metaphorical sense - you get worse medicine with shorter exclusivity periods - but maybe people like that trade?
> the stock market crashing just means cutting back on primarily discretionary spend - think no new car and maybe not buying the family new iPhones every year - they're not in any danger of going hungry, especially if they have any sense.
this is a very paul krugman hand wavey POV. without a doubt, it would be a catastrophe.
> Just because I am anti-propping-up-the-stock-market does not mean I am a communist.
I don't quite understand this - isn't propping up the stock market via bail-outs more of a communist approach? Using communal tax revenues to keep failing businesses afloat seems far more communist than capitalist. The capitalist approach should really be to let failing companies fail.
> Consumer spending is being held up by stock market gains
Wait, really? Is this just a vibes thing, or have you seen data supporting that? It _seems_ fairly unlikely.
The top 10% by wealth are responsible for 50% of consumer spending in the US. In 2020 it was only 43%.
They also own 87% of the stock market.
It's not a big logical leap.
Most of those gain are tech because of the bubble.
The rest of the economy is being asphyxiated due to lack of investment, and wouldn't be so anemic without the AI bubble.
> Nobody depends on AI for core operations.
Financial failure of an AI lab wouldn’t make that AI disappear.
If people depend on them (aka demand) the IP of the labs would be valuable, someone would purchase it in bankruptcy, and they would continue serving the model.
There is basically no comparison to the credit market collapse, even though all of the simplified comparisons try to draw a straight line between the two.
The real concern is different: The theory is that if the frontier labs start collapsing, they will argue that their failure is equivalent to the US losing AI supremacy, which is equivalent to losing the future if you believe AI is winner take all. The argument is that they’ll be financially reckless and then ask the government to backstop losses if it falters, both to retain their lead and to protect the overall economy.
The other part that of this is the increasingly widespread belief that AI is a total bubble without demand and it’s all going to collapse because there’s no profits to be found at all because it’s all financial theater. That argument is harder to make if you’ve looked at the actual unit economics of these companies (hint: Anthropic isn’t subsidizing inference like so many believed). AI is not going away and the demand for compute will only increase. The question is how accurately these scale ups track it and if they’re going to dip below the insolvency threshold from getting it wrong.
But if the companies blow up, the technology doesn’t go away. The model weights aren’t deleted. The ML engineers don’t retire. Companies get restructured, IP assets can be sold to new operators, and engineers move to new companies with new business models.
It is funny how this is the race that is framed to be the one to not loose. Never mind literally any other economic sector where we seem to be content with china eating our lunch. This is the sole industry where suddenly we care. The horror of us having to use outsourced AI when literally every other good and product in our life is already outsourced.
Why is the “bust” part of the economic cycle something to be avoided at all costs? Isn’t this a natural part of the cycle, like smaller fires that clear out undergrowth in the forest? Isn’t it possible that preventing this by any and all means will lead to much worse outcomes in the long run?
Moral hazard as a concept (as something to be avoided) basically doesn’t exist anymore. Or rather, the whole market now embodies moral hazard. This seems bad.
Because a bunch of people become homeless, commit suicide, and otherwise suffer.
Feel free to run for office on a "periodic culling" platform, though
This is bad, but it seems better than a complete collapse of the economy, mass starvation, and a bloody revolution, which is what often happens when a declining status quo is maintained by force. Reality has a way of exerting itself, eventually.
i'd vote for a candidate that recognizes the existence of moral hazard, yes
Maybe just do something bloodthirsty and populist like bail out the company and execute the leadership.
Because if you let the market fail then people suffer. If people suffer they vote the incumbent out.
Could somewhat help break the cycle by having a safety net for people instead of for overleveraged companies and banks but the US is allergic to that concept.
From a purely explanatory perspective, this is correct. Nobody wants to be the one who didn’t kick the can.
Yea, if we bail out, we should nationalize the failed companies through the failure chain. Not just give them free money.
"Investors".
There is at least $1.5T in "dark" investment, in the SPVs building the actual data centres, off the major tech companies' books.
Enough that "investors" could mean almost anyone is exposed, internationally, through any number of funds and schemes.
Print enough money and the credit markets would have no choice but to unfreeze. Picking winners with fiscal policy was always the wrong solution.