Paul Krugman thinks that we may be on the brink of the bursting of the AI bubble:

Today’s primer won’t try to settle the hotly (and endlessly) debated question of whether AI really is a bubble, let alone whether this is the moment of truth. What I will focus on, instead, is a conditional question: If AI is a bubble, and that bubble is either bursting or likely to burst soon, what are the likely economic consequences? That is, as I’ll explain, a question we can address with a lot of historical evidence. For while AI as a technology is utterly new, burst bubbles have been a recurring economic theme for well over a century, and we know a lot about the macroeconomic aftermath of bubbles.

To preview my conclusions: a burst AI bubble will almost surely cause a recession. The depth of that recession is highly uncertain, although I favor the view that it will be worse than the slump at the end of the 1990s tech boom. But even if the recession is short and shallow, history and theory suggest that recovery from that slump will be painfully slow, that unemployment will remain elevated for multiple years.

Beyond the paywall, I’ll address the following:

1. A brief history of modern recessions

2. Why recovery from burst bubbles is slow

3. Comparing a possible AI bust to the dot-com recession

4. Why the policy response to an AI bust will probably be inadequate to prevent a painful recession

Read the whole thing.

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