Paul Krugman Says AI Boom Is ‘Crowding Out’ Other Investments in a Way the Dot-Com Era Never Did: ‘This Isn’t a Hypothetical Risk’
Economist Paul Krugman said the artificial intelligence boom is crowding out investment elsewhere in the economy, something the dot-com boom didn’t do, and that the effect is already measurable whether or not it is in a bubble. AI Is Pushing Up Rates And Squeezing Everything Else “Massive spending on data centers is crowding out investment in everything else in the economy,” Krugman wrote in a Substack blog published on Tuesday. Unlike the risks of technological unemployment or a burst bubble, he said, “this isn’t a hypothetical risk.” When demand for credit surges near full employment, interest rates rise and other investment loses out. Government deficits usually get the blame, but “surges in private spending, like the current immense AI boom, also drive up interest rates,” he wrote. The Spending Behind The Squeeze JPMorgan CEO Jamie Dimon expects hyperscalers to spend nearly $1 trillion next year, up from about $700 billion this year. Much of it is borrowed. Five of the biggest hyperscalers have issued about $220 billion of debt this year, more than double last year’s total, Goldman Sachs counts $88 billion of lower-rated AI-related borrowing. Data center const
Economist Paul Krugman said the artificial intelligence boom is crowding out investment elsewhere in the economy, something the dot-com boom didn’t do, and that the effect is already measurable whether or not it is in a bubble. AI Is Pushing Up Rates And Squeezing Everything Else “Massive spending on data centers is crowding out investment in everything else in the economy,” Krugman wrote in a Substack blog published on Tuesday. ” When demand for credit surges near full employment, interest rates rise and other investment loses out.
Government deficits usually get the blame, but “surges in private spending, like the current immense AI boom, also drive up interest rates,” he wrote. The Spending Behind The Squeeze JPMorgan CEO Jamie Dimon expects hyperscalers to spend nearly $1 trillion next year, up from about $700 billion this year. Much of it is borrowed. Five of the biggest hyperscalers have issued about $220 billion of debt this year, more than double last year’s total, Goldman Sachs counts $88 billion of lower-rated AI-related borrowing.
Data center construction is diverting funds from housing, offices, and factories, Krugman wrote, and an analysis of FRED data shows tech investment crowding out other investment since early 2023. ” However, he sees no sign of that now, noting that balance-of-payments data show no such surge. ” Billionaire investor Ray Dalio said Wednesday that heavy borrowing and rising rates are pushing the boom closer to a bursting point. 38 in early premarket trading on Wednesday.
27 in premarket trading. The State Street ETF has a Momentum score in the 73rd percentile, with a positive price trend across the short, medium, and long term, according to Edge rankings. See More: Top Momentum Stocks Disclaimer: This content was produced with the help of AI tools and was reviewed and published editors. Photo courtesy: Shutterstock