NPR Newsletter Weighs Whether AI Bubble Bust Could Speed Job Losses

The newsletter’s author writes that they have long been skeptical of sweeping claims about how AI will transform the world and remain so, but that as the technology advances they worry more about what it could mean for livelihoods. The article says two strands of economic research make the double-whammy scenario worth taking seriously: the history of financial bubbles and a relationship between recessions and automation.

On bubbles, the article cites Charles Kindleberger’s 1978 book “Manias, Panics, and Crashes,” which drew on Hyman Minsky’s theoretical work. The newsletter describes a recurring pattern: a big potential change, such as a revolutionary technology, excites investors; they bet heavily and borrow to make bigger bets; when reality sets in, asset prices fall but debts remain, and a market crash can spiral into a financial crisis and a painful recession.

The article says a technology can be truly revolutionary and still fuel a bubble that ends in a crash, pointing to railroads and the Panic of 1873. It says the ensuing economic turmoil helped foment a populist uprising and the first major immigration crackdown in American history.

The newsletter says AI is now basically propping up the U.S. stock market. It cites an analysis from J.P. Morgan earlier this month finding that just 42 AI-related companies accounted for around two-thirds of the S&P 500’s stock price gains since early 2024. It adds that AI-related companies are borrowing hundreds of billions of dollars to help finance data centers and the energy infrastructure to power them.

The article says none of this proves that what is being witnessed is a bubble or that the debt is a ticking time bomb for the financial system. It notes that the bursting of the dot-com bubble helped usher in a relatively mild recession, that debt played a smaller role in that boom, and that its collapse did not trigger a systemic financial crisis like the one after the housing market bust around 2008.

Even without a financial crisis, the newsletter says there could be a painful reckoning. It asks whether all these companies will ultimately make enough money to justify their borrowing and spending and whether each will survive. It cites technology analyst Benedict Evans warning that fierce competition between companies offering similarly capable AI models could drive down the prices they can charge and leave little room for profit even as they spend heavily to develop and run the models.

The article then turns to research suggesting recessions can be the moment when businesses turn to new technologies to replace workers. It says automation is often imagined as gradual, but the research suggests it can happen in bursts that tend to cluster around recessions. It cites a study by economists Nir Jaimovich and Henry Siu finding that jobs vulnerable to previous waves of automation saw most of their decline around recessions; between 1990 and 2017, 88% of the decline in the share of Americans employed in these jobs occurred during recessions or in the months immediately before or after them.

The newsletter describes an unsettling irony: fierce price competition could keep AI companies from delivering the profits investors expect while making their technology cheaper for other businesses to use to replace workers. If an AI bust triggers a recession, the article says, that downturn could accelerate worker replacement, meaning investors could lose their money and workers could still lose their jobs.

The article describes a nightmare scenario in which the bust first hammers retirement savings.