The idea that the whole AI thing is a bubble fit for bursting isn’t novel. But when a US senator thinks a bubble is obviously what it is, well, that’s particularly worrying.
“I know a bubble when I see one,” said veteran senator Elizabeth Warren to the Vanderbilt Policy Accelerator event in Washington (via The Verge). Warren’s central critique is that the revenues from AI services aren’t keeping up with the huge investments required to provide them.
“If AI companies are unable to increase revenues with lightning speed, they won’t be able to service their massive debt loads,” Warren said. “And because of shady accounting strategies, the first big stumble will have everyone running for the exits, potentially triggering destabilizing losses in the financial sector and another 2008-style financial crisis.”
Warren says AI companies will need to generate roughly $2 trillion in annual revenue by 2030. She claims that in 2025 the industry generated just $20 billion in revenue, 1% of what they would need to earn by 2030 “just to break even”.
The similarities with the 2008 financial crisis are particularly worrisome for Warren. “The parallels to the 2008 financial crisis are striking: the reckless behavior of a few billionaires and Big Tech CEOs has turned a promising technology into a structural risk to our financial system,” she said, adding, “American families and workers cannot afford another economic catastrophe. They are still picking up the pieces left by the Great Financial Crisis of 2008.”
Warren also claims that the AI bubble is currently four times the size of the housing bubble that lead to the 2008 crisis. Warren likewise thinks tech CEOs are acutely culpable in that they are all too aware of the risks they are taking on all our behalf.
“AI companies are aware of these risks—very aware. Instead of reducing their borrowing, slowing their rate of growth, and cleaning up their balance sheets, they are making the classic billionaires’ move: they are quietly lining up for a handout. They have already lobbied the Trump administration for taxpayer funding and guarantees to cover themselves if things go south,” she explained.
As for her thoughts on how to mitigate all this, her first step would be to restore the “guardrails” that used to restrict the activities of big Wall Street banks. Here, she’s probably talking about the repeal of the Glass-Steagall Act in 1999, legislation which most notably enforced a separation of commercial banks, which hold the deposits of regular consumers, from investment banks involved in more speculative activities. Well, until it didn’t, making the 2008 crisis possible, some would argue.
She also wants a new digital regulator to enforce anti-trust and consumer protection laws, and to see big tech paying its “fair share” in taxes. Of course, it will be easy for critics to dismiss Warren’s combined warning and call for action as shrill fear mongering from a politician not normally aligned with corporate interests.
But at the very least she’s objectively not wrong about the huge sums of money currently at risk in the AI industry. And she’s hardly alone in finding that very troubling indeed.
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