Tag: stock market
Why Is Trump Still Boosting AI? Because He Has Nothing Except The Bubble

Why Is Trump Still Boosting AI? Because He Has Nothing Except The Bubble

Will AI transform the economy? The jury is still out on that one: So far there is little evidence for either the massive job losses or the soaring productivity growth industry leaders threatened/promised, but it’s still early days.

But AI does seem to be transforming U.S. politics. I can’t think of a technology that has inspired so much hate across such a wide political spectrum. Even the leading AI companies are warning about the dangers of their technology and pleading for government regulation to slow it down.

Which makes it more than puzzling that Donald Trump is going all in on AI, claiming that concerns about its dangers are a “hoax” and opposing any kind of regulation.

In so doing, he’s taking a wildly unpopular position. Here’s recent polling from UMass Amherst:

Notice that even a large part of Trump’s base is deserting him on this issue, with a quarter of Republicans disapproving.

So why is Trump posting stuff like this?

Robert Reich has a good post on the subject, urging us to follow the money: As he notes, members of the Trump family have personal financial stakes in the industry. And one motive one should never, ever dismiss in current U.S. affairs is Trump’s personal greed.

I would, however, add two more points.

First, I think Reich is too glib in dismissing the idea that Trump imagines that he knows what he’s doing. “It can’t be,” Reich writes, “that he knows very much about AI.” But does he know that he doesn’t know? That Truth Social post above, in which Trump declares himself perfectly able to manage this wild new technology because he is a “STRONG AND SMART (High IQ!) PRESIDENT”, is like a textbook illustration of the Dunning-Kruger effect, in which incompetent people are highly confident in their own judgment because they’re too incompetent to realize that they’re incompetent.

Second, it’s important to realize how much Trump needs an AI boom.

Trump came into office believing that his tariffs would produce a huge boom in “manly” jobs. In fact, job growth has been weak — and more than all the job gains have gone to women. Meanwhile, tariffs have driven up consumer prices.

And then there’s the Iran war, which has been an economic as well as a strategic disaster. Diesel prices are now well above $6 a gallon. Trump officials love to say that gasoline was over $5 a gallon under Biden, which was true — for one week.

Yet one thing did seem to be going right under Trump II. Enthusiasm for AI was generating a huge investment boom and supporting stock prices. Trump officials, notably Scott Bessent, the Treasury Secretary — who Edward Luce of the Financial Times now dubs “the Pete Hegseth of the Treasury” (ouch) — had taken to claiming that AI will solve all their problems, ending inflation by reducing costs and curing the budget deficit by generating huge economic growth.

The backlash against AI, then, is taking away the one thing the Trumpists thought they had going for them. So in a way it’s understandable that Trump is trying desperately to hold on to the magic (and possibly endangering the future of humanity, but he doesn’t care about that.)

But of course it won’t work. The AI boom, once Trump’s last remaining political asset, is now a huge liability.

Paul Krugman is a Nobel Prize-winning economist and former professor at MIT and Princeton who now teaches at the City University of New York's Graduate Center. From 2000 to 2024, he wrote a column for The New York Times. Please consider subscribing to his Substack.

Reprinted with permission from Paul Krugman.

Expert Warns That AI Bust Is Now Inevitable -- And Will Sink Trump's Economy

Expert Warns That AI Bust Is Now Inevitable -- And Will Sink Trump's Economy

The Wall Street Journal and other industry observers keep saying artificial intelligence investment is the one thing “saving” President Donald Trump’s stock market time and again, as Trump’s economy plateaus or tanks other stocks. However, Asad Ramzanali, director of AI and technology policy at the Vanderbilt Policy Accelerator, says AI overinvestment and risky financial engineering have made an AI crash more likely.

“I started [my research] not assuming we’re in a bubble, but that if we are, we should be prepared. As I got deeper into this, I became convinced that we are in a period of overinvestment where the money going out the door in the industry, which is primarily for data centers and chips, doesn’t match the money coming in,” Ramzanali told Washington Monthly podcast senior editor Anne Kim.

Ramzanali said research shows “$2 trillion is what the annual revenue from AI will have to look like to recoup” all this investment — and that’s not what can happen in the real world. So, prep for the inevitable bust.

Companies that build data centers -- Amazon, Microsoft, Google, Meta, and Oracle -- are making estimates in the 2026 capital expenditures that promise “higher percentage of GDP than the Manhattan Project, the expansion of electricity, the Apollo space program, the building of the interstate highway system, the broadband build out in the ‘90s, everything but the Louisiana Purchase. This nets out to about $700 billion of investment this year,” said Ramazanali.

In other words, curb your enthusiasm. But tech companies now make up one third of the stock market, and banks are invested in those tech companies in big ways like private credit, structured finance and endless pools of capital all funneling into similar investments.“[W]hen you’re talking about something that is this large, this high of a magnitude of our whole economy, that’s where I start to get worried about the spillover effects into the rest of the economy,” said Ramzanali.

What this means for the Trump stock market — which is practically all Trump has left to brag about — is nothing good for Trump.

The New York Times reports Trumps largely steady stock market keeps assuming it “will always be saved” by the government and that markets are “not properly pricing risk, because they really don’t have to.”

“ … [But] the new rescuer investors are counting on — artificial intelligence — is vulnerable to the exact risks markets are ignoring,” reports the Times. “This has huge consequences. … This reliance on A.I. looks like an extraordinary concentration of bets” that the Times reports is “likely straining their cash cushions.”

Nobody will want to be president when the only stable stock buttressing Trump’s economy in a time of widely-fluctuating gas and grocery prices suddenly goes wobbly. And Trump has three more years for the wobble to hit him.

Stock Market Has Performed Poorly Under Trump -- And Now Is Headed Down

Stock Market Has Performed Poorly Under Trump -- And Now Is Headed Down

In keeping with his usual manner of confusing big and small, past and present, and up and down, Donald Trump is confused about the movements in the stock market since he took office, and especially in the current year. I recently did a piece pointing out that since Donald Trump took office, the U.S. stock market has had one of the worst performances of any major stock market.

But the story is even worse in the current year. In the first two months of this year, while foreign stock markets have shot ahead, the S&P 500 is just barely in positive territory, rising by less than 0.5 percent. That might not sound great, but it’s better than the return in the formerly high-flying NASDAQ, home of the big tech companies. The NASDAQ fell by 2.5 percent since the start of the year.

Compare that to 4.2 percent gain someone would have had in the Italian stock market since the start of the year, the 5.3 percent gain in the French market, or the 9.9 percent gain in the U.K. If investors wanted to go to a bit more exotic realms they would have gotten an 11.1 percent gain in Mexico, a 16.9 percent return in Japan, and a 17.2 percent return in Brazil. And then there is the grand prize winner for the first two months of 2026, South Korea with a 49.7 percent return.

Source: Yahoo Finance


Last weekend in Texas, Trump told a story about a big strong man with tears in his eyes said that he had to thank him. According to Trump, the man began with the obligatory “sir,” and then said he had made so much money with his 401(k) that it even improved his sex life with his wife.

Given how the stock market has performed under Trump, we must assume that the big guy shorted the market.

Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.

Reprinted with permission from Dean Baker.





With Courage And Grit, AI Workers Could Save Democracy

With Courage And Grit, AI Workers Could Save Democracy

The AI promoters have made grand promises about how AI will change everything and give us all happier, healthier lives. Maybe that will be proven right, but it’s fair to say they have not yet delivered.

However, AI workers may have the power to do something very important in the present, not some distant or not so distant future. They can save democracy.

Their route to saving democracy is by not doing AI, or at least not doing AI with their current employers. At the moment, AI is clearly driving the economy. Investment in data centers and the power plants to support them directly account for a large share of economic growth.

Probably even more important than the direct investment is the impact of AI on stock market wealth and thereby on consumption. We have seen a huge run-up in the stock market driven primarily by companies that are heavily invested in AI.

To take the obvious examples, Nvidia, which makes most of the key chips for AI, now has a market capitalization of almost $4.5 trillion. Its stock has risen 1500 percent in the last five years. Microsoft has a market capitalization of $3.4 trillion. Its stock price has doubled in the last five years. Apple and Meta’s stock prices have risen less dramatically, but now have market capitalizations of $3.8 trillion and $1.6 trillion, respectively.

Stock wealth translates into higher consumption as people spend annually between 2 and 3 cents on a dollar of stock wealth. In the last five years the market has added nearly $30 trillion in wealth as the market has more than doubled in value. That stock gain translates into between $600 billion and $900 billion in annual consumption spending, or 2-3% of GDP. This is clearly a huge factor in driving the economy.

If the AI bubble were to burst, this pattern of growth would come to an end. If I and many others are correct in calling AI a bubble, it will burst in any case, the only question is the timing.

One factor that could hasten the collapse would be if a substantial number of top AI researchers took a hike, and either took some time away from the industry (maybe literally take a hike) or moved into some other area of research. The big AI companies that have gone to great lengths to recruit top researchers would likely see their stock valuations plummet. This could quickly end the current AI frenzy.

How does this save democracy? In my crude analysis of our current politics, Trump has a hard-core base of around 25% of the electorate. This crew will be with Trump no matter what. As he put it some years back, he could kill someone on Fifth Avenue, and they would still support him.

Roughly 50% percent of the population oppose Trump, most of them very strongly as they see clearly the threat he poses to democracy and our fundamental rights. Then there is another 25% or so that may not really like Trump, they might even think he’s a jerk, but hey, their 401(k)s are up, the economy isn’t doing badly, so why not?

This group has been edging away from Trump in the last year, with polls showing his overall approval now hovering near 40%. But they would edge away far more quickly if their 401(k)s suddenly took a big hit and we got our second Trump recession. (The first one was in 2020, for the folks with bad memories.)

If Trump went from being slightly unpopular to being extremely unpopular, we would start to see Republican politicians in the House and Senate suddenly come back to life. Very few of this group have any real commitment to Trump. In fact, some of them were hardcore never Trumpers before he took over the party.

These politicians care first and foremost about their careers, and they will not wed themselves to a 79-year-old man whose popularity is sinking like a rock. They will start again acting like members of Congress and doing things like overseeing spending, limiting Trump’s barrage of executive orders, and reining in ICE, which Trump is using as his personal police force to terrorize the states and cities that support Democrats.

The top AI researchers have the ability to set this ball in motion. It may be some personal sacrifice, but these people’s skills will still carry enormous value a year or two from now. They will not go hungry. And if the bubble is going to burst anyhow, why not get out front and do something great for the world?

To be clear, in my view this is not an issue of doing something bad to the economy. I have written before on how it would be good if the AI bubble bursts sooner rather than later. The same was true for the 1990s tech bubble and the housing bubble in the 00s. In all these cases we would have been much better off if the bubbles had burst years earlier.

Huge amounts of resources were being misallocated. The larger the bubble, the more painful the readjustment process. And to be clear, an economy where all the consumption growth is coming from the richest 20 percent of the population is not a healthy one. Bringing that pattern of growth to an end soon looks pretty good in my book.

We know the top people in tech, folks like Jeff Bezos at Amazon and Mark Zuckerberg at Meta, are just fine with Trump’s destruction of democracy. But these are not the people who make their companies economic powerhouses. If the people who actually do the work step forward, they really can change the world. The rest of us will keep trying too.

Dean Baker is a senior economist at the Center for Economic and Policy Research and the author of the 2016 book Rigged: How Globalization and the Rules of the Modern Economy Were Structured to Make the Rich Richer. Please consider subscribing to his Substack.

Reprinted with permission from Dean Baker.

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