Governments are making a dangerous bet on the AI boom

49 pointsposted 9 hours ago
by andsoitis
(economist.com)

32 Comments

gpt5

8 hours ago

It's private companies making a bet on the AI boom.

What governments do (which is the actual content of the article) is betting on economic growth to exceed the growing debt.

UncleOxidant

8 hours ago

Which is their dangerous bet on the AI boom.

forgetfreeman

8 hours ago

Previously on We Bet On Unlimited Growth, the global financial meltdown of 2008. If I was even slightly less cynical I'd honestly wonder how many times they're going to stick a fork in the same outlet in my lifetime.

yxhuvud

8 hours ago

There was what? At least three boom and bust cycles involving railroads. Do we have any good reason to believe the computing revolution will be nicer? So far we've had one bust. We now know the topic for the second while the timing remains hard to guess.

juusto

3 hours ago

We've had one bust, yes. How about second buster?

missedthecue

8 hours ago

Betting on economic growth exceeding the piling up of debt is something most governments around the world have been doing for about 40 years straight now.

spwa4

7 hours ago

Exactly, this is MUCH less betting anything as it is evaluating options and picking the most thinly veiled excuse to keep spending:

1) economic reality of an aging population and the gdp = population * efficiency equation, which now in every last EU country requires constant reductions in government spending until, at minimum 2050

2) find some excuse to predict economic growth and keep (or even increase) spending, note: this is not something these governments necessarily actually believe, this is something to tell investors

This is an extremely self-serving money NOW effort where someone used a secondhand crayon to write "strategy" on it. But it's not like governments actually have a real choice in this, a message the people for example gave to French government, a big unmissable message set in flame across the streets of Paris.

The truth is that stock market margin debt, what usually sets of crises, is not at cycle highs, surprisingly, it's at maybe 60-70%. Government debt is high but is at about 70% of the hillbilly point, the point where new borrowing only gives you interest payments and no longer enables you to spend more. Which means company spending will rise and government spending will rise for ~2 years from this point forward.

amberjack

5 hours ago

Staring down the mountain of debt and thinking about how much needs to be cut or taxes raised to get anything resembling balance is no fun so we get this grasping at straws. At least the US has room to raise taxes unlike the EU.

itake

8 hours ago

Governments offer tax incentives for AI investments.

mono442

5 hours ago

The problem with public debt is vastly overestimated. It mostly doesn't matter at all. It can be just rolled over forever like it always was.

It's the private debt which is the problem since individuals and enterprises don't have the capability the governments have to roll it over forever.

ducktective

8 hours ago

I wonder about Japan and Europe these days. Back in the 80s, when Japan was pursuing the "Fifth-Generation Computers", EU and US scrambled to compete with Japan. Like, it was a big deal for strategists and decision-making high-level politicians of that era.

Now in 2020s, it seems only China is tailing US and in turn, US is wary of China. What gives?

JumpCrisscross

8 hours ago

> in the 80s, when Japan was pursuing the "Fifth-Generation Computers"

“The Fifth Generation Computer Systems…was a 10-year initiative launched in 1982 by Japan's Ministry of International Trade and Industry (MITI) to develop computers based on massively parallel computing and logic programming” [1].

That sounds an awful lot like GPUs and HBM.

[1] https://en.wikipedia.org/wiki/Fifth_Generation_Computer_Syst...

CamperBob2

8 hours ago

Except this time it works.

A lot of what's happening now is the (very) belated delivery of what everyone was talking about when they talked about "expert systems."

applfanboysbgon

8 hours ago

Do you think Japan and the EU would be better off if our/their economies were centred around trillion dollar companies that make a product that is 20% better than the Chinese models at 1000x the cost?

The reality is LLMs are just tools, and not even close to as revolutionary of tools as computers themselves. Even Chinese companies understand that. It is the US alone that is in machine god mania, gambling their economy on this idea that the next model will let them rule the world if only we give it three more months.

ducktective

8 hours ago

>Do you think Japan and the EU would be better off if our/their economies were centred around trillion dollar companies that make a product that is 20% better than the Chinese models at 1000x the cost?

Why Japan and Europe don't develop a model that is 20% worse at 0.001x the cost?

jurschreuder

7 hours ago

I'm European and I am developing a model that's 20% worse and 0.001x the cost of Chinese models.

Personally I also always just use Gemini-3.5-Flash since for me it's actually a good search tool access that makes a model great.

But I'm not very typical European we have 2000x B300 and I'm in USA and China all the time, and work 16hrs a day without weekends and holidays.

applfanboysbgon

8 hours ago

Chinese companies have at least three major advantages:

1. Price of electricity is low because of China's excellent energy policy. Admittedly this should absolutely be a priority of Japan/EU, but it isn't, so first you'd have to start there...

2. Because of #1, China already had massive infrastructure in place for eg. crypto mining that was readily repurposed. Japan/EU never engaged in this fad, so they have to start effectively from scratch in building out the GPU infrastructure.

3. Chinese talent is relatively isolated from the US economy. US-aligned economies must compete with the US for talent. It's hard to develop technology at a reasonable cost when all of your top talent is leaving to get paid 10x as much by speculative gamblers. If you don't have a very good reason to believe the gamblers are making a good bet, it's better to wait for them to go bust.

Added on to all of that... where is the upside? Chinese models are open anyways. There is nothing that merits this being a matter of urgent government intervention at all, it's basically pure downside.

johnsmith1840

7 hours ago

Not really a price thing nor an infra thing.

US has really cheap energy and far more compute by a very large margin.

The real reason is chinese gov wants to crush US ai industries and own the market. Same thing they have successfully done multiple times in other industries now the difference is this time the US isn't seeming to back down.

ares623

8 hours ago

A "bet" implies there's a risk of losing if it doesn't play out. As far as the individuals in the Govt and the involved companies are concerned, there is no risk for them. It's not their money, and the individuals will come out much better off regardless of outcome. It is simply a good investment.

peyton

8 hours ago

Further, Uncle Sam can always service dollar-denominated debt.

feverzsj

6 hours ago

Trump administration doesn't care. They just use it to manipulate market and make billions for themselves.

j45

8 hours ago

Curious: Is there any technologies and their adoption that were successful that Economist was wrong, or right about?

RachelF

8 hours ago

Many. They did an overly generous self examination a few weeks ago.

Generally, they are a trailing indicator, like someone appearing on the Forbes millionaire under 30 list (Theranos, FTX). However, they are not always wrong.

Think of Economist writers as intelligent interns - people who couldn't make it in the world of finance, and with a particular ideological bent imposed on them by their editors.

looksjjhg

8 hours ago

So you don’t listen to the weather or use weather apps?

user

8 hours ago

[deleted]

sublinear

5 hours ago

> It could be a while before the boost comes. ... There is another problem. If the productivity boost from AI is large enough to change any country’s fiscal arithmetic profoundly, vast job disruption is probably coming too, meaning more spending on unemployed workers (see United States section). Income may also shift from labour to capital, which is more lightly taxed. Should AI prompt an arms race, countries will also need more defence spending.

What a load of crap. Most of the AI investment by governments is defense spending and it's been happening for years.

This whole article's premise is trying to rearrange the reasons for the large amount of spending and muddy waters. This isn't a bet on economic growth. This is purely a capabilities arms race and the cold war never ended.

The stock market is still business as usual. This spending is all coming from taxes and private equity mostly detached from those investments. The scaremongering about employment is a red herring. We all know it doesn't work that well. It doesn't matter. The only real losers are those trying to run a business too cheaply with AI. They tend to be the same startups always expected to lose anyway.

bpodgursky

8 hours ago

It's not a bet.

The counterfactual was never "cutting pensions and medicare". That wasn't on the table and no government would ever commit suicide and pass it. It was either, spend until the economy completely collapses under the weight of debt and hyperinflation, or do exactly the same thing but pray for a miracle while doing so.

So, we're doing the second one.

johnsmith1840

7 hours ago

Yeah... but the point is that pensions will eventually have to go unless the magical exponential productivity boost really hits its swing.