Matthew Lynn is a financial columnist and author. He writes for the Daily Telegraph and the Spectator in London.
Have you heard? We are living through a rerun of the great railroad mania of the 19th century. Or the electrification boom of the 1920s. Or the dot-com bubble of the early 2000s. It has become fashionable for analysts to compare the huge sums of money artificial intelligence companies are spending on infrastructure to the rollouts of earlier transformative technologies. But the AI frenzy may be one of a kind.
Comparisons to the past aren’t inherently wrong. If humanity can’t learn from history, there isn’t much point in studying it. And technology booms of ages past hold some striking parallels. The United States is spending roughly 2 percent of its gross domestic product on building AI infrastructure. The data is murky, but that is of the same order of magnitude as the railroad bubble at its peak. Likewise, electrification and the beginning of the internet sparked manias of similar sizes.
Even the Bank for International Settlements, the typically sober central bank for other central banks, has pointed out some of the similarities between this episode and earlier investment crazes. The U.S. has been through this cycle before, which should signal how this one will end. Right?
The trouble is, certain elements of this boom are unprecedented. First, the AI build-out is almost entirely American, with some competition from China. Most of the earlier investment booms were global. Railroads were pioneered in Britain, and nearly every developed country in the world was laying down tracks as fast as it could. Likewise, plenty of nations installed electricity infrastructure at the same time as the U.S. (Indeed, the first electric streetlights were in Newcastle in the north of England.) With the AI boom, the risk is almost entirely concentrated in one country and one financial system.
Second, the AI boom is happening at lightning speed. It took four decades from the opening of America’s first passenger rail line, the Baltimore and Ohio Railroad, in 1830 to the completion of the first transcontinental railroad in 1869. It was a slow process, with plenty of time for entrepreneurs to figure out their business models, for banks to control their balance sheets and for the government to think about regulation. By contrast, the AI build-out has happened over less than five years. If AI companies and investors are making mistakes — and they almost certainly are — no one has any time to discover them, let alone fix them.
Finally, earlier booms created far more jobs than they destroyed. At the railroad industry’s peak in 1916, it employed 1.6 million people. Sure, it was a bad time to be in the stagecoach business, and the demand for saddles was starting to wobble. But overall, no one was writing about the “railroad jobs apocalypse” in the way people are about the AI boom. The job loss hasn’t happened yet, but Goldman Sachs estimates AI could displace nearly a tenth of the U.S. workforce.
Next to that prediction, parallels to past market crashes are reassuring. The history books say that while there was a lot of froth around railroads, electricity and the internet, they were also important technologies that ended up making a lot of money and creating a far more productive economy. There may have been some losses, and a few banks may have crashed. But, heck, that’s capitalism for you, and it all ended up for the best, despite the bumps along the way. It is a fundamentally reassuring story.
Yet it isn’t true about AI. The U.S. has never seen a boom like this one before. The global economy has no real experience with so much money being invested in just a single country, at such speed and scale, and with the potential to destroy so many well-paid, secure jobs. True, it may end well. Let’s hope so. Just don’t look to history for evidence that it will.
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