AI boom creates $20T bubble risk while success threatens jobs

The world economy has become dangerously dependent on AI investment, creating a scenario where both the success and failure of the artificial intelligence boom could trigger severe economic consequences. According to Gita Gopinath, former chief economist at the International Monetary Fund, an AI bubble burst could wipe out $20 trillion in U.S. household wealth and $15 trillion globally, yet the alternative—AI succeeding in its goal to replace human workers entirely—may pose even greater long-term risks to society.

The precarious balance: AI investment is currently the primary force sustaining U.S. economic growth despite widespread economic weakness across other sectors.

• Employment growth has stagnated while wage growth slows, particularly in low-paying jobs, with loan delinquencies and bankruptcies rising alongside collapsed consumer confidence.
• Donald Trump’s trade policies have disrupted agricultural access to Chinese markets and manufacturing access to rare-earth materials, while migration restrictions have created labor shortages in agriculture and healthcare.
• Despite these headwinds, AI-focused investment by major tech companies is single-handedly propping up business investment and driving stock market gains that support consumer spending.

If the bubble bursts: A market crash comparable to the dotcom collapse could devastate global wealth and trigger a worldwide recession.

• The VIX Index, measuring market volatility expectations, recently hit its highest level since April when Trump’s tariff announcements caused market turbulence.
• Investors are growing nervous about whether the promised productivity gains from AI will justify the hundreds of billions being invested in increasingly powerful AI systems.
• The combined valuation of the “magnificent seven” tech giants now represents about one-third of the entire S&P 500 index.

If AI succeeds completely: The technology’s stated goal to “replicate humans” rather than just specific tasks could fundamentally restructure society in dangerous ways.

• Unlike previous technological advances that displaced workers into new roles, AI aims to perform all human tasks at a superior level, potentially eliminating the traditional labor market’s ability to provide livelihoods.
• Erik Brynjolfsson of Stanford University warns this would “vastly concentrate wealth and power,” leaving most people dependent on “the decisions of those in control of the technology.”
• Society risks becoming “trapped in an equilibrium where those without power have no way to improve their outcomes.”

A potential alternative path: Some experts suggest focusing AI development on augmenting rather than replacing human workers.

• Brynjolfsson notes that “the value gained from automation pales alongside the gains from creating something new,” advocating for AI agents that help humans perform currently impossible tasks.
• Examples include AI helping design new proteins or enabling nurses to perform tasks typically reserved for doctors.
• Historical precedent shows investment bubbles often leave valuable infrastructure—like the railway networks from 19th-century crashes or the internet ecosystem from the dotcom bust.

What they’re saying: “The AI promise does not offer to replicate some human tasks. It proposes to replicate humans,” distinguishing current AI ambitions from previous technological advances.