Some simple economics of AI and macro cycles

Has AI been propping up the American economy?  For instance “the Bureau of Economic Analysis’s category for investment in information processing equipment and software accounts for over 90 percent of economic growth in the first half of 2025.”

The key question is what would have been done with those resources otherwise.  Regardless of their specific allocation, it is reasonable to assume they would have been allocated with considerable less urgency than the AI resources.  That means more resources sitting around, with their owners exercising a bit more option value.  It is probably also the case that the alternate allocations would have, on the whole, been less risky and less correlated than the AI allocations.  They would have been bets on a variety of different technologies, rather than a single technology.  After all, what else on the table could have been as “big” as these AI bets?

So without the AI boom yes we would have had a lower gdp growth number, but by no means do those resources just disappear.  We also would have lower expected returns from the alternate resource allocations and lower risk.

Since these resource allocations seem large enough “to matter” and to create systemic risk, the American economy would have had lower returns and also lower risk.  But we, collectively, opted for the scenario with higher expected returns and higher risk.  (Do not think you had no role in this!  You could have bid ridiculously high dollars to have the economy experiment with some new breakfast cereals instead.)

This is risk-based business cycle theory, people, much of it derived originally from Fischer Black.  I wish us luck people!