This is capitalism working exactly as intended. People with capital are using it to guide businesses to make them more money.
The mistake is thinking that capitalism is motivated by a healthy economy, when the theory is that if everyone is aggressively selfish then the economy will naturally become healthy and efficient.
The people making money are counting on making their money as investors keep pumping more in. The investors are all aiming to be the last one to sell before the crash. Russian roulette venture capitalism. (In some cases they think the economy will tolerate 1-2 companies and they’re aiming to buy a controlling interest in a company worth 2% current value after the correction, and in others they just have so much money that a few billion is a minor bet - BlackRock comes to mind, with more than $10 trillion to invest)
If you look at 2008, we had a similar-ish situation with a major portion of the economy being invested in mortgage based investments.
Wat? Capitalism knows exactly how to deal with this situation. People who still have faith in the companies will keep loaning them money or buying their stock or investing in them in other ways, and people who don’t have that faith will stop doing those things. Eventually each company will either succeed or run out of believers and die. It’s a very common scenario.
edit: answering the people who mentioned bailouts and government loans, as if to invalidate what I’m saying here.
Bailouts are infrequent special cases where governments intercede when there’s fear that corporate failures might cause widespread unemployment or other economic consequences. The entire AI industry isn’t even in that leage - it currently employs around 25-30,000 people. The largest one (OpenAI) only has about 8000. The largest of them could fail without disrupting their industry. This is nothing like a situation that would spur an industry-wide bailout.
Same goes for large government loans or loan guarantees. These aren’t handed out like candy whenever anyone asks. The scale of the consequences from company failures simply wouldn’t justify it.
The overwhelmingly likely scenario if AI companies fail is mergers and acquisitions. There’s even a class of investors known as “corporate raiders” who specialize in buying desperate companies and selling off the assets. None of this is new, it’s normal business activity that happens all the time, just part of the ecosystem. Believing AI companies are bulletproof because the government will simply hand them money simply isn’t supported by history. For a counterexample read up on the dotcom bubble of the late 90s, when tens of thousands of web startups went under without getting bailed out.
One problem with capitalism is that everything is for sale, including the government. The AI industry is intentionally positioning themselves as “too big to fail” so that they can guarantee a government bailout. As for the dotcom bubble, sure the smaller players were allowed to fail, but that just meant more room for the larger players like google and amazon to take over and now they’re definitely too big to fail. With AI, we already have a small handful of huge players and they’ve convinced the government that this is a matter of national security.
On top of that, people’s retirements are more tied to the stupid stock market than ever before, so the government will use that as an excuse to bail out these companies, hence the rush to IPO and enter indexes.
Ok, point by point: First, government corruption isn’t a function of capitalism. Officials in every system find ways to sell favors. I personally knew Russians who bribed their way out of the USSR, which was almost laughably corrupt. Secondly, the AI industry can’t “position” its own value - it is what it is, and as an industry it simply isn’t “too big to fail.” Thirdly, Google (founded in 1998) was still a startup during the dotcom bubble, not a “large player”. We have no “huge players” in AI yet - as I mentioned, the biggest AI company only has 8000 employees.
Based on all this I assume the prediction that the government will use retirement account stock market exposure as an excuse to bail out AI companies is something you heard or read - if you gave a link to that I’d be happy to look at the reasoning.
ERROR: Capitalism has no idea how to deal with this situation.
I’m actually kinda fascinated with how this will shake out. This isn’t like one or two companies making a bet. The entire S&P500 is pushing Ai.
Well, here’s hoping a few investors do a flip before they hit the pavement.
Actually it does. Bad decisions can be made only until money runs out
This is capitalism working exactly as intended. People with capital are using it to guide businesses to make them more money.
The mistake is thinking that capitalism is motivated by a healthy economy, when the theory is that if everyone is aggressively selfish then the economy will naturally become healthy and efficient.
The people making money are counting on making their money as investors keep pumping more in. The investors are all aiming to be the last one to sell before the crash. Russian roulette venture capitalism. (In some cases they think the economy will tolerate 1-2 companies and they’re aiming to buy a controlling interest in a company worth 2% current value after the correction, and in others they just have so much money that a few billion is a minor bet - BlackRock comes to mind, with more than $10 trillion to invest)
If you look at 2008, we had a similar-ish situation with a major portion of the economy being invested in mortgage based investments.
People only saw the percentage returns and not the human cost. We haven’t learned our lessons and are doomed to repeat the same scenarios.
That’s not nice. Think of the people who clean that pavement.
Wat? Capitalism knows exactly how to deal with this situation. People who still have faith in the companies will keep loaning them money or buying their stock or investing in them in other ways, and people who don’t have that faith will stop doing those things. Eventually each company will either succeed or run out of believers and die. It’s a very common scenario.
edit: answering the people who mentioned bailouts and government loans, as if to invalidate what I’m saying here.
Bailouts are infrequent special cases where governments intercede when there’s fear that corporate failures might cause widespread unemployment or other economic consequences. The entire AI industry isn’t even in that leage - it currently employs around 25-30,000 people. The largest one (OpenAI) only has about 8000. The largest of them could fail without disrupting their industry. This is nothing like a situation that would spur an industry-wide bailout.
Same goes for large government loans or loan guarantees. These aren’t handed out like candy whenever anyone asks. The scale of the consequences from company failures simply wouldn’t justify it.
The overwhelmingly likely scenario if AI companies fail is mergers and acquisitions. There’s even a class of investors known as “corporate raiders” who specialize in buying desperate companies and selling off the assets. None of this is new, it’s normal business activity that happens all the time, just part of the ecosystem. Believing AI companies are bulletproof because the government will simply hand them money simply isn’t supported by history. For a counterexample read up on the dotcom bubble of the late 90s, when tens of thousands of web startups went under without getting bailed out.
One problem with capitalism is that everything is for sale, including the government. The AI industry is intentionally positioning themselves as “too big to fail” so that they can guarantee a government bailout. As for the dotcom bubble, sure the smaller players were allowed to fail, but that just meant more room for the larger players like google and amazon to take over and now they’re definitely too big to fail. With AI, we already have a small handful of huge players and they’ve convinced the government that this is a matter of national security.
On top of that, people’s retirements are more tied to the stupid stock market than ever before, so the government will use that as an excuse to bail out these companies, hence the rush to IPO and enter indexes.
Ok, point by point: First, government corruption isn’t a function of capitalism. Officials in every system find ways to sell favors. I personally knew Russians who bribed their way out of the USSR, which was almost laughably corrupt. Secondly, the AI industry can’t “position” its own value - it is what it is, and as an industry it simply isn’t “too big to fail.” Thirdly, Google (founded in 1998) was still a startup during the dotcom bubble, not a “large player”. We have no “huge players” in AI yet - as I mentioned, the biggest AI company only has 8000 employees.
Based on all this I assume the prediction that the government will use retirement account stock market exposure as an excuse to bail out AI companies is something you heard or read - if you gave a link to that I’d be happy to look at the reasoning.
Are you seriously suggesting companies live and die by the free market?? Those poor failing companies need taxpayer bailouts.
Yeah, that would be true if there never was a public bailout, or a cheap government loan.