MARTIN WOLF ON THE AI BUBBLE
- Get link
- X
- Other Apps
How should someone who knows next to nothing about artificial intelligence think about its implications for humanity? While it is cheeky to use the formulation of the Jewish sage Maimonides when tackling the relationship between revelation and philosophy, it is not absurd. After all, even the greatest sage cannot fully understand divinity. So, the fact that I do not understand the implications of AI should not prevent me from struggling to do so. Maybe my struggles will also help others.
MARTIN WOLF ON THE AI BUBBLE. ( Wolf's mistake here, a common one, is to confound use values with exchange values. AI may indeed increase the availability of use values. But that does not translate into profitability which is never absolute but relative to the capitalist command over living labour in its [fictitious] guise as labour power (that is, as a commodity).
So, here goes. The question I wish to consider is: “AI boon, bane or bubble?” Moreover, once we have considered the answers, are there any choices humanity can realistically make to ensure it is far more of the first than the second, or are we doomed to be dragged behind the AI chariot, willy-nilly, wherever it goes?
The answer to the question about whether it is merely a bubble will help to set the ground for answering these as well. So, what might it mean for AI to be a bubble? There are two possibilities.
One is that something important is indeed happening. But markets cannot estimate the returns and are being driven into a speculative frenzy. This, in turn, is fuelling an unsustainable (and to some degree unprofitable) surge in investment. Sooner or later, this bubble will burst, stock prices will collapse, many old and new businesses will go bankrupt and the investment will subside. But we will be left, as we were after, say, the railway booms of the 19th century and the dotcom bubble of the 1990s, with useful infrastructure: tracks, in the case of the former, and fibre optic cable, in the case of the latter. Such bubbles can transform the world.
The other possibility is that AI is nonsense. The Mississippi and South Sea bubbles of the early 18th century in France and England come to mind: they burst, ruined some, and changed little.
So, is what is happening to AI a bubble at all and if so of which kind? The consensus, which I (tentatively) share, is that AI is real. Whether we are on the threshold of artificial general intelligence, as Demis Hassabis of Google DeepMind argues, I have no idea. But today’s models seem impressive, especially in their “agentic” role.
Moreover, as VC investor Rubén Domínguez Ibar notes in his newsletter The AI Corner, some providers, notably Anthropic, are generating huge rises in revenue, which helps explain the huge valuations expected in initial public offerings. So, the market is indeed bubbly, but it appears based on reality.
Some have made comparisons between the spectacular surge in the shares of Nvidia with the not dissimilar performance of Cisco in the dotcom bubble. But they note a difference: Nvidia’s earnings have soared, while Cisco’s net income merely doubled in the two years to July 2000. Moreover, analysis from the Peterson Institute for International Economics suggests AI is already generating a huge hidden jump in US real GDP.
It is impossible to say the markets are “right” in judging the profitability of the current and prospective AI champions. It is also possible that the earnings we are seeing in Nvidia (or even the revenue in Anthropic) will not be sustained when the investment surge and AI-hype subside. But AI is not just a bubble, it has reality.
This then brings us to “the boon or bane” question. I had a discussion with ChatGPT (what else?) about this. After some to-ing and fro-ing between us, we ended up listing the top boons and banes as follows.
First, the boons: better healthcare; an acceleration of science; far higher productivity; education at scale; faster progress on climate and clean energy; improved accessibility and inclusion (speech-to-text and automatic translation); improved public services; better transportation and safer work environments; improvements in creativity and cultural expression; and improved access to human knowledge worldwide.
Then, the banes: loss of human control and accountability; lethal new weapons (notably pathogens, but other weaponry too, some in the hands of terrorists); mass unemployment; vast concentrations of power in the hands of monsters; mass surveillance and authoritarian control; even more misinformation and manipulation; huge threats to cyber security; entrenchment of bias and discrimination masked as “objectivity”; erosion of human agency and skill; and the environmental costs of vastly resource-intensive systems.
What is one to make of these (entirely plausible) lists? My first conclusion is that AI is not just any “general purpose technology”. If it develops in the ways that seem likely, it might change almost everything: AI is indeed existential. If humanity had any collective sense (which it does not) and had the capacity to stop itself (which it does not), it would, I think, pause the whole thing.
Second is that AI has inevitably unleashed a competition among businesses and governments. My assumption is that anything such a technology can do will then be done. So, we are going to see competitive races for both the boons and the banes.
My third is that the relatively successful controls on nuclear proliferation and the availability of new drugs cannot be precedents. That is because AI will not be the property solely of states, as nuclear weapons have (so far) been, and it is not a single class of products, like drugs. It is polyvalent.
ChatGPT suggested humanity should stop treating technological capability as the same thing as progress, which should mean flourishing in conditions of “safety, liberty and legitimacy”. Pope Leo agrees: build “for the common good”, he says in his encyclical. But is this possible and if so, how? I will consider that next week.
“When they go low, we go high,” is a Democratic mantra. But it only works if people think liberals have the credibility to trumpet high morals. Not enough of America does. To Gen Z voters, such virtue signalling comes straight from the self-serving “boomer” playbook. The young are no likelier to respect Democratic ethics appeals than they are to take up bridge. Coming to grips with America’s volatile politics is futile without engaging with the deep scepticism of its young.
Among the best-known younger Democrats, two — Zohran Mamdani, New York’s mayor, and New York congresswoman Alexandria Ocasio-Cortez — call themselves socialists. A third, James Talarico, a Democratic Senate nominee, describes himself as a Christian progressive. But he is running in Texas, so is treated as a socialist regardless.
More than a third of Americans under 30 have a favourable view of “communism”, according to a Cato poll last year. Almost two-thirds look kindly on socialism. It is easy to dismiss this as standard youthful misguidedness. Gen Z is variously written off as work-shy, entitled, unambitious and ignorant. But there is nothing in their politics that is nearly as drug-inspired as the late 1960s radicalism of their grandparents. It is not hippie to wish for affordable housing or to fear AI’s impact on your earnings potential. Nor is it Stalinist to want universal health insurance.
That explains why the 41-year-old likely Senate candidate in Maine, Graham Platner, is staving off scandals that would have finished off candidates in earlier cycles. He once had a skull-and-bones tattoo of a symbol used by Hitler’s Waffen-SS and has been caught sending extramarital sexts. Yet his poll lead is sufficiently large to have forced Maine’s competent and scandal-free governor, Janet Mills, to drop out of the race. Mills is 78. And she, unlike Platner, had no plans for single-payer healthcare or, until she flip-flopped, to tax America’s ultra-wealthy. Platner’s seeming immunity from scandal shows that Bernie Sanders-style left populism is still potent.
The Democratic split over Platner betrays a much deeper philosophical divide. Campaign professionals and mostly older elected Democrats are terrified of squandering their moral capital against Donald Trump because of Platner’s nomination. They also fear that a Platner contest against Susan Collins, the state’s veteran moderate Republican, could imperil the party’s chances of winning the Senate in November.
But Platner is appealing to precisely those groups that Democrats most urgently need to win back, especially the young and working class. Those who have done it, such as Mamdani, tend to get written off as irrelevant to middle America. Mamdani’s socialist campaign to run the city that is still the headquarters of global capitalism was powered by the young and the blue collar. Some say he won in spite of his hostility to Israel. It was likelier to have helped. Reflexive loyalty to Israel is seen as another establishment trait.
That same chasm is also visible on the right. Younger Maga Republicans — beyond so-called podcast populists like Tucker Carlson and Candace Owens — are routinely hostile to Israel. Older Republicans tend to be Israel right or wrong. The same root that feeds flirtation with communism on the left is also fuelling antisemitism on the right. It is no use telling a generation that their views are un-American. The most striking often-polled finding about Gen Z is their lack of flag-waving patriotism. More than any previous generation at that or any age, Gen Z rejects the idea of America as morally special.
Such alienation is angrier than the “peace and love” of the flower power generation. Luigi Mangione, the man accused of murdering a healthcare executive in New York in late 2024, is still a vigilante folk hero to many young Americans on the left and right — and not just because of his looks. Members of Gen Z are far more likely to approve of violence to settle political disputes than their elders. They are also far less trusting of democracy.
The more thoughtful Democrats are aware that simply opposing Trump is not enough to win the loyalty of younger Americans. Trump’s well-earned unpopularity may well be enough for them to regain the House of Representatives, and maybe the Senate, in November. But that will be insufficient in 2028. The party has an ingrained habit of postponing serious thought until after the next election, which, like tomorrow, never comes.
Democrats will not get many more chances to show they can make the system deliver for the majority. Overlooking the sometimes troubling but largely rational complaints of America’s Gen Z would assure their failure.
Cliffwater’s flagship private credit fund aimed at retail clients limited withdrawals after redemption requests hit 17 per cent in the second quarter, underscoring the mounting exodus from the sector.
Cliffwater said it had restricted withdrawals from its $31bn marquee corporate lending fund in the second quarter to 5 per cent of its outstanding shares, or about $1.6bn, according to a letter seen by the FT.
The withdrawal requests, worth more than $5bn, swelled from the first quarter when investors sought to redeem 14 per cent of the fund.
The firm sits at the centre of a storm engulfing the private credit industry, which has been hit by a deluge of redemption requests over the past nine months amid worries over the quality of funds’ loan portfolios. The situation has worsened in recent months as investors fret that AI will disrupt software companies that the industry has heavily financed.
Cliffwater had been one of the fastest-growing investment managers at the height of the private credit fervour in 2023 to 2024, as wealth advisers pitched its funds to everyday investors. The firm competes with private capital giants such as Blackstone, hoovering in cash to its funds and ranking among the most popular choices for wealth managers placing client funds.
But unlike the funds pitched to sophisticated institutional investors that lock up capital for years, these newer funds — including several vehicles offered by Cliffwater and rivals such as Blue Owl — provided investors the ability to redeem at least a portion of their investments every quarter.
As investor appetite has soured, that has meant a wave of withdrawals has buffeted funds managed by groups from Apollo and Ares to BlackRock and Blackstone.
The vast majority of investment firms have moved to gate their funds, limiting how much cash they have to return to shareholders in any quarter. That has helped prevent fire sales of assets that would have inflicted painful losses on remaining investors in the funds.
Cliffwater chief executive Stephen Nesbitt said in the letter: “Our repurchase programme is intentionally designed to provide shareholders with periodic liquidity that aligns with the fund’s long-term investment strategy and its underlying assets.”
Cliffwater’s fund differs from many of its peers in that it owns private loans to companies as well as stakes in other funds that invest in untraded debt.
The firm noted in its letter that it owned more than 4,000 loans, limiting its concentration to any one investment or manager. The corporate lending fund has returned 8.05 per cent over the past year, including 1.7 per cent this year.
“Shareholder demand and fund performance continue to reflect the advantages of our differentiated multi-manager approach and the broad, diversified access it provides to private credit,” Nesbitt said.
- Get link
- X
- Other Apps
Comments
Post a Comment