The AI Bubble Bursting Would Actually Be Incredible for the Economy, Economist Says

"The catch here is that this growth is largely due to a tiny handful of tech companies and their investor's lurid dreams of an AI-powered economic revolution, the likes of which the world has never seen. Naturally, this has led many analysts to point to an "AI spending bubble," an unprecedented misallocation of resources propping up the economy, with potentially devastating consequences waiting when the bubble "pops.""

"The economy, he explains, could be considered a bathtub with an open drain and two faucets, one labeled "rich people" and the other labeled "ordinary workers." "The goal is to keep the tub filled but not overfilled. This would correspond to the labor market being at full employment and the economy operating at its capacity," Baker writes. "If the water flows into the tub too slowl"

Consumer distress is rising: late rent payments and loan delinquencies are soaring, while the top 10 percent of earners account for nearly half of consumer spending. Employment figures were revised down by over 900,000 jobs from March 2024 to 2025 even as the tech-heavy Nasdaq reached record highs and GDP grew more than 50 percent since 2020. Most measured growth is concentrated in a tiny handful of tech firms fueled by AI-driven investor expectations, creating what many characterize as an "AI spending bubble" and a major misallocation of resources. A bursting bubble could trigger a recession but might also clear misallocations and enable a recovery focused on full employment and a fairer distribution of economic activity.

Read at Futurism