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The big spend

ChatGPT also sent a hype wave across the tech industry—leading even to predictions that AI would soon be on its way to replacing most human work. An enormous investment boom followed. Over the next couple of years, tech firms are on track to spend more than US$1 trillion on AI. This year, they’ve already spent hundreds of billions. Microsoft alone is set to invest more than $55 billion—more than the gross domestic product of Tunisia or Latvia.

But as money followed the exhilaration, skepticism is now following the money. Some investors say the industry’s high stock prices are a bubble, soon to burst. Others wonder where AI’s “killer app” is—or whether one’s ever coming. Meanwhile, all this new computing power is straining electricity grids, as AI firms build enormous new data centers—which, worldwide, use as much electricity as Italy every year—and driving carbon-dioxide emissions.

Now, the stock market appears to be siding with the skeptics. Shares in AI and tech firms dove throughout late August and early September. Executives at top investment firms like Goldman Sachs openly doubt AI’s long-term economic prospects. And analysts are forecasting that OpenAI will lose around $5 billion in 2024. What’s happened?

Daron Acemoglu is a professor of economics at MIT and a co-author of the 2023 book Power and Progress: Our 1,000-Year Struggle Over Technology and Prosperity. Acemoglu says AI has a basic economic problem: Its chatbots and other apps don’t generate enough revenue to cover the massive investments they’re built with—and they aren’t likely to any time soon.

More fundamentally, the AI industry is struggling against all the expectations that have driven so much investment in it: It’s supposed to be revolutionary, but it still can’t build models that do even passably well what humans are distinctively good at—solving complex problems and doing complex tasks. But because of the way the industry thinks about itself, that’s not slowing it down …

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• “A lot of people in the industry believe they’re marching fast toward artificial general intelligence—AGI—which could “think” and reason like humans. They also believe in what economists call scaling laws: They think they can quickly double computing capacity, double the amounts of data they feed into their models, and double those models’ intelligence—however they define that. They think it’s all money well spent. If they could, they’d spend far more.”
• “Business leaders in the United States are under tremendous pressure to invest in AI. They’re continuously told by those who follow AI that if you’re not ahead of your competitors in AI, then you’re effectively dying. So companies are scrambling to weave AI into their operations, but it’s just not clear how to do that at scale. Even if a killer app comes out, these companies will still need time to figure out how to integrate it without upending their businesses.”
• “There’s a lot of hype. I’m not ready to call it a stock-market bubble. If you say it’s a bubble, you’re saying it probably won’t be long before it bursts. But that’s not something I’d say, because these market trends are going to continue as long as people keep investing in AI. Ultimately, though, this investment isn’t sustainable.”

That’s why we look at it the way a detective would: Everything The Signal does starts with good questions, and every answer leads us to more of them.

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The resurgence of child poverty in America

What may be most striking about these numbers: In 2021, U.S. child poverty was near historic lows—at 5.2 percent.

What happened?

Before the Covid-19 pandemic, the child-poverty rate was close to what it is now. The U.S. government expanded the child tax credit to help Americans through, giving many families a monthly $300 per child. That moved around three million kids out of poverty—and when the expansion lapsed in 2022, the child poverty rate rebounded.

Now, both the Democratic and Republican presidential campaigns are floating proposals to reintroduce an expanded child tax credit. Kamala Harris is promising to bring it back in a more generous form—offering lower- and middle-income parents $6,000 in the first year of their child’s life. Donald Trump hasn’t tabled a specific proposal himself; his running mate J.D. Vance, however, has suggested $5,000.

Of course, it’s campaign season. But consensus between the campaigns on an idea like this—that’s notable.

—Gustav Jönsson

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