Jared Bernstein

Yeah, and there's tremendous amount of investments going into all the past bubbles we've had starting in the 1600s with the tulip bubble.

Right.

So one of the characteristics of a bubble is that the level of the investment becomes –

detached, lastingly or persistently detached from the amount of return or profit that that asset, be it housing or internet, could plausibly generate.

So the idea that you have a lot of investment flowing in is consistent with a potential bubble.

It's what I was just saying.

Every time you buy a stock, you're speculating on its future earnings, of course.

Sure.

What happens here is that large swaths of investors just continuously pour more investment into this asset without a ton of regard for how much it could reasonably pay back and by when.

Critically important distinction you've just made, because I wouldn't want anyone listening to this or reading our piece to think that we are disparaging AI's potential innovative or economically transformational impact, which could be huge.

One bubble we haven't talked about is the railroads back in the 1800s.

And same thing, huge investment bubble.

It burst, it created tremendous economic havoc, and then it productively transformed the economies that were building it out.

What we're talking about is very specifically whether the financing, the level of financing is justified given the amount of returns that it implies.

And if it's not, if investors start to get worried about this particular bet,

They could unwind that bet.

And if enough of them do that at the same time, then you have a bursting bubble.

There's no question it could trigger a recession.

And in fact, past bubbles have clearly done so.

When the Internet bubble burst, the unemployment rate went up a couple of points.

That was not as bad as the housing bubble, which led to a shutdown of global credit markets and an unemployment rate in this country that went up over five points.

What we worry about in the case of the AI bubble is something called the wealth effect.

And that means that if the stock market tumbles enough so that people feel and in fact are a lot less wealthy, they're going to spend less.

And real consumer spending has been driving this economic recovery.

Should that retrench because of a bursting in the AI bubble and this wealth effect, it's potentially recessionary.

The mitigation typically takes the form of fiscal policy, unemployment insurance, the usual kinds of programs that we implement when the economy takes a hit.

There's not that much you can do to deflate a bubble, or at least not much that you can do safely, except what we're doing right now, which is to try to talk about it, to raise consciousness among investors so that the numbers and risks are more transparent versus more opaque.

I've always thought that opacity is really your enemy when you're talking about this kind of finance.

So I think the more we can be transparent about the valuations that are in place, about the expected returns, about the potential economic impacts of AI, the better chance we have of rationalizing some of this potential irrationality.

A pleasure to be with you.

A pleasure to be with you.

Well, it would be possible to do if you took over agencies that would resist you very, very strongly. Some of the most our agencies, our statistical agencies are staffed by people with tremendous integrity who would fight as hard as they could. But we've seen some of the tactics that this administration uses against such folks. So, of course, it's worrisome.

Well, it would be possible to do if you took over agencies that would resist you very, very strongly. Some of the most our agencies, our statistical agencies are staffed by people with tremendous integrity who would fight as hard as they could. But we've seen some of the tactics that this administration uses against such folks. So, of course, it's worrisome.

And the consequences, well, you partially outlined them earlier yourself, Rachel, and you were spot on.

And the consequences, well, you partially outlined them earlier yourself, Rachel, and you were spot on.

If you're an investor, a global investor trying to figure out where our economy is going, if you're a student thinking about an occupation where you might be needed in the future, if you're a local town trying to think about your infrastructure, think about all the trade data we've been talking about over the past few days with that

If you're an investor, a global investor trying to figure out where our economy is going, if you're a student thinking about an occupation where you might be needed in the future, if you're a local town trying to think about your infrastructure, think about all the trade data we've been talking about over the past few days with that

other problem that's going on over there with this budding trade war. All of that information is essential to not just, you know, number crunching nerds like myself, but to the well-being of markets, the country and the people in it. So these folks are, you know, really playing with fire when they suggest manipulating the numbers like that.

other problem that's going on over there with this budding trade war. All of that information is essential to not just, you know, number crunching nerds like myself, but to the well-being of markets, the country and the people in it. So these folks are, you know, really playing with fire when they suggest manipulating the numbers like that.

Really important question, because I think once you start thinking about that, you can get worried pretty quickly. First of all, let's be very clear that these committees are typically staffed by volunteers. They cost virtually nothing to run. And for two decades, they've been advising our statistical agencies on making their good work even better, improving transparency.

Really important question, because I think once you start thinking about that, you can get worried pretty quickly. First of all, let's be very clear that these committees are typically staffed by volunteers. They cost virtually nothing to run. And for two decades, they've been advising our statistical agencies on making their good work even better, improving transparency.

And all I can think about is that. An old adage that says if you want to control the numbers or the information flow, first get rid of the experts. I have a hard time figuring out why you would chop away at an institution like that that, again, is virtually costless and provides essential information to keep improving an already really excellent statistical system.

And all I can think about is that. An old adage that says if you want to control the numbers or the information flow, first get rid of the experts. I have a hard time figuring out why you would chop away at an institution like that that, again, is virtually costless and provides essential information to keep improving an already really excellent statistical system.

So I don't like what I'm seeing here one bit.

So I don't like what I'm seeing here one bit.

Thank you.

Thank you.