The Real Threat Is Artificial Credit, Not Artificial Intelligence

 In the ongoing discourse surrounding advancements in artificial intelligence (AI), it is vital to distinguish between the genuine threats posed by monetary systems versus the technologies themselves. The author, George Ford Smith, argues that the real danger lies in the expansion of artificial credit, facilitated by the Federal Reserve, which could jeopardize economic stability.

1. AI as a Capital-Intensive Industry:

• The AI sector demands significant capital investment due to expensive semiconductor fabrication plants, high electricity costs for data centers, and premium wages for specialized talent.

2. Economic Implications of AI:

• AI should be viewed as a "higher-order capital good" that enhances productivity; however, its success is intertwined with the monetary system financing it. Interest rates are pivotal in determining investment decisions.

3. Interest Rates Impact:

• Historically, when new technologies arise, interest rates in a fractional-reserve banking system tend to decrease, creating an illusion of prosperity, often leading to economic booms and subsequent busts. The author references the Great Recession, where American households lost $16.2 trillion.

4. Monetary Expansion and AI Boom:

• Following the 2008 financial crisis, the U. S. Federal Reserve engaged in extensive monetary expansion, which included maintaining low-interest rates. Although the Fed is currently unwinding this expansion, credit remains artificially accessible.

5. Malinvestment Risks:

• Low-interest rates can prompt entrepreneurs to invest in projects that appear profitable but cannot last, leading to a potential misalignment of capital. The ongoing investment in AI is particularly vulnerable, characterized by uncertain revenue models and substantial capital outlays.

6. Warning Signs of Market Distortion:

• Indicators of malinvestment include massive capital inflows into AI startups with vague revenue models, inflated valuations, rapid infrastructure expansion without proven demand, and over-justified energy investments largely premised on predicted AI growth.

7. Historical Parallels:

• The author draws comparisons to past economic events, suggesting that technological advancements often align with speculative bubbles, such as those seen in the railroad boom and the dot-com bubble.

8. Call for a Market-Driven Monetary System:

• The current monopolized control over money by political entities leads to inevitable distortions in the market. A return to a market-driven monetary system, potentially backed by gold, would limit unnecessary credit expansion and align investments more closely with true demand.

While artificial intelligence holds promise for transformative impacts, the socioeconomic challenges posed by artificial credit expansion could lead to severe economic repercussions. Misguided monetary policies, particularly those from the Federal Reserve, pose a greater threat to workers and the economy than automation itself. The author urges an end to Fed control and fractional reserve banking to promote a healthier economic environment that fosters genuine demand-driven innovation.

https://mises.org/mises-wire/real-threat-artificial-credit-not-artificial-intelligence