Your dry powder argument relies on a misunderstanding of liquidity versus solvency because capital reserves mean nothing if the investors controlling them decide the party is over. The moment VCs stop looking at projected growth and start demanding to see actual earnings is the moment the easy money fueling this boom vanishes overnight. Microsoft might have the reserves to idle for decades but the thousands of startups built on top of their infrastructure do not. When the hype clears and the balance sheets show that these AI projects contribute a total lack of value to the economy the capital is not going to circulate for the sake of the public good. It is going to flee to safety.
Furthermore, the idea that Microsoft shareholders will just politely applaud while Satya Nadella incinerates their dividend payments on data centers that don’t generate profit is pure fantasy. You have to understand that institutional investors have zero loyalty to the mission of artificial intelligence. They are loyal to one thing which is the quarterly earnings report. The moment that cash burn starts threatening the stock price or the dividend, those massive capital reserves you mentioned effectively belong to nobody because the shareholders will initiate a capital strike.
Microsoft is a vehicle for wealth extraction, not some charity for scientific advancement. If the board decides to burn $50 billion a quarter on compute clusters with no clear path to monetization, the major funds like BlackRock and Vanguard are not going to wait for the long term payoff. They have a fiduciary duty to not lose money. They will dump the stock, the valuation will crash, and the board will be forced to kill those AI projects immediately to stop the bleeding. The reserves argument ignores that a company’s survival isn’t just about cash in the bank, it’s about stock valuation. If the stock tanks because investors flee, the company loses its ability to raise capital, hire talent, or acquire smaller companies. The liquidity dries up because the market cap creates a death spiral that makes spending that cash politically impossible for the CEO.
We are already seeing the early tremors of this. Look at how the market punishes these tech giants every time they announce a higher capex without a corresponding jump in immediate revenue. The smart money knows that this is a game of musical chairs. They are currently tolerating the spend because of the hype, but they are watching the exit doors like hawks. The second the narrative shifts from investment in the future to wasteful spending, that 2 trillion dollars in dry powder is going to be pulled out of the tech sector faster than you can blink, leaving the workers and the broader economy to hold the bag.
You also cannot paper over the logistical reality with Keynesian interventions or government shakedowns because we are hitting a hard physical ceiling with energy and chip fabrication that money simply cannot fix fast enough to satisfy quarterly reports. Even if the state tries to force capital deployment it will result in a market revolt because investors will not tolerate burning cash on half finished data centers that cannot be powered. Innovation in energy sources like hydrogen takes years to bring online while market panic takes minutes. Once a few big institutional players get spooked by the lack of ROI and start quietly exiting their positions it will trigger a panic that no amount of government posturing or available capital can stop.
A pivot back to cheap labor just because wages are down isn’t a solution either. The companies creating the bubble are living entirely on investor faith with no real path to profitability. When that faith breaks they do not switch to hiring humans they just go bankrupt. The collapse happens when the contradiction between massive valuations and zero actual earnings becomes unsustainable.
Whether the crash will lead to organized militant labour or not ultimately depends on how many people end up getting pushed off the cliff this time around. After 2008 crash, millions of people lost everything, but there was still a critical mass of people who were able to put their lives back together and that allowed the economy to return to a sense of normalcy. However, this time around people are on far thinner margins, and it might not be possible to patch things up going forward. I suspect we’ll see how this all plays out sooner than later.
All great points, but have you considered a National Counsel of Corporations?
The problems you raise have been solved before. The state takes over the management of the companies in order to keep the markets happy. It helps that 80% of the stock market is owned by one single bloc (https://welcometothemachine.co/)
Yes we are absolutely running up against physical limits, but again, that just means more innovation is going to be done. Sure hydrogen takes a lot to bring online, but Microsoft alone could probably fund bringing that fuel source online in a big way. To you point, they won’t because they aren’t saviors, but it’s not too far fetched to imagine the USG forcing companies to contribute to a strategic energy fund.
What’s happening right now is that people are building natural gas power plants on campus with the data centers. I can imagine coal plants coming back for the purpose.
Of course it will all run up against chip scarcity.
I think we’ve got at least 2 years before any one particular scarcity becomes a pin prick to the bubble. I think it’ll take 3 years at least given the current state of play, and in those 3 years a lot can change.
And as for profit, the USG is probably doing a lot of Keynesianisms right now paying defense companies to develop strategic artificial intelligence, so all of the startups going nowhere isn’t necessarily the bellwether of pin prick.
Also, I wasn’t saying that downward wage pressure would create the conditions for the same people to be rehired by the same companies for the same positions. I was just saying that downward wage pressure creates new economic opportunities for margins. In essence, downward wage pressure at scale creates upward pressure on the rate of profit. Certain labor jobs may become more viable if wages continue to fall. And we’ll need labor since clearly the US is way behind on factory automation.
I think China can keep labor prices low enough to make this difficult or impossible for the US. But that’s why the US keeps trying to decouple. In the meantime, I imagine the US will start doing a lot more exploitation of low wage labor in Latin America. But then, factories just can’t be built fast enough.
I think potentially what I am pointing to is that the USA might be 2 years away from a total economic collapse and there’s a large faction of the ruling class working to extend that time line via various means.
And the reason I think they are is because there is nowhere else for them to go. The only military potentially stronger than the US is China and China isn’t going to allow EuroBourgeois to setup shop fully in China (unless it’s a nice big trap).
So for better or worse, the owning class has to make it work in the US or it’s all over. And that means every single technique is going to be applied to get another 6 months and another and another.
The National Council of Corporations doesn’t really change anything I said above. The elephant in the room is that this tech is not living up to the expectations, and none of these companies have a viable business model. I mean it’s possible that the whole AI industry will be nationalized I suppose, but I can’t really see that happening myself. Furthermore, even if it did happen that would also lead to a crash because the government would be diverting already strained resources towards propping up an industry that produces no actual value.
There is no way to innovate your way out of this. It’s not a problem you can solve by just throwing money at it. Any serious innovation and infrastructure development is going to be a decades long project. The bubble is going to pop long before that. Again, read my article that I linked earlier. I discuss the specifics of the logistics involved, and it’ obvious there’s nothing that can be done to massively increase grid capacity in a way that would be needed.
Not only is the US behind in factory automation, it’s behind in having actual factories, and the manufacturing has only continued to shrink since Trump took over. There aren’t factories available to employ people, they would have to be built. But building the factories requires investment and skilled labor that itself doesn’t exist. The US economy has been increasingly financialized, and that means you don’t just have a readily available pool of workers to go out and build factories. Even if you did, then you’re still looking at at least a decade of figuring out the supply chains and all the other logistics needed to build and operate them.
Just look at how the attempts to ramp up ammunition production for Ukraine have fared. The US was unable to meaningfully ramp up basic things like artillery shell production, and that’s with state level funding being freely available.
I do think a 2 year timeline is very much a reasonable bet. We will likely see first tremors early next year, and then things will just continue to get worse from there.
In terms of military, it’s pretty clear that Russia is beating the US in Ukraine, and China’s military industrial strength absolutely dwarfs anything Russia can put out. At this point, DPRK likely has a more competent military than the US.
So, the owning class might be scrambling to make things work, but just like with Ukraine, simply wishing for things really hard can’t change material reality.
Generally you’re right, but specifically there are issues with what you’re saying.
First the grid. Of course the grid can’t be fixed on these time scales. That’s why the data centers are building their own power plants. Some are natural gas. Some are nuclear. They are even buying old decommissioned or moth balled nuclear plants and starting them back up for just the data center. The grid doesn’t need to be upgraded.
The value of a.i. is obviously not in commerce. The US sees it as a potential strategic game changer for both domestic police state management and for peer conflict. The business model is DoD funding.
The construction is also not constrained to the US. US companies are building nearly anywhere within the US hegemonic sphere of influence. There’s a lot of surplus power hiding out there, especially around hydroelectric plants. Canada in particular overproduces electricity significantly.
There are also a bunch of underdeveloped opportunities, like hydrogen and geothermal, that while they couldn’t meet full demand, will be given massive cash injections and any amount of progress will create some market exuberance. A single large scale geothermal project could create a large off-grid campus for dozens of data centers. Do that a few times and the geothermal industry starts getting larger.
I agree it’s a losing battle, but I think each attempt to solve will give them a few more months, and they have dozens of attempts to make.
I can tell you didn’t actually read my article. :) Here’s the reality of building power plants in the USA:
The Vogtle plant in Georgia, for example, just came online after 15 years of construction. It was supposed to cost $14 billion; the final price tag was over $30 billion for just 2.2 gigawatts. That works out to about $16 billion per gigawatt.
Both building data centers on the scale that’s being proposed and supplying them with power are frankly fantastical ideas that have no grounding in reality. It simply cannot be done.
You are right that the reason the US has to stay in the AI race is precisely because there is a chance that it might work. As long as China continues to develop this tech, the US has no choice but to try and keep up. However, that’s forcing the US into diverting a huge chunk of their economy away from productive and socially necessary purposes. It’s exactly the same situation USSR found itself in during the Cold War.
I live in Canada, I can tell you that Canada absolutely does not have spare capacity on this scale. Meanwhile, Canada is suffering from a lot of the same economic problems the US is.
And, you keep looping back to hydrogen and geothermal, but that’s decades away. This tech is not being deployed at any meaningful scale in the US. The demand for energy is already outpacing the supply now. The spare grid capacity is at mere 15% right now, and that’s needed for stuff like extreme weather events such as heat waves. Data centers are starting to eat into this spare capacity already. The Pentagon has already been gaming scenario of mass blackouts caused by the growing energy demand. That’s why the whole Stargate project is has now stalled.
We agree that it’ll likely take a couple of years for all this to come to a head, but I see no way a crash can be avoided at this point. And it’s always possible there the crash will be triggered by some other economic event that’s unrelated to the AI bubble. The job numbers in the US are looking terrible, businesses are shuttering, and the tariff war is putting pressure on the whole economy. While stock markets don’t care about the lives of the working class, we should not make the same mistake. At the end of the day people have to make ends meet. As Lenin put it, every society is three hot meals away from chaos.
Yeah, sorry, I didn’t address the power plant point. These data center aren’t building gigawatts of power plant on site (except for the nukes). They’re building megawatts of power and their using existing gas generators and turbines and feeding the power directly into the data center. They’re not building traditional power plants to enhance the grid, they’re building off grid.
I live in Canada, I can tell you that Canada absolutely does not have spare capacity on this scale. Meanwhile, Canada is suffering from a lot of the same economic problems the US is.
I have it on good authority that in parts of Canada there is a massive surplus of electricity, as there is in a few regions in Scandinavia. They’re selling electricity at less then $0.05/KwH. This is mostly due to over building of hydropower in more remote areas. I’m not saying the whole grid is flush with power. I’m saying there are pockets of overproduction and the data centers are going to find ways of getting there.
And, you keep looping back to hydrogen and geothermal, but that’s decades away
It’s not. There are active projects right now, actually deployed right now. There are hydrogen fuel cells deployed right now. There are multi-fuel generators that take hydrogen right now. There are hydrogen production capabilities live right now. It’s decades away from being produced centrally, stored, and transported at scale, but data centers are capable of being built with modular capabilities completely disconnected from larger nonexistent infrastructure.
There are active geothermal projects happening right now. The US military is investing heavily in it, and data centers are already considered matters of national security. We’re going to see at least a dozen data centers powered entirely by geothermal within 5 years.
The demand for energy is already outpacing the supply now
This is true and not true depending on your meaning. The existing data centers are powered. The data centers being built are able to be powered for the most part AFAICT. The number of unstarted projects? Yeah, there’s a lot of demand there and they aren’t started likely because they are trying to figure out supply. The amount of capital in terms of potential data centers? Absolutely not enough supply.
But this will cause supply to expand. And as you say, vertical is very slow right now, so it will create pressure to go horizontal. A.I. may not be productive, but the race to generate more power and thus make a profit is going to be productive. In fact, it might be the single most important factor in the US developing new energy capabilities and capacities.
The spare grid capacity is at mere 15% right now, and that’s needed for stuff like extreme weather events such as heat waves. Data centers are starting to eat into this spare capacity already. The Pentagon has already been gaming scenario of mass blackouts caused by the growing energy demand. That’s why the whole Stargate project is has now stalled.
And as I keep saying, data center are literally being built off-grid to account for this. There’s a 2 year waiting list to get generators right now because the data center projects have bought up future production lines. But that demand is going to push more manufacturing of generators, and the whole suite is going to consume a ton of natural gas. But again, multi-fuel generators are on the way and that means we’re going to see not only natural gas but biogas and hydrogen as fuels that can be brought in at later dates.
But really, this is happening. Texas announced that no new data centers will be allowed to stay on grid in emergencies, so what’s happening right now is that thousands of acres of data center projects are being built without ANY connection to the grid, entirely on natural gas generators.
Remember, markets aren’t great ways to run society, but they are great at getting millions of people to work on large problems independently and produce a robust suite of options in the face of scarcity that limits profits. That’s what’s literally happening on the ground right now. I wouldn’t be surprised if safety regulations that have been slowing down other energy tech gets destroyed and a whole bunch of industrial disasters start happening as profit-chasers start loading trains up with fuels without proper equipment.
We agree that it’ll likely take a couple of years for all this to come to a head
Agreed
but I see no way a crash can be avoided at this point
I don’t think it can be avoided, I think it can be deferred. Given everything remains the same as it is right now, I think it’s less than 2 years. But I think the current developments I am aware of put us at 2 - 3 years. Within that time, there will be new developments. So it’s possible it could be deferred longer.
And it’s always possible there the crash will be triggered by some other economic event that’s unrelated to the AI bubble
I think that’s entirely possible. I mean, anything that shuts down Manhattan Island would probably do it. Or another major infectious disease catastrophe. Or the food supply being incredibly tight from this harvest (although we’ve got plenty of soy for everyone).
However, usually the way you solve that problem as an empire is you expand your extraction and lebensraum, and the US is actively on that path in Latin America. I think the USA will have real trouble fighting a jungle war in Venezuela, but I think there’s a real risk of the US gaining breathing room through use of military force from Mexico all the way South.
The job numbers in the US are looking terrible
Jobs only matter for 2 reasons: production and money circulation. Most Americans aren’t productive anyway, working instead on paper pushing, marketing/advertising, sales, etc. So that’s not useful. The jobs numbers are a real problem because money is not circulating downward. That’s solvable with government intervention. It’s solvable by hiring more into military roles (ICE, local police, national guards, military, etc). It’s solvable by pushing people into the fields to replace the deported immigrants. Money flowing to the working class is one of the easiest things for a modern government to solve. They can literally just create the money in their accounts and suddenly consumer spending will be up and management jobs will come back. Jobs programs are in the USA’s history and they are part of the fascist playbook as well. I fully expect there to be a jobs program at some point in the next 5 years.
the tariff war is putting pressure on the whole economy
Honestly, I don’t even know if this is the biggest problem. The problem is that the US has lost the economics game globally and is no longer competitive enough to charge a sufficiently high price to maintain profits. We’re going to have reorganize the economy in the US to be a hermit kingdom that eats what it produces. We’re being isolated. All of the West is being isolated. The tariffs can be lifted at any time, and I don’t think it will reverse the macro trend that causing the economy to collapse.
While stock markets don’t care about the lives of the working class, we should not make the same mistake. At the end of the day people have to make ends meet. As Lenin put it, every society is three hot meals away from chaos.
Don’t get me wrong. I’m not saying ANY of this is good. I’m trying to temper your predictions of imminent failure with the factors that will allow this shit show to continue far longer than you expect it to.
Yeah, sorry, I didn’t address the power plant point. These data center aren’t building gigawatts of power plant on site (except for the nukes). They’re building megawatts of power and their using existing gas generators and turbines and feeding the power directly into the data center. They’re not building traditional power plants to enhance the grid, they’re building off grid.
My point was that this is how long it takes to build a power plant in the US. This is what I keep saying here, the fact that they say they will build gigawatts of power plants doesn’t mean it’s actually possible. These are not realistic projections. These companies aren’t going to be magically building power plants faster than anybody else in the country.
I have it on good authority that in parts of Canada there is a massive surplus of electricity, as there is in a few regions in Scandinavia. They’re selling electricity at less then $0.05/KwH. This is mostly due to over building of hydropower in more remote areas. I’m not saying the whole grid is flush with power. I’m saying there are pockets of overproduction and the data centers are going to find ways of getting there.
There is a lot of hydro in Ontario, however it’s hard to call it a surplus since the whole grid has gone down several times under load already. Whenever there’s stress like a heat wave there’s power shortage. So, on the authority of somebody who has to live here and see what the grid looks like, I can tell you that it’s not going to support mass data center roll outs.
The existing data centers are powered.
The problems is that prices are already going up as a direct result of data centers eating up existing power supply. So, that’s negatively affecting the economy as a whole. Meanwhile, I simply don’t see how these off grid power stations can be built at a pace that’s needed to keep up with the projected demand.
I think there’s a real risk of the US gaining breathing room through use of military force from Mexico all the way South
If the US really starts attacking Latin America again, that’s absolutely going to unite everyone there against them. Attacking Venezuela or Mexico could turn out to be the very event that brings the empire down.
That’s solvable with government intervention.
I think you’re wildly overestimating the competence of the policy makers. This is certainly something that would’ve been solvable in the 30s or the 50s, but America today is a different beast. The US is basically at the child emperor stage of the Roman empire where you have an oligarchy that’s mostly focused on political intrigue as opposed to doing any actual governing.
We’re going to have reorganize the economy in the US to be a hermit kingdom that eats what it produces.
The problem is that the US doesn’t produce what it needs to be self sufficient. Nor are there workers specializing in the industries like science, engineering, and trades available because there’s no reason to go into these careers since there few jobs to be had there. Most people go into law, entertainment, service industry, and so on. That’s why tariffs have backfired so spectacularly, there are no domestic industries to protect. So all the tariffs do is just raise prices for everyone.
I don’t think lifting tariffs will reverse the trend either, but tariffs absolutely acted as an accelerant because they made the input costs go through the roof, and destroyed a whole bunch of companies in the process. It’s an ongoing economic shock on an economy that’s already in a bad way.
I’m trying to temper your predictions of imminent failure with the factors that will allow this shit show to continue far longer than you expect it to.
It’s certainly possible they’re going to be able to kick the can down the road longer. Even if a major crash happens in the next couple of years, things will most likely stabilize to a point where the system can keep chugging along. The US could end up starting to look like Brazil where you have the top 10-20% who live relatively well, and the rest of the population ends up in favelas. That’s a very likely scenario in my opinion.
Your dry powder argument relies on a misunderstanding of liquidity versus solvency because capital reserves mean nothing if the investors controlling them decide the party is over. The moment VCs stop looking at projected growth and start demanding to see actual earnings is the moment the easy money fueling this boom vanishes overnight. Microsoft might have the reserves to idle for decades but the thousands of startups built on top of their infrastructure do not. When the hype clears and the balance sheets show that these AI projects contribute a total lack of value to the economy the capital is not going to circulate for the sake of the public good. It is going to flee to safety.
Furthermore, the idea that Microsoft shareholders will just politely applaud while Satya Nadella incinerates their dividend payments on data centers that don’t generate profit is pure fantasy. You have to understand that institutional investors have zero loyalty to the mission of artificial intelligence. They are loyal to one thing which is the quarterly earnings report. The moment that cash burn starts threatening the stock price or the dividend, those massive capital reserves you mentioned effectively belong to nobody because the shareholders will initiate a capital strike.
Microsoft is a vehicle for wealth extraction, not some charity for scientific advancement. If the board decides to burn $50 billion a quarter on compute clusters with no clear path to monetization, the major funds like BlackRock and Vanguard are not going to wait for the long term payoff. They have a fiduciary duty to not lose money. They will dump the stock, the valuation will crash, and the board will be forced to kill those AI projects immediately to stop the bleeding. The reserves argument ignores that a company’s survival isn’t just about cash in the bank, it’s about stock valuation. If the stock tanks because investors flee, the company loses its ability to raise capital, hire talent, or acquire smaller companies. The liquidity dries up because the market cap creates a death spiral that makes spending that cash politically impossible for the CEO.
We are already seeing the early tremors of this. Look at how the market punishes these tech giants every time they announce a higher capex without a corresponding jump in immediate revenue. The smart money knows that this is a game of musical chairs. They are currently tolerating the spend because of the hype, but they are watching the exit doors like hawks. The second the narrative shifts from investment in the future to wasteful spending, that 2 trillion dollars in dry powder is going to be pulled out of the tech sector faster than you can blink, leaving the workers and the broader economy to hold the bag.
You also cannot paper over the logistical reality with Keynesian interventions or government shakedowns because we are hitting a hard physical ceiling with energy and chip fabrication that money simply cannot fix fast enough to satisfy quarterly reports. Even if the state tries to force capital deployment it will result in a market revolt because investors will not tolerate burning cash on half finished data centers that cannot be powered. Innovation in energy sources like hydrogen takes years to bring online while market panic takes minutes. Once a few big institutional players get spooked by the lack of ROI and start quietly exiting their positions it will trigger a panic that no amount of government posturing or available capital can stop.
A pivot back to cheap labor just because wages are down isn’t a solution either. The companies creating the bubble are living entirely on investor faith with no real path to profitability. When that faith breaks they do not switch to hiring humans they just go bankrupt. The collapse happens when the contradiction between massive valuations and zero actual earnings becomes unsustainable.
Whether the crash will lead to organized militant labour or not ultimately depends on how many people end up getting pushed off the cliff this time around. After 2008 crash, millions of people lost everything, but there was still a critical mass of people who were able to put their lives back together and that allowed the economy to return to a sense of normalcy. However, this time around people are on far thinner margins, and it might not be possible to patch things up going forward. I suspect we’ll see how this all plays out sooner than later.
All great points, but have you considered a National Counsel of Corporations?
The problems you raise have been solved before. The state takes over the management of the companies in order to keep the markets happy. It helps that 80% of the stock market is owned by one single bloc (https://welcometothemachine.co/)
Yes we are absolutely running up against physical limits, but again, that just means more innovation is going to be done. Sure hydrogen takes a lot to bring online, but Microsoft alone could probably fund bringing that fuel source online in a big way. To you point, they won’t because they aren’t saviors, but it’s not too far fetched to imagine the USG forcing companies to contribute to a strategic energy fund.
What’s happening right now is that people are building natural gas power plants on campus with the data centers. I can imagine coal plants coming back for the purpose.
Of course it will all run up against chip scarcity.
I think we’ve got at least 2 years before any one particular scarcity becomes a pin prick to the bubble. I think it’ll take 3 years at least given the current state of play, and in those 3 years a lot can change.
And as for profit, the USG is probably doing a lot of Keynesianisms right now paying defense companies to develop strategic artificial intelligence, so all of the startups going nowhere isn’t necessarily the bellwether of pin prick.
Also, I wasn’t saying that downward wage pressure would create the conditions for the same people to be rehired by the same companies for the same positions. I was just saying that downward wage pressure creates new economic opportunities for margins. In essence, downward wage pressure at scale creates upward pressure on the rate of profit. Certain labor jobs may become more viable if wages continue to fall. And we’ll need labor since clearly the US is way behind on factory automation.
I think China can keep labor prices low enough to make this difficult or impossible for the US. But that’s why the US keeps trying to decouple. In the meantime, I imagine the US will start doing a lot more exploitation of low wage labor in Latin America. But then, factories just can’t be built fast enough.
I think potentially what I am pointing to is that the USA might be 2 years away from a total economic collapse and there’s a large faction of the ruling class working to extend that time line via various means.
And the reason I think they are is because there is nowhere else for them to go. The only military potentially stronger than the US is China and China isn’t going to allow EuroBourgeois to setup shop fully in China (unless it’s a nice big trap).
So for better or worse, the owning class has to make it work in the US or it’s all over. And that means every single technique is going to be applied to get another 6 months and another and another.
The National Council of Corporations doesn’t really change anything I said above. The elephant in the room is that this tech is not living up to the expectations, and none of these companies have a viable business model. I mean it’s possible that the whole AI industry will be nationalized I suppose, but I can’t really see that happening myself. Furthermore, even if it did happen that would also lead to a crash because the government would be diverting already strained resources towards propping up an industry that produces no actual value.
There is no way to innovate your way out of this. It’s not a problem you can solve by just throwing money at it. Any serious innovation and infrastructure development is going to be a decades long project. The bubble is going to pop long before that. Again, read my article that I linked earlier. I discuss the specifics of the logistics involved, and it’ obvious there’s nothing that can be done to massively increase grid capacity in a way that would be needed.
Not only is the US behind in factory automation, it’s behind in having actual factories, and the manufacturing has only continued to shrink since Trump took over. There aren’t factories available to employ people, they would have to be built. But building the factories requires investment and skilled labor that itself doesn’t exist. The US economy has been increasingly financialized, and that means you don’t just have a readily available pool of workers to go out and build factories. Even if you did, then you’re still looking at at least a decade of figuring out the supply chains and all the other logistics needed to build and operate them.
Just look at how the attempts to ramp up ammunition production for Ukraine have fared. The US was unable to meaningfully ramp up basic things like artillery shell production, and that’s with state level funding being freely available.
I do think a 2 year timeline is very much a reasonable bet. We will likely see first tremors early next year, and then things will just continue to get worse from there.
In terms of military, it’s pretty clear that Russia is beating the US in Ukraine, and China’s military industrial strength absolutely dwarfs anything Russia can put out. At this point, DPRK likely has a more competent military than the US.
So, the owning class might be scrambling to make things work, but just like with Ukraine, simply wishing for things really hard can’t change material reality.
Generally you’re right, but specifically there are issues with what you’re saying.
First the grid. Of course the grid can’t be fixed on these time scales. That’s why the data centers are building their own power plants. Some are natural gas. Some are nuclear. They are even buying old decommissioned or moth balled nuclear plants and starting them back up for just the data center. The grid doesn’t need to be upgraded.
The value of a.i. is obviously not in commerce. The US sees it as a potential strategic game changer for both domestic police state management and for peer conflict. The business model is DoD funding.
The construction is also not constrained to the US. US companies are building nearly anywhere within the US hegemonic sphere of influence. There’s a lot of surplus power hiding out there, especially around hydroelectric plants. Canada in particular overproduces electricity significantly.
There are also a bunch of underdeveloped opportunities, like hydrogen and geothermal, that while they couldn’t meet full demand, will be given massive cash injections and any amount of progress will create some market exuberance. A single large scale geothermal project could create a large off-grid campus for dozens of data centers. Do that a few times and the geothermal industry starts getting larger.
I agree it’s a losing battle, but I think each attempt to solve will give them a few more months, and they have dozens of attempts to make.
I can tell you didn’t actually read my article. :) Here’s the reality of building power plants in the USA:
Both building data centers on the scale that’s being proposed and supplying them with power are frankly fantastical ideas that have no grounding in reality. It simply cannot be done.
You are right that the reason the US has to stay in the AI race is precisely because there is a chance that it might work. As long as China continues to develop this tech, the US has no choice but to try and keep up. However, that’s forcing the US into diverting a huge chunk of their economy away from productive and socially necessary purposes. It’s exactly the same situation USSR found itself in during the Cold War.
I live in Canada, I can tell you that Canada absolutely does not have spare capacity on this scale. Meanwhile, Canada is suffering from a lot of the same economic problems the US is.
And, you keep looping back to hydrogen and geothermal, but that’s decades away. This tech is not being deployed at any meaningful scale in the US. The demand for energy is already outpacing the supply now. The spare grid capacity is at mere 15% right now, and that’s needed for stuff like extreme weather events such as heat waves. Data centers are starting to eat into this spare capacity already. The Pentagon has already been gaming scenario of mass blackouts caused by the growing energy demand. That’s why the whole Stargate project is has now stalled.
We agree that it’ll likely take a couple of years for all this to come to a head, but I see no way a crash can be avoided at this point. And it’s always possible there the crash will be triggered by some other economic event that’s unrelated to the AI bubble. The job numbers in the US are looking terrible, businesses are shuttering, and the tariff war is putting pressure on the whole economy. While stock markets don’t care about the lives of the working class, we should not make the same mistake. At the end of the day people have to make ends meet. As Lenin put it, every society is three hot meals away from chaos.
Yeah, sorry, I didn’t address the power plant point. These data center aren’t building gigawatts of power plant on site (except for the nukes). They’re building megawatts of power and their using existing gas generators and turbines and feeding the power directly into the data center. They’re not building traditional power plants to enhance the grid, they’re building off grid.
I have it on good authority that in parts of Canada there is a massive surplus of electricity, as there is in a few regions in Scandinavia. They’re selling electricity at less then $0.05/KwH. This is mostly due to over building of hydropower in more remote areas. I’m not saying the whole grid is flush with power. I’m saying there are pockets of overproduction and the data centers are going to find ways of getting there.
It’s not. There are active projects right now, actually deployed right now. There are hydrogen fuel cells deployed right now. There are multi-fuel generators that take hydrogen right now. There are hydrogen production capabilities live right now. It’s decades away from being produced centrally, stored, and transported at scale, but data centers are capable of being built with modular capabilities completely disconnected from larger nonexistent infrastructure.
There are active geothermal projects happening right now. The US military is investing heavily in it, and data centers are already considered matters of national security. We’re going to see at least a dozen data centers powered entirely by geothermal within 5 years.
This is true and not true depending on your meaning. The existing data centers are powered. The data centers being built are able to be powered for the most part AFAICT. The number of unstarted projects? Yeah, there’s a lot of demand there and they aren’t started likely because they are trying to figure out supply. The amount of capital in terms of potential data centers? Absolutely not enough supply.
But this will cause supply to expand. And as you say, vertical is very slow right now, so it will create pressure to go horizontal. A.I. may not be productive, but the race to generate more power and thus make a profit is going to be productive. In fact, it might be the single most important factor in the US developing new energy capabilities and capacities.
And as I keep saying, data center are literally being built off-grid to account for this. There’s a 2 year waiting list to get generators right now because the data center projects have bought up future production lines. But that demand is going to push more manufacturing of generators, and the whole suite is going to consume a ton of natural gas. But again, multi-fuel generators are on the way and that means we’re going to see not only natural gas but biogas and hydrogen as fuels that can be brought in at later dates.
But really, this is happening. Texas announced that no new data centers will be allowed to stay on grid in emergencies, so what’s happening right now is that thousands of acres of data center projects are being built without ANY connection to the grid, entirely on natural gas generators.
Remember, markets aren’t great ways to run society, but they are great at getting millions of people to work on large problems independently and produce a robust suite of options in the face of scarcity that limits profits. That’s what’s literally happening on the ground right now. I wouldn’t be surprised if safety regulations that have been slowing down other energy tech gets destroyed and a whole bunch of industrial disasters start happening as profit-chasers start loading trains up with fuels without proper equipment.
Agreed
I don’t think it can be avoided, I think it can be deferred. Given everything remains the same as it is right now, I think it’s less than 2 years. But I think the current developments I am aware of put us at 2 - 3 years. Within that time, there will be new developments. So it’s possible it could be deferred longer.
I think that’s entirely possible. I mean, anything that shuts down Manhattan Island would probably do it. Or another major infectious disease catastrophe. Or the food supply being incredibly tight from this harvest (although we’ve got plenty of soy for everyone).
However, usually the way you solve that problem as an empire is you expand your extraction and lebensraum, and the US is actively on that path in Latin America. I think the USA will have real trouble fighting a jungle war in Venezuela, but I think there’s a real risk of the US gaining breathing room through use of military force from Mexico all the way South.
Jobs only matter for 2 reasons: production and money circulation. Most Americans aren’t productive anyway, working instead on paper pushing, marketing/advertising, sales, etc. So that’s not useful. The jobs numbers are a real problem because money is not circulating downward. That’s solvable with government intervention. It’s solvable by hiring more into military roles (ICE, local police, national guards, military, etc). It’s solvable by pushing people into the fields to replace the deported immigrants. Money flowing to the working class is one of the easiest things for a modern government to solve. They can literally just create the money in their accounts and suddenly consumer spending will be up and management jobs will come back. Jobs programs are in the USA’s history and they are part of the fascist playbook as well. I fully expect there to be a jobs program at some point in the next 5 years.
Honestly, I don’t even know if this is the biggest problem. The problem is that the US has lost the economics game globally and is no longer competitive enough to charge a sufficiently high price to maintain profits. We’re going to have reorganize the economy in the US to be a hermit kingdom that eats what it produces. We’re being isolated. All of the West is being isolated. The tariffs can be lifted at any time, and I don’t think it will reverse the macro trend that causing the economy to collapse.
Don’t get me wrong. I’m not saying ANY of this is good. I’m trying to temper your predictions of imminent failure with the factors that will allow this shit show to continue far longer than you expect it to.
My point was that this is how long it takes to build a power plant in the US. This is what I keep saying here, the fact that they say they will build gigawatts of power plants doesn’t mean it’s actually possible. These are not realistic projections. These companies aren’t going to be magically building power plants faster than anybody else in the country.
There is a lot of hydro in Ontario, however it’s hard to call it a surplus since the whole grid has gone down several times under load already. Whenever there’s stress like a heat wave there’s power shortage. So, on the authority of somebody who has to live here and see what the grid looks like, I can tell you that it’s not going to support mass data center roll outs.
The problems is that prices are already going up as a direct result of data centers eating up existing power supply. So, that’s negatively affecting the economy as a whole. Meanwhile, I simply don’t see how these off grid power stations can be built at a pace that’s needed to keep up with the projected demand.
If the US really starts attacking Latin America again, that’s absolutely going to unite everyone there against them. Attacking Venezuela or Mexico could turn out to be the very event that brings the empire down.
I think you’re wildly overestimating the competence of the policy makers. This is certainly something that would’ve been solvable in the 30s or the 50s, but America today is a different beast. The US is basically at the child emperor stage of the Roman empire where you have an oligarchy that’s mostly focused on political intrigue as opposed to doing any actual governing.
The problem is that the US doesn’t produce what it needs to be self sufficient. Nor are there workers specializing in the industries like science, engineering, and trades available because there’s no reason to go into these careers since there few jobs to be had there. Most people go into law, entertainment, service industry, and so on. That’s why tariffs have backfired so spectacularly, there are no domestic industries to protect. So all the tariffs do is just raise prices for everyone.
I don’t think lifting tariffs will reverse the trend either, but tariffs absolutely acted as an accelerant because they made the input costs go through the roof, and destroyed a whole bunch of companies in the process. It’s an ongoing economic shock on an economy that’s already in a bad way.
It’s certainly possible they’re going to be able to kick the can down the road longer. Even if a major crash happens in the next couple of years, things will most likely stabilize to a point where the system can keep chugging along. The US could end up starting to look like Brazil where you have the top 10-20% who live relatively well, and the rest of the population ends up in favelas. That’s a very likely scenario in my opinion.