From an Austrian perspective, the AI capex boom looks like a classic case of capital structure distortion.
When central banks push interest rates artificially low, they signal to entrepreneurs that society has become more future-oriented than it actually is. In Austrian capital theory, this encourages more roundabout production. Capital is pushed further away from final consumption into long-duration, capital-intensive stages of production.
The key point is that consumer time preference has not actually changed. People did not suddenly decide to postpone consumption for decades. Only the price of credit changed.
The result is a wave of investment into projects that sit far out in the capital structure. These projects often look spectacular on PowerPoint slides because the cost of capital appears negligible. Gigawatt-scale AI data centres, tens of billions in GPUs, and infrastructure built for demand that may only materialise years from now.
Eventually, reality asserts itself. All those projects start competing for the same scarce real resources: energy, semiconductors, engineers, land, and financing. Prices rise. The illusion of cheap capital fades. Interest rates rise, and many long-duration projects suddenly stop making economic sense.
This is exactly the mechanism described by Austrian business cycle theory. The boom phase reallocates resources toward overly roundabout production processes. The bust phase is simply the market correcting those misallocations.
AI may turn out to be a transformative technology. But that does not mean the current investment cycle is immune to the logic of the business cycle.
“But what the Abilene situation illustrates is that when you move from PowerPoint decks to pouring concrete, the math suddenly matters.” This will be the defining quote of this upcoming cluster …. Well stated Chris!
Hi Chris, I'm wondering if the infinite money from the gulf kingdoms will still be available to finance AI data centers after the events of last week. Asking for a friend.
Can AI write the next hit song or use a robot arm to make the greatest painting since the Mona Lisa? So far all I see from it is faked pictures and a souped up search engine. Maybe it can run numbers so fast it can help research science IDK. Older people who have the money don't want to deal with all the QR codes etc. I thought it was a bubble. We have already moved on to private finance getting hammered, what's next?
The title made my day.
From an Austrian perspective, the AI capex boom looks like a classic case of capital structure distortion.
When central banks push interest rates artificially low, they signal to entrepreneurs that society has become more future-oriented than it actually is. In Austrian capital theory, this encourages more roundabout production. Capital is pushed further away from final consumption into long-duration, capital-intensive stages of production.
The key point is that consumer time preference has not actually changed. People did not suddenly decide to postpone consumption for decades. Only the price of credit changed.
The result is a wave of investment into projects that sit far out in the capital structure. These projects often look spectacular on PowerPoint slides because the cost of capital appears negligible. Gigawatt-scale AI data centres, tens of billions in GPUs, and infrastructure built for demand that may only materialise years from now.
Eventually, reality asserts itself. All those projects start competing for the same scarce real resources: energy, semiconductors, engineers, land, and financing. Prices rise. The illusion of cheap capital fades. Interest rates rise, and many long-duration projects suddenly stop making economic sense.
This is exactly the mechanism described by Austrian business cycle theory. The boom phase reallocates resources toward overly roundabout production processes. The bust phase is simply the market correcting those misallocations.
AI may turn out to be a transformative technology. But that does not mean the current investment cycle is immune to the logic of the business cycle.
Will the circle jerk be unbroken?
“But what the Abilene situation illustrates is that when you move from PowerPoint decks to pouring concrete, the math suddenly matters.” This will be the defining quote of this upcoming cluster …. Well stated Chris!
Excellent feature, and if the Washington Post had headlines like this, they might stay in business
Thanks, it was totally organic and not made by AI
HappyHour it is!!
Great title indeed! I closed the day up .18%. At this point any day not red is a reason to celebrate. I’m going to happy hour.
I didn't look today and I feel very peaceful.
My only question is if Iran targets the region's desalinization plants. I know if it was me, I would. I should have went into 100% cash.
Hi Chris, I'm wondering if the infinite money from the gulf kingdoms will still be available to finance AI data centers after the events of last week. Asking for a friend.
AI wants you to spend more money for more memory so you can use it. See what they did there?
BUBBLES - MEET PINS!
Can AI write the next hit song or use a robot arm to make the greatest painting since the Mona Lisa? So far all I see from it is faked pictures and a souped up search engine. Maybe it can run numbers so fast it can help research science IDK. Older people who have the money don't want to deal with all the QR codes etc. I thought it was a bubble. We have already moved on to private finance getting hammered, what's next?
I dont know that guys name in the CNBC screen shot but the YouTube algos sure love to promulgate that trash. Had to 🚫