The ledger, as ever, refuses to lie indefinitely. After months of breathless pronouncements that algorithmic mimicry would render the human condition economically obsolete, the tech sector has run headlong into that most obstinate of economic realities: capital is not infinite, and neither is consumer patience. US tech equities took a deserved drubbing this week as cumulative spending on artificial intelligence careened toward the one-trillion-dollar precipice. Investors, suddenly gripped by the terrifying realization that you cannot eat an automated sonnet, are asking the only question that matters: where, precisely, is the cash return on this unfathomable expenditure? [1]
[1] For the Silicon Valley venture class currently weeping into their artisanal matcha, I refer you to Eugen von Böhm-Bawerk on the roundabout methods of production. Extending the temporal chain of capital goods without corresponding final consumer demand yields not a technological revolution, but an extraordinarily elaborate bonfire.
What we are witnessing is a textbook Austrian reckoning. Awash in the lingering distortions of cheap credit and institutional herd behavior, the managerial elite convinced themselves that sinking hundreds of billions into server farms, scarce power grids, and glorified predictive text constituted productive wealth creation. It did not. It constituted an astonishing bout of malinvestment. The market, acting in its brutal and glorious capacity as an information clearinghouse, is finally reasserting itself. The sharp drop in share prices is not an economic tragedy; it is a long-overdue purgative. When scarce resources are hoarded by speculative mania, liquidation is the only mechanism by which they can be liberated for genuinely useful endeavors.
If only our political masters were subject to the same merciless discipline. While private markets at least punish catastrophic overreach, the public sector merely rebrands its bankruptcies as noble endeavors requiring fresh extractions. Observe the latest global nature jamboree, where international delegates inked yet another theatrical environmental accord only to discover—quelle surprise—that nobody has the money to finance their bureaucratic fantasies. When a private venture exhausts its capital, its stock craters and its promoters face insolvency. When a multilateral summit runs out of cash, it simply schedules another conference in an agreeable resort town to demand that taxpayers underwrite the shortfall.
The disease of unconstrained spending is ubiquitous, differing only in its mechanisms of coercion. In Brussels and Ottawa, functionaries announce a new diplomatic alliance of like-minded centralizers to coordinate industrial policy and regulatory entanglements. In Washington, the defense apparatus approves five hundred Patriot missiles for Ukraine, effortlessly adding to the sovereign tab. When governments run low on resources, they do not face the cleansing fire of a margin call. They inflate the currency, issue more debt, or, if you are the criminal regime in Pyongyang, deploy state-sponsored hackers to loot private exchanges like Binance to subsidize a starving garrison state.
The tech titans, for all their hubris, are at least tethered to the laws of mathematics. Corporate executives may have fancied themselves high priests of a new mechanical deity, but their gods must still bleed cash flow on a quarterly basis. When institutional allocators collectively realize that synthetic hallucinations are not yielding the productivity miracles required to justify a thousand billion dollars of front-loaded infrastructure, the liquidity evaporates.
Let the tech stocks fall further. Let the bloated expenditures be disciplined by red ink. The market is not failing; it is performing its most vital, heroic function by punishing vanity and correcting the delusions of men who thought they could out-calculate scarcity. If the mandarins in our state capitals possessed an ounce of integrity, they would look upon this market correction not with dread, but with humility. In the real world of scarce goods, the bill always comes due.
— Cornelius Bragg