> Despite mounting threats to the US economy — from high tariffs to collapsing immigration, eroding institutions, rising debt and sticky inflation — large companies and investors seem unfazed. They are increasingly confident that artificial intelligence is such a big force, it can counter all the challenges. Lately, this optimism has become a self-fulfilling prophecy. The hundreds of billions of dollars companies are investing in AI now account for an astonishing 40 per cent share of US GDP growth this year. And some analysts believe that estimate doesn’t fully capture the AI spend, so the real share could be even higher.
> AI companies have accounted for 80 per cent of the gains in US stocks so far in 2025. That is helping to fund and drive US growth, as the AI-driven stock market draws in money from all over the world, and feeds a boom in consumer spending by the rich. Since the wealthiest 10 per cent of the population own 85 per cent of US stocks, they enjoy the largest wealth effect when they go up. Little wonder then that the latest data shows America’s consumer economy rests largely on spending by the wealthy. The top 10 per cent of earners account for half of consumer spending, the highest share on record since the data begins.
> But without all the excitement around AI, the US economy might be stalling out, given the multiple threats. No nation has seen an immigration boom-bust cycle near the scale of the one roiling America. Net immigration nearly quadrupled after 2020 to peak at well over 3mn in 2023, but the backlash led by President Donald Trump sent that figure into freefall. This year only around 400,000 net new arrivals are expected, and that could be the trend in the coming years. This labour force squeeze alone will reduce America’s growth potential by more than a fifth, Goldman Sachs analysis suggests. Yet increasingly the response to this risk too is a shrug. AI is going to make human labour less necessary anyway.
> Likewise, government deficits and debt are increasing faster in the US than in other developed markets. At around 100 per cent of GDP, US government debt is near its second world war peak and on its current trajectory, that burden could keep rising. Unless, of course, AI saves the day by generating an economic boom. In that happy scenario, the US debt burden stabilises. Global markets appear to be counting on the happy scenario. Bond investors have lately punished countries that are running significantly lower deficits than the US, including Japan, France and the UK. All these countries have seen sell-offs in their government bonds, leading to a rise in yields. The US, alone among them, has experienced a drop in its 10-year government bond yield this year.
> The main reason AI is regarded as a magic fix for so many different threats is that it is expected to deliver a significant boost to productivity growth, especially in the US. Higher output per worker would lower the burden of debt by boosting GDP. It would reduce demand for labour, immigrant or domestic. And it would ease inflation risks, including the threat from tariffs, by enabling companies to raise wages without raising prices. In recent years productivity has been growing faster in the US than in the rest of the developed world and the possibility of a productivity miracle to come has cemented the faith of investors at home and abroad that the gap will only widen. They appear convinced America is building leads in AI innovation, infrastructure and adoption that cannot be matched.
> The one discordant note in this “buy America, no matter what” narrative is the dollar. But many analysts explain its recent decline as the result of foreign investors hedging their exposure to more normal levels, after being overly exposed to a very expensive currency. Foreigners poured a record $290bn into US stocks in the second quarter and now own about 30 per cent of the market — the highest share in post-second world war history. Europeans and Canadians have been boycotting American goods but continue buying US stocks in bulk — especially the tech giants. In a way, then, America has become one big bet on AI. Outside of the AI plays, even European stock markets have been outperforming the US this decade, and now that gap is starting to spread. So far in 2025, every major sector from utilities and industrials to healthcare and banks has fared better in the rest of the world than in the US. What that suggests is that AI better deliver for the US, or its economy and markets will lose the one leg they are now standing on.
lAljax on
Being a big bet on AI while fighting against renewable expasion to expand grid generation seems very dumb.
AccomplishedQuit4801 on
We could invest in literally anything, from infrastructure and advanced manufacturing to science and space travel, but instead, the market has decided to go all in on a fancy version of Siri. I’m sure this won’t backfire in the slightest.
3 Comments
> Despite mounting threats to the US economy — from high tariffs to collapsing immigration, eroding institutions, rising debt and sticky inflation — large companies and investors seem unfazed. They are increasingly confident that artificial intelligence is such a big force, it can counter all the challenges. Lately, this optimism has become a self-fulfilling prophecy. The hundreds of billions of dollars companies are investing in AI now account for an astonishing 40 per cent share of US GDP growth this year. And some analysts believe that estimate doesn’t fully capture the AI spend, so the real share could be even higher.
> AI companies have accounted for 80 per cent of the gains in US stocks so far in 2025. That is helping to fund and drive US growth, as the AI-driven stock market draws in money from all over the world, and feeds a boom in consumer spending by the rich. Since the wealthiest 10 per cent of the population own 85 per cent of US stocks, they enjoy the largest wealth effect when they go up. Little wonder then that the latest data shows America’s consumer economy rests largely on spending by the wealthy. The top 10 per cent of earners account for half of consumer spending, the highest share on record since the data begins.
> But without all the excitement around AI, the US economy might be stalling out, given the multiple threats. No nation has seen an immigration boom-bust cycle near the scale of the one roiling America. Net immigration nearly quadrupled after 2020 to peak at well over 3mn in 2023, but the backlash led by President Donald Trump sent that figure into freefall. This year only around 400,000 net new arrivals are expected, and that could be the trend in the coming years. This labour force squeeze alone will reduce America’s growth potential by more than a fifth, Goldman Sachs analysis suggests. Yet increasingly the response to this risk too is a shrug. AI is going to make human labour less necessary anyway.
> Likewise, government deficits and debt are increasing faster in the US than in other developed markets. At around 100 per cent of GDP, US government debt is near its second world war peak and on its current trajectory, that burden could keep rising. Unless, of course, AI saves the day by generating an economic boom. In that happy scenario, the US debt burden stabilises. Global markets appear to be counting on the happy scenario. Bond investors have lately punished countries that are running significantly lower deficits than the US, including Japan, France and the UK. All these countries have seen sell-offs in their government bonds, leading to a rise in yields. The US, alone among them, has experienced a drop in its 10-year government bond yield this year.
> The main reason AI is regarded as a magic fix for so many different threats is that it is expected to deliver a significant boost to productivity growth, especially in the US. Higher output per worker would lower the burden of debt by boosting GDP. It would reduce demand for labour, immigrant or domestic. And it would ease inflation risks, including the threat from tariffs, by enabling companies to raise wages without raising prices. In recent years productivity has been growing faster in the US than in the rest of the developed world and the possibility of a productivity miracle to come has cemented the faith of investors at home and abroad that the gap will only widen. They appear convinced America is building leads in AI innovation, infrastructure and adoption that cannot be matched.
> The one discordant note in this “buy America, no matter what” narrative is the dollar. But many analysts explain its recent decline as the result of foreign investors hedging their exposure to more normal levels, after being overly exposed to a very expensive currency. Foreigners poured a record $290bn into US stocks in the second quarter and now own about 30 per cent of the market — the highest share in post-second world war history. Europeans and Canadians have been boycotting American goods but continue buying US stocks in bulk — especially the tech giants. In a way, then, America has become one big bet on AI. Outside of the AI plays, even European stock markets have been outperforming the US this decade, and now that gap is starting to spread. So far in 2025, every major sector from utilities and industrials to healthcare and banks has fared better in the rest of the world than in the US. What that suggests is that AI better deliver for the US, or its economy and markets will lose the one leg they are now standing on.
Being a big bet on AI while fighting against renewable expasion to expand grid generation seems very dumb.
We could invest in literally anything, from infrastructure and advanced manufacturing to science and space travel, but instead, the market has decided to go all in on a fancy version of Siri. I’m sure this won’t backfire in the slightest.