Global recession and the end of the middle class: What 'AI exuberance' could do (www.smh.com.au)

The Bank for International Settlements (BIS) has issued a stark warning that the ongoing boom in artificial intelligence (AI) could lead to a global recession, jeopardizing middle-class jobs. With major US companies, including Microsoft and Amazon, projected to spend a staggering $1 trillion on AI infrastructure over the next year, the BIS expresses skepticism about the sustainability of this expansion. Drawing parallels with past economic manias, such as the dotcom boom and the electrification era, the BIS cautions that the rapid increase in AI investment may not yield sufficient returns, creating a risk of financial downturns. The report emphasizes concern over potential "labour displacement," noting that while some industries continue to adopt AI, the expected job growth has not materialized uniformly, particularly in roles at risk of automation. The BIS highlights that unlike previous technological advances, AI directly competes with human cognitive skills, limiting opportunities for workers to transition to new roles. If AI investments fail to deliver the anticipated economic benefit, companies may scale back, leading to a broader tightening of financial conditions and possible recessionary effects. This scenario could further strain inflationary pressures, complicating central banks' responses and potentially eroding the gains made in productivity.