The AI boom tumbled on Friday, Aug. 2, 2024, shaken by losses in Big Tech. The world’s 10 richest people — all men — lost just over $45 billion in the Aug. 2 market fall.
Fortune magazine called it a “bloodbath,” adding that “the world’s 500 richest people have seen $134 billion wiped from their fortunes overnight.”
The following Monday, Aug. 5, a stock market crash swept the globe, starting in Japan. Wall Street’s “Magnificent Seven” lost $653 billion in that one day.
In the previous year, the “Magnificent Seven” — Microsoft, Amazon, Apple, the semiconductor manufacturer Nvidia, Alphabet (the parent company of Google), Meta (the owner of Facebook), and Tesla, led by Elon Musk — were responsible for approximately 50% of the increase in the S&P 500 index.
The tech-heavy Nasdaq Composite index gained over 70% since the end of 2022.
By the morning of Aug. 2, the seven had fallen 11.8% from their peak the previous month, causing nearly $3 trillion in losses.
This was a rapid turnaround, the most significant market fall since the beginning of the pandemic in 2020. AI mania has gripped the stock market since 2023, sending it to new highs. The media was abuzz: Is the AI bubble about to burst? Is this the beginning of a recession?
Inflation and recession
The global capitalist economy has been teetering between accelerating inflation and deep recession. It threatens to enter stagflation or recession. The question is not whether but when the recession will begin.
As anyone alive and working in the United States knows, inflation is much worse than the “official” estimates. This was confirmed by a group of economists from Harvard and the International Monetary Fund, headed by Larry Summers, Obama’s economic director and secretary of the treasury.
The official inflation numbers exclude rising home mortgage interest rates and credit card debt. When they included the cost of mortgage interest, auto loan interest, and credit card interest, the inflation rate reached 18% in November 2022, and today’s inflation rate is close to 8%. Inflation has not been stopped.
In the three months from April to June, total credit card debt rose to $1.14 trillion, an increase of $27 billion. That’s the highest level on record in Fed data dating back to 2003. Credit card interest rates are astronomically high.
Homelessness has reached record levels, with nearly a million homeless every night, many without shelter. This is the highest number of homeless individuals ever documented in the U.S.
Unemployment is also rising. The National Jobs for All Network reports that while the official unemployment rate for July 2024 rose to 4.3%, the real unemployment rate is much higher – 10%.
A report on “The effect of AI adoption on jobs” says that between 2000 and 2020, the number of AI-related jobs, including data scientists, computer programmers, software developers, and web designers, almost doubled.
The Center for Economic Policy Research report says that so far, most AI adoption has been in the service sector. The jobs most affected are warehouse work, salespeople, customer service, receptionists, bookkeepers, etc.
AI adoption is limited in manufacturing, though AI robotics and automation are coming.
AI is massive data collection
AI (Artificial Intelligence) is a field of computer science focused on creating machines that can perform tasks that typically require human intelligence, systems that can reason, learn, and act autonomously. Massive amounts of data are collected, and algorithms are used to act on what is found in the data.
Perhaps the best-known AI implementation is ChatGPT, a large language model (LLM) trained on massive datasets of text and code that understands and generates human-like text in response to a wide range of prompts and questions.
The development of AI has long been tied to DARPA and other military/government agencies, which have funded AI research, sometimes openly and sometimes secretly.
Military-industrial complex in Silicon Valley
The U.S. military-industrial complex is now centered in Silicon Valley. Within a relatively short period, Pentagon officials have created a vast infrastructure designed to provide funding support to defense tech companies.
According to a report by Roberto González for the Costs of War Project:
“Although much of the Pentagon’s $886 billion budget is spent on conventional weapon systems and goes to well-established defense giants such as Lockheed Martin, RTX, Northrop Grumman, General Dynamics, Boeing, and BAE Systems, a new political economy is emerging, driven by the imperatives of big tech companies, venture capital, and private equity firms. As Defense Department officials have sought to adopt AI-enabled systems and secure cloud computing services, they have awarded large multi-billion dollar contracts to Microsoft, Amazon, Google, and Oracle. …
“Booming demand for AI-enabled military technologies and cloud computing services is being driven by several developments. Perhaps most importantly, the easy availability of massive amounts of digital data collected from satellites, drones, surveillance cameras, smartphones, social media posts, email messages, and other sources has motivated Pentagon planners to find new ways of analyzing the information.”
The United States military has shifted toward AI and “data driven” warfare. A new revolving door is putting senior Pentagon officials into executive positions or as advisors to the Big Tech companies.
Over the past two years, global events have further fueled the Pentagon’s demand
for Silicon Valley technologies, including the deployment of drones and AI-enabled weapon systems in Ukraine and Gaza, as well as the Pentagon’s AI arms race directed against China.
González of the Costs of War Project “refutes the popular misperception that China is poised to surpass the U.S. in a global ‘AI arms race’ that will determine the future of geopolitics and global economic dominance. It does this by showing how the arms race narrative has been propagated by Pentagon officials and tech leaders who stand to benefit from increased sales of high-tech weapons, surveillance, and logistics systems enabled by AI. These myths and misperceptions risk diverting taxpayer funds towards research and development (R&D) projects that meet military needs, rather than civilian needs.”
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