After the AI Crash

Public concern about the level of AI investment is everywhere. While some compare today’s scenario to the dot-com bubble, the economy’s overreliance on AI investment, coupled with opaque financial engineering, means that a market correction could look more like the 2008 Great Recession, an economy-wide crash with systemic consequences. After such a crash, Congress will scramble to identify a reform agenda. In a rush, broader reforms that take time to formulate get shelved for quick action. It doesn’t have to be so. Instead of waiting for the crisis and hastily developing insufficient policies, lawmakers should prepare for this anticipated crisis now. Of course, a response depends on exactly how a crash comes to pass. But for meaningful reforms to have a chance, policymakers need to begin debating them. This paper describes how a crash might occur and outlines policies for Congress to consider in response. First, Congress could curtail the financial engineering—equity investments, opaque debt, and distortive subsidies—that might become the proximate cause of the crash, and the government should prosecute related fraud. Illegal behavior has been part of many crises, but the government has shied away from prosecuting such crimes recently. Second, Congress should turn data centers that become stranded assets into a public cloud and sustain AI research and development (R&D) for public purposes that companies may stop funding. Congress should also protect workers by expanding unemployment insurance, creating a digital Works Progress Administration, and limiting worker surveillance. Finally, Congress should establish a Glass-Steagall for AI, utility-style regulations for digital utilities, a new regulatory agency, and a ban on extractive business models.