Economists are raising alarms about an AI double whammy
: a potential market bubble bursting, followed by a recession that could force businesses to accelerate the replacement of human workers with automation. While AI’s long-term impact remains uncertain, historical patterns of financial crises and recession-linked job losses provide a sobering outlook.
Could an AI Bubble Mirror the Panic of 1873?
Financial history suggests that revolutionary technologies often trigger speculative manias before they stabilize into standard economic tools. In his 1978 book, Manias, Panics, and Crashes: A History of Financial Crises, economist Charles Kindleberger outlined how new technologies can entice investors to borrow heavily, betting that returns will be limitless. When reality eventually recalibrates those expectations, the resulting debt burden can trigger a systemic crash.
Current AI trends show signs of this high-stakes borrowing. An analysis from J.P. Morgan released earlier this month revealed that just 42 AI-related companies have driven approximately two-thirds of the S&P 500’s total gains since early 2024. Meanwhile, firms are securing hundreds of billions of dollars in debt to fund the massive data centers and energy infrastructure required to sustain their models.
The Panic of 1873.
NPR, reporting on the collapse of the railroad bubble
While the dot-com bubble’s collapse in the early 2000s resulted in a relatively mild recession, the financial fallout of 2008 demonstrated how debt-fueled bubbles can cripple the broader economy. Technology analyst Benedict Evans has warned that intense competition among AI providers could squeeze profit margins, leaving companies unable to cover the massive development costs they have already incurred.
Why Recessions May Accelerate Automation
The second part of the AI double whammy
involves the timing of automation. Contrary to the belief that technology replaces human labor gradually, research indicates that job displacement often clusters during economic downturns. Economists Nir Jaimovich and Henry Siu found that between 1990 and 2017, 88% of the decline in jobs vulnerable to automation occurred either during recessions or in the months immediately surrounding them.
If an AI market bust induces a recession, companies desperate to cut costs may turn to existing AI tools to replace employees. This creates an ironic scenario: fierce competition could drive down the price of AI software, making it cheaper and more accessible for businesses to implement as a cost-saving measure exactly when workers are at their most vulnerable.
Bill Gates Suggests Taxing Robots to Support Workers
Not all outcomes are predetermined, and researchers emphasize that AI could still evolve to supplement human productivity rather than replace it. Bill Gates has suggested taxing robots and AI-driven automation, a policy that could simultaneously discourage the wholesale removal of humans from the workforce and generate tax revenue to support displaced workers.
For those interested in the evolving relationship between technology and the workforce, a virtual event titled Ask an Economist
is scheduled for Wednesday, October 28, 2026. The discussion will feature Daron Acemoglu, a professor at MIT, and Ronnie Chatterji, a professor at Duke and chief economist at OpenAI, to further explore the implications of AI on labor.