Edwards, a global strategist who foresaw the 1997 Asian financial crisis three decades ago, says he sees parallels between the current artificial intelligence (AI) boom and that earlier crisis.
According to a MarketWatch report, this London-based Société Générale analyst—who describes himself as a “super-bear”—drew this connection after reading a research report by Torsten Sløk, chief economist at Apollo Global Management.
Sløk highlighted disappointing readings for total factor productivity (TFP), an economic indicator that measures the economic output generated from a given amount of labor and capital. He explained that TFP represents “how much growth remains after accounting for additional hours worked and machinery installed.” If companies can boost production without these added inputs, the TFP figure should rise.
After analyzing the data, Sløk concluded that while the AI boom is clearly reflected in investment figures and stock valuations, it has yet to show up in productivity data; this implies that “AI-driven productivity growth remains a forecast for the future rather than an observed fact.”
Edwards noted that this reminded him of the mid-1990s, leading up to the Asian financial crisis. At the time, he read an article by Nobel laureate Paul Krugman pointing out that lackluster TFP growth exposed flaws in the prevailing optimistic narrative regarding the Asian economic “miracle.” Edwards inferred that “too many people bought into that specious optimism,” resulting in the flow of “cheap, abundant capital” to Asian economies—capital that was, in reality, being misallocated.
Edwards pointed out that, much like the dot-com bubble of the late 1990s, the contagion effect of the Asian financial crisis was “entirely predictable.” Consequently, he argues that the current AI boom is also a bubble and challenges the prevailing consensus that it is not. Of course, he acknowledges that it may be premature to talk about the productivity-enhancing benefits of AI showing up in Total Factor Productivity (TFP) data. Nevertheless, citing research by Allianz economist Barendo, he points out that even as total investment has surged, net corporate investment has merely moved sideways.