James' World 2

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The mania had started with something real. The safety bicycle: equal wheels, pneumatic tires, a chain drive. The first bicycle model where the rider’s feet could actually touch the road if they needed to stop.

Too bad speculators didn’t keep their feet on solid ground.

“Suddenly, everyone wants to own a bicycle,” says Will Quinn, associate professor of finance at Queen’s University Belfast and co-author of Boom and Bust: A Global History of Financial Bubbles.

The year was 1897, and the bicycle boom had hit Birmingham hard. Tradesmen north of the city bent and brazed steel into frames. When the owner of Dunlop Tires, Ernest Terah Hooley, saw the surge, he jumped. He bribed journalists, packed company boards with noblemen, bought companies for cheap and sold them to the public at a markup.

Ernest Hooley, one of the British entrepreneurs behind the Birmingham bicycle boom. He’d go on to declare bankruptcy four times. (Photo by the Print Collector/Getty Images)

People began daytrading bicycle shares. Nearly every small bicycle company in Birmingham, ~400, went public; there was a rush on the London Stock Exchange and share prices boomed by 10x.

“About a year after that, three quarters of them have gone bankrupt,” says Quinn, who has studied 300 years of financial bubbles.

At the time, The Economist wrote that investors had subscribed millions “on the assumption that high prices would be maintained, but that delusion has been rudely knocked on the head.”

By the end of 1898, the small investors who had bought in late lost the most; the promoters and early insiders had long since cashed out.

But it wasn’t all bad: it created jobs. It left thousands with bicycles. And it laid the foundation for what would become the automotive industry.

The bicycle boom in Birmingham inspired new bike-friendly women’s clothing designs too. (Photo by London Stereoscopic Company/Hulton Archive/Getty Images)

From the bicycle frenzy to the dot-com boom to today’s AI race, financial history is littered with bubbles.

So what happens when they pop?

For Quinn and his co-author, Queen’s University Belfast professor John Turner, the bubble is a poor metaphor. They prefer fire.

The necessary ingredients for this kind of fire, according to Turner:

• Fuel: from low interest rates and freely available credit.
• Marketability: regulatory or technological changes that enable people to buy and sell the bubble asset more easily.
• Speculators: new investors entering the market, and experienced investors unable to short the market.

From there, Turner says, you need a spark: a radical new technology, let’s say, that promises to upend the world.

With the caveat that no one can predict the future (or, as Georgetown University finance professor Jim Angel told The Hustle, “you really only know after the fact, and everybody wakes up with a hangover and goes, ‘what were we thinking?’”), we asked five experts to weigh in on what an AI bubble would mean for the stock market, the job market, and the everyday lives of Americans.

For the stock market

First off, the amount of money being spent on AI is unprecedented. Morgan Stanley predicted hyperscalers will spend a collective $1.4T by 2028. Wells Fargo estimated $1.1T by 2027.

“It’s an extraordinary amount of money,” says Ryan Cummings, chief of staff at the Stanford Institute for Economic Policymaking.

That kind of spend brings behemoth revenue expectations for the companies on the receiving end of the outlay, like Anthropic, OpenAI, and Alphabet.

“If you don’t hit those revenues this year, you need more next year,” he says. “The burden increases over time the longer you go on without hitting those targets.”

Investors are watching how capital expenditure spending on the AI infrastructure build-out tracks against revenue. (Photo by Michael M. Santiago/Getty Images)

And there’s good reason to be wary of much-touted upcoming IPOs from Anthropic and OpenAI.

“All these firms are receiving these very, very high valuations,” Cummings says. “But they’re all being priced as though they’re all going to be the winner of AI. We know not all firms are going to make it.”

Still, if the bubble does pop, most of the damage will be localized to investors unless major institutions are borrowing money to try to capitalize on the boom.

“You don’t know who’s swimming naked til the tide goes out,” Angel says. “To discover some banks lost their shirts — that can have knock-on effects through the rest of the economy.”

For the job market

Like everything else AI-related, experts are divided on what it will mean for the job market.

“In the short term, there’s a construction boom,” says Azeem Azhar, tech entrepreneur and founder of Exponential Views research group. “From a labor market perspective, that’s a really, really good thing because it creates all sorts of new jobs.”

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Five experts weigh in.

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