What do the former Fed chairman Alan Greenspan, who has been accused of creating the dot-com stock market bubble and the 2008 U.S. housing market crisis, and the newly appointed chairman Kevin Warsh based on the latter’s recent statements? The immediate answer must be the belief of both in the potential of the new technologies of their time. "Maestro" Greenspan believed that computers and the internet would significantly increase productivity, allowing the economy to grow without inflationary pressures.
Greenspan’s belief in this hypothesis led him to conclude that classical models of economic policy, such as the Phillips curve, were outdated. This was the main reason the Fed kept the benchmark interest rate low, near 1%, for a long time, as it did not want to interrupt the stock rally driven by the internet.
However, cheap money led to massive stock purchases in unprofitable tech companies, resulting in the dot-com bubble of 1999–2000. Keeping interest rates low also benefited the real estate market, fueling a further rise in property prices. For this reason, Greenspan, who stepped down from the Fed in 2006, was also blamed for the 2008 crisis, although he is credited with being right when he said that the internet and information technology in general would increase productivity.
On the other hand, the new Fed chair, Kevin Warsh, appears to share the view that technological progress, spearheaded by AI, will turn things upside down, enabling a strong economic recovery without a rise in inflation. Furthermore, the two agree that asset prices play a role in the formulation of monetary policy.
Wars, like Greenspan before him, does not fully trust classical economic models, as he believes that new technologies—and specifically AI—are changing the structure of the economy. However, inflation remains consistently above the Fed’s target of 2% and hit 3.8% in April.
Perhaps even more troubling is the fact that tech giants like Microsoft and Uber have decided to stop using Anthropic’s Claude. This is because they used up all of this year’s AI budget—including registration fees, usage contracts, etc.—within 3–4 months.
In other words, the cost of AI exceeds human salaries, e.g., for engineers. To change this, the fees charged by OpenAI, Anthropic, etc., would need to be reduced. And all this at a time when global spending on technology and IT is expected to increase by 13%, reaching $6.3 trillion in 2026.
A study by MIT CSAIL that examined whether AI is economically superior to humans found that AI was cheaper in only 23% of the skills tested. Therefore, the road to AI is not paved with rose petals.
Wors may admire Alan Greenspan, but the new technology (AI) he believes in—and which could transform the economy—still has issues. We are certain that Kevin Warsh would not want to be remembered as the one who paved the way for new crises.