AI CRASH Is Coming - Prof Steve Keen EXPOSES Looming Disaster

Video Summary:

Source: https://www.youtube.com/watch?v=nnsaVn8TL2w

Overview

Prof Steve Keen, the economist who predicted the 2008 financial crisis, discusses why mainstream economists failed to see it coming and how AI is creating a similar bubble that could lead to an economic crash within 1-3 years. Unlike previous technological revolutions, AI combined with robotics poses systemic risks to capitalism itself.

Key Points

1. Why Mainstream Economists Missed the 2008 Crash

• Flawed Banking Theory: The “loanable funds” model assumes banks don’t create money but merely intermediate between savers and borrowers.
• Ignoring Credit: This model ignores private debt and credit despite credit being the primary driver of booms and busts.
• Data Ignored: Mainstream institutions collect credit data but ignore it because acknowledging money creation disrupts their equilibrium-based theories.
• The Correlation: Credit shows a -0.92 correlation with unemployment (1990-2015).

2. Schumpeter’s Theory & Technology Cycles

• Innovation Phase: New technology requires capital investment, which increases demand and creates a boom.
• Disruption Phase: Once deployed, technology undercuts existing cost structures, causing firm bankruptcies and economic slump.
• Permeation Phase: Technology spreads throughout the economy during recession when it’s cheapest.
• Historical Example: Telecommunications bubble (1990s) created optical fiber “dark fiber” - only integrated into economy during 2000s slump.

3. The AI Bubble Cycle (Current Situation)

Boom Phase (Now):

• Massive overinvestment in AI globally
• Enormous monetary demand inflating the economy
• Microsoft restarting Three Mile Island nuclear plant for data center energy

Coming Crash (1-2 years):

• Chinese firms will develop far cheaper AI running on personal computers
• This will eliminate large players with expensive infrastructure
• 90% of AI companies will go bankrupt
• AI will undercut medical diagnosis, search engines, graphic design

4. The Systemic Threat (Unlike Previous Tech Changes)

• Previous tech revolutions destroyed and created jobs cyclically
• AI + robotics could eliminate 50%+ of working-class jobs permanently
• This is STRUCTURAL, not cyclical unemployment

The Capitalism Problem:

• Working class historically benefited from capitalism only because labor was necessary
• Remove labor necessity = remove worker income source
• Result: Without intervention, collapse into “Hunger Games” scenario

5. Why Energy Matters

• Energy-to-GDP correlation is extremely strong
• Capitalism exploits workers to extract energy
• If workers no longer needed, basis of working-class income disappears
• Cannot support more than 1/3 of non-capitalist population on wage income alone

6. The Solution: Universal Basic Income (UBI)

• Current Problem: Would only cause inflation if implemented now
• Future Necessity: When AI/robotics eliminate workers faster than new jobs appear, government MUST provide universal basic income
• Without it: social chaos, starvation, political extremism
• Even Silicon Valley billionaires are asking about UBI feasibility

7. Political & Social Risks

The Zero-Sum Trap:

• People see economy as broken (correctly)
• Think there’s no alternative to capitalism (incorrectly)
• See resources as scarce and competition as necessary
• Far-right movements scapegoat migrants as the problem

Timeline for Crisis:

• Short-term recession: 1-2 years (AI oversupply crashes)
• Secular unemployment rise: 3-5 years (robotics maturation)
• Long-term structural change: Requires new economic model

Critical Takeaways

1. Credit & Debt Drive Economies: Mainstream economists systematically ignore private debt, the primary driver of booms and busts.
2. AI Follows Schumpeterian Cycles: Massive investment boom → technology disruption → slump → permeation. Expect crash within 1-3 years.
3. This is Systemic, Not Cyclical: Unlike previous tech changes, AI+robotics can permanently eliminate 50%+ of jobs.
4. Capitalism Cannot Solve Itself: If workers aren’t needed, capitalism breaks. Markets require consumers. Solution requires UBI or alternative economic system.
5. Political Danger: Without proactive UBI/economic restructuring, economic insecurity will drive far-right extremism.
6. Energy is Central: GDP is driven by energy consumption. When AI/robotics eliminate workers but consume massive energy, someone must buy the output.

Prof Keen’s Credentials

• Predicted the 2008 financial crisis when mainstream economists missed it • Honorary Professor at UCL • Author of multiple books on economics and economic crisis • Represents non-orthodox (post-Keynesian) economics school • Website: steve-keen.com/books