MORNING GLORY: If an AI bubble bursts, which party will pay the political price?
This column was filed hours before the quarterly earnings call for Nvidia Corporation reported its earnings for the third quarter this year after markets closed Wednesday. The company may yet again have stunned market watchers with soaring revenue and “beat” off Wall Street’s expectations. Or it may have disappointed by a tiny or a large margin.
The premise of what follows does not depend on Nvidia’s quarterly results and whether those will drive more euphoria around the “AI trade” or signal a sell-off in that sector so sharp that it could have consequences across other sectors. Key point: The fact of an “AI bubble” is real. Nobody knows when it will pop. Nobody knows the consequences. But, it is impossible to miss its giant presence in the world of investing and the downstream political consequences when it pops.
David Bahnsen has been a friend for more than 20 years, and an investment professional for longer. We both used to live in Orange County, California and we have both decamped to the East Coast.
David’s firm is The Bahnsen Group and he writes and podcasts at “The Dividend Cafe.” (Neither David nor his firm have ever been clients of mine, nor I of them. We are just friends who spent many years in the same small area of Southern California.)
Recently, the Wall Street Journal featured a story on its landing page about the rough week stocks had suffered, only to bounce back a little on Friday. The report quoted David very high in the story, warning that because of his perception of an “AI bubble,” one day the buyers would not come back “on the dip” and there would be pain. David is tracked by smart people, and when I saw his quote I started to dig. (Imagine a trusted astronomer who studies meteors stepping back from his super-telescope and saying “Uh-oh.”)
After I posted Bahnsen’s comments on X, with a approving bit of commentary, David sent a DM to me, thanking me for calling out his words and directing me to his most recent podcast at “The Dividend Cafe,” an episode that went deep into the basis of his fear of an AI bubble.
I’m not an investment professional and I didn’t stay at a Holiday Inn over the weekend, but I do understand persuasive logic. I do understand “math,” as David put it. I don’t hold any individual stocks at present, and am invested mostly in cash and cash equivalents simply because my age dictates an aversion to risk. What I valued about David’s explanation on his podcast is that he was making a concerted effort to warn investors of a potential peril to their overall financial health. He was warning about investing based on “euphoria,” and he had the detailed history of “bubbles” to back up his caution.
Bahnsen is not a “short-seller,” but a very reasonable, very careful analyst of financial markets. He’s also an accomplished political commentator. David has been a guest on my program many times, and is well known in center-right circles for seriousness and fact-based analysis. So he has earned my attention and trust.
Whatever one thinks of Bahnsen’s fear of an “AI bubble” that could burst and then from its ruins witness the emergence of genuine AI “winners” and “losers,” his immediate concern led me to a secondary, political concern.
President Donald Trump and the GOP majority are not responsible for the staggering investments in the AI “pick-and-shovel” buildout of data centers and related infrastructure. The “Chips Act,” passed in 2022 with bipartisan support and was signed into law by President Joe Biden, directed $250 billion in tax dollars to boost US semiconductor manufacturing and innovation, but even that hefty sum is dwarfed by the more than $400 billion in private investment that is estimated to be spent on that infrastructure build-out in 2025. If there is a “bubble,” it is drawing capital for its expansion from every direction.
If that bubble bursts, as did the housing market/subprime mortgage bubble in 2007-2008, and the dot-com bubble at the turn of the century, the political cost will be paid by the party in power — the GOP. Political fallout from disasters of any sort is rarely connected to rational analysis, and almost always to voters looking for someone to blame for economic pain. President George W. Bush did not create the housing bubble that set the dominoes falling in 2007-8, and in fact tried to reform Fannie Mae and Freddie Mac years before each contributed to the reckless lending that powered the bubble that burst. No matter. W got blamed. It wasn’t fair that he got blamed, but politics is not fair. History will acquit W of complicity in the Great Recession, but the voters didn’t, and the GOP was punished at the polls in 2008.
That law of the political consequences of booms-turned-busts is fixed. Which means that Republican incumbents will pay a political price if the AI boom goes bust before next fall’s elections, and especially if a bust drags down the value of other assets as the re-valuing of AI companies proceeds.
That certainty of negative political fallout from an AI bust should also increase among supporters of Trump and the GOP, a general concern that opponents of President Trump will be cheering on (if not actually pushing forward) a big market correction. It is unclear to me that even the biggest investors can make markets move in a negative direction so as to hurt incumbents. But, if ever it was possible, leftists with “Trump Derangement Syndrome” would do everything they could to pin a bursting bubble on Trump.
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“Forewarned is forearmed,” is an old and useful saying, but “forewarned” is definitely not “immunized.” What President Trump and Speaker of the House Mike Johnson and Majority Leader of the Senate John Thune ought to consider doing right now is to express caution about the pace of the AI buildout, while doubling down on the necessity of America’s commitment to winning the AI and related quantum computing races with the People’s Republic of China. The country has to win both races for in doing so it will be defended against the “alliance of tyrants” led by Xi Jinping.
What the president and his GOP allies must note along the way, however, again and again, is the danger of individuals investing all or even most of their wealth in companies engaging in the AI arms race. Politicians ought generally to never give investment advice. But, elected officials living with the memory of the fallout of the Great Recession and before that of the Dot Com bubble ought to do their best to make clear to voters that past performance of markets is not a guarantee of future results.
That sort of caution is weak immunity against political suffering to be sure, but better a weak immunity than none at all.
Hugh Hewitt is host of “The Hugh Hewitt Show,” heard weekday mornings 6am to 9am ET on the Salem Radio Network, and simulcast on Salem News Channel. Hugh wakes up America on over 400 affiliates nationwide, and on all the streaming platforms where SNC can be seen. He is a frequent guest on the Fox News Channel’s news roundtable hosted by Bret Baier weekdays at 6pm ET. A son of Ohio and a graduate of Harvard College and the University of Michigan Law School, Hewitt has been a Professor of Law at Chapman University’s Fowler School of Law since 1996 where he teaches Constitutional Law. Hewitt launched his eponymous radio show from Los Angeles in 1990. Hewitt has frequently appeared on every major national news television network, hosted television shows for PBS and MSNBC, written for every major American paper, has authored a dozen books and moderated a score of Republican candidate debates, most recently the November 2023 Republican presidential debate in Miami and four Republican presidential debates in the 2015-16 cycle. Hewitt focuses his radio show and his column on the Constitution, national security, American politics and the Cleveland Browns and Guardians. Hewitt has interviewed tens of thousands of guests from Democrats Hillary Clinton and John Kerry to Republican Presidents George W. Bush and Donald Trump over his 40 years in broadcast, and this column previews the lead story that will drive his radio/ TV show today.
