Thursday, May 28, 2026

Negative ROI on AI

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1 comment:

  1. AnonymousMay 30, 2026 at 12:56 AM

    Even H Ford made sure customers remain.
    "The AI numbers are starting to look very ugly.", as are

    Thierry from arvy 
    @ThierryBorgeat
    "The AI ROI numbers are starting to look very ugly.
    "Even under "best case" assumptions — assuming zero costs, just revenue against capex — the Financial Times calculated the implied return on hyperscaler AI investment from 2025 to 2030.

    "Only one of them clears positive". Show more

    nakedcapitalism Links yesterday... as context
    - Consumer Credit Stress Is Comparable to the Great Recession Michael Shedlock
    - The AI DEBT BUBBLE is extremely large:
    US investment-grade bond issuance has surged to a record $794 billion year-to-date, up +20% YoY, the strongest start to any year on record.
    Total issuance is now on pace for over $2 trillion for the full year, according to Goldman Sachs.… pic.twitter.com/eUPpA91Fl0
    — Global Markets Investor (@GlobalMktObserv) May 26, 2026
    - Class Warfare
    The Divorce Between Wall Street And Main Street Seeking Alpha. resilc: “See paycheck to paycheck by income chart.”
    - As US stock market hits new highs, 2 of 3 Americans are cutting back on spending, survey shows Associated Press (Kevin W)

    "The Dead Economy Theory
    We can laugh at them but we have to take this seriously
    Owen McGrann
    May 01, 2026
    ...
    "Turn three: the company that fired its workers to save money discovers that its customers were, in aggregate, other companies’ workers. Revenue growth stalls. The AI subscription that was supposed to be an investment in efficiency turns out to be a contribution to the destruction of its own market.
    Economists Brett Hemenway Falk and Gerry Tsoukalas at Wharton have recently described this dynamic in a paper they aptly titled, “The AI Layoff Trap.” In competitive markets, an automating firm captures the full cost savings from replacing workers but bears only a fraction of the resulting demand destruction. In a market with twenty competitors, each firm feels one-twentieth of the demand it destroys. The rest falls on rivals. This creates a prisoners’ dilemma: every firm rationally automates beyond the socially optimal level, because the individual incentive to cut labor costs always outweighs the diffuse, shared consequence of eliminating consumer spending. Better AI makes this worse. Improved productivity widens the profit gap from automating faster than your competitors, intensifying the arms race toward collective ruin.
    Sometimes the layoffs happen before executives even know whether AI will do the job. Zoë Hitzig, an economist who previously worked at OpenAI, told the Times: “When chief executives are saying they’re cutting jobs because of A.I., other people feel like they have to too. That dynamic could make the changes happen sooner than efficiency would dictate.” Herd behavior dressed in the language of innovation.
    Henry Ford understood, perhaps apocryphally but correctly in principle, that his workers needed to earn enough to buy his cars. The AI economy is eliminating the workers and expecting the cars to keep selling, except that software has near-zero marginal cost, so the entire value proposition is the elimination of the human cost center. The product is the removal of the customer base.
    ...
    https://www.owenmcgrann.com/p/the-dead-economy-theory

    arXiv:2603.20617 (econ)
    [Submitted on 21 Mar 2026]
    The AI Layoff Trap
    Brett Hemenway Falk, Gerry Tsoukalas
    ...
    "Neither can capital income taxes, worker equity participation, universal basic income, upskilling, or Coasian bargaining. Only a Pigouvian automation tax can. The results suggest that policy should address not only the aftermath of AI labor displacement but also the competitive incentives that drive it."
    https://arxiv.org/abs/2603.20617

    SD

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