The AI boom/bust cycle we are in the middle of is an intensive infrastructure arms race that is careening the sector and the national economies of the leading capitalist nations into overproduction. The sheer magnitude of this concentrated spending is staggering: American tech companies are projected to spend $300-400 billion in 2025 alone, with the leading companies dedicating capital expenditures that are reaching 50% of operating income. This scale of investment is required to support data centers that, by 2030, will need an additional $5.2 trillion to provide AI processing. The necessity of this immense capital base ensures that only the top monopoly corporations will be able to operate at that scale to corner and control what remains of that market.

AI data centers have power requirements up to 10 times those of a standard technology rack, such as those run by cloud providers, such as Amazon’s AWS, for example. Since only living labor creates new surplus value, an economy where investment is overwhelmingly dedicated to fixed capital such as GPUs and data center construction will see the ratio of constant capital to variable capital increase and its profit rates will inevitably tend downwards.

Since currently so much of US capital as a whole is financially over-leveraged in this particular industrial sector, the fall or rise of these companies’ profits will reverberate across the economy as a whole, due to the sheer size of the financial speculation occurring. Apple, Microsoft, Nvidia, Amazon, Alphabet, Meta, and Tesla are 35% of the entire valuation of the S&P 500 and represent seven of the eight largest companies in general.

AI firms like OpenAI have not been able to post profits at all, which types of losses exceed losses seen in other rapid expansion phases like Uber’s and of the telco companies during the dot com bubble.

The Poverty of the Bourgeois Economists and the Inevitability of Capitalist Self-Destruction

Recently, the standing president of the leading imperialist world power, Trump, escalated criticism of Federal Reserve Chair Jerome Powell. This was accompanied by much hemming and hawing in the press about the “independence of the Fed” being at stake. Rooted in Alexander Hamilton’s vision for an independent institution safeguarding against government overreach and echoing Nixon’s disastrous precedent, the Federal Reserve’s independence as a central body of the finance capitalists is its best tool available for attempting to head off a capitalist crisis.

This tool is very limited and they is incapable of doing the job that it is tasked with and, at best, can slow down the crisis for a short while by affecting employment and inflation levels. Whether Trump gets his appointees in or not, the crisis is coming, only the timing can be different in one scenario vs the other.

Prices have a tendency to decrease because of capitalism’s tendency to overproduce. Money’s exchange value isn’t determined by supply and demand, except in a muddled sort of way, as it’s the expression of the exchange value of commodities in circulation, and as less surplus value goes into each commodity, the value of money decreases. As a correlate to that, increasing wages does not cause inflation but it does decrease the rate of profit even as prices stay the same.

“Stagnation”, or as Marx would have called it, a slowing of the circulation of money, is merely a part of the cycle of accumulation, most acute in the death cycle, where industry comes to a halt in "crises, in which momentary suspension of all labour and annihilation of a great part of the capital violently lead it back to the point where it is enabled [to go on] fully employing its productive powers without committing suicide". (Grudrisse).

This crisis is ultimately caused by a decreasing ratio between how much living labor is extracted from workers and the sum of the investment on new labor-saving technologies, with an overall decrease in in how much workers are working and are employed and an increase in how much expensive technology is being purchased to replace living labor with dead and manifesting as an overproduction of commodities, which cannot even be purchased by workers exploited more and more for less wages, if they even have work and wages at all. The cataclysmic crisis that follows only temporarily resolves through destruction of capital and workers, which restarts the accumulation cycle and places the ratio by returning the ratio between dead and living labor in the organic composition of capital back to a place that is favorable for business to have rising rates of profit for until the next crisis.

If “stagflation” as it were, were to occur, we could look at the events of the 1970s as a lesson. In the 1970s, between 1965 and 1982 inflation in the US was very high and employment was low. The low profit rates during that period were partially offset by the destruction of the Vietnam war but this was not enough to stop the inflation crisis, as there was also excessive spending on social program initiatives at the time, which were financed by printing large amounts of money. By 1974 inflation was in the double digits year on year.

Instead of recognizing inflation being a result of the declining profit rates,the excessive printing of money was blamed for causing it and drastic measures, such as setting interest rates of more than 21%, were used to slow down lending, which in turn slowed down circulation so much that many businesses were liquidated,precipitating the capitalist crash that was going to happen anyway, leading to high unemployment with slowly decreasing inflation, which caused the destruction of entire neighborhoods and cities. Famous examples are the ruin of the cities like Detroit and Cleveland as well as the New York boroughs of Bronx and Brooklyn, all of which looked like warzones in the late 1970s (and some still do), due to this economic ruin. Many workers’ lives were lost in the process of “balancing the economy.”

While the Fed of today is trying to slow down the crisis, the current administration of the US government is embracing the death drive and preparing for war, so the “politically influenced Fed” is the least of our concern, to the dismay of bourgeois economists.

These same economists explain inflation as always, on the one hand (the classical school), caused by too much money being in circulation and, on the other, as there being too much demand and not enough productive capacity to match that demand (the Keynesians).

In the classical bourgeois school unemployment happens because people are lazy and don’t want to work for free or for unlivable wages. In their mind, capitalist crises are but temporary blips where supply doesn’t match demand and are quickly corrected by the magic of the market. In the Keynesian view, the unemployment during a crisis is due to "insufficient demand" and the lack of spending is due to a collapse in business or consumer “confidence”. This bourgeois school sees unemployment as involuntary because the market doesn’t fix the crisis quickly enough and wages and prices need to change for workers to get jobs. Conflict between the two schools aside, it’s easy to see that these are nonsensical propositions from the standpoint of any worker and are a form of apologetics for the capitalist class.

The bureaucrats at the Fed have been reluctant to cut interest rates because it would increase inflation and inflation is already on the rise, with consumer price inflation (CPI) raised to 2.9% year over year in August, which was above the central bankers’ goal of 2% inflation a year. This inflation rate is lower than the average price rise in consumer goods for American workers, so it’s misleading, but it is increasing.

A sharp increase in inflation will be disastrous for workers when unemployment is also on the rise and it may also spook creditors who are currently holding bonds of US debt in expectation of yield in dollars. If the value of the dollar were to sharply drop due to excessive inflation those holders could sell to cut their losses and the instability caused could trigger the crash to happen even earlier than expected. The viewpoint of the current bourgeois camp in power is one of increasing profits in the short term and escalating war and destruction as needed when or before the crisis does hit.

Big Bets on AI, Long and Short

While investment in the AI sector, focused on data centers and infrastructure has surged by nearly 50% since 2019, the rest of US corporate investment is down 7% in that same time period. The boom in datacenter infrastructure production is a productive form of capital that is rented out to companies training AI models, who attempt to turn a profit selling subscriptions to their AI products to companies and individuals, promising full workforce replacement and “general intelligence” any day now. As the old American saying goes, in a gold rush, be the one selling shovels.

The problem with this is that the applications of AI that the customers of these models are paying for have not been anywhere near as productive as they had hoped for and been promised by the propaganda of companies such as OpenAI. The calculation the bourgeois end customers and the executives of their companies were making was that if the quality of the products/services created by AI were good enough for sale without requiring much additional labor to ship, in a way that led to equal or higher productivity while being cheaper than the wages of the workers no longer needed, then AI was a good investment in constant capital.

Historically, for example with the dotcom bubble, after the financial bubble popped and enough companies were liquidated and bought out, the actual productive potential of the technology in question was ultimately harnessed by the surviving generation of companies who succeeded in figuring out how to realize the profits that their dead competition failed at. In the dotcom case it took close to a decade after the bubble popping for that to come to fruition and create many of the monopoly capitalist tech giants of today and it’s probable that this will happen with the companies offering AI hardware subscriptions and models as well, even if the technological innovation does peter off and the models reach a limit in their capabilities that is far from the “general intelligence” the bourgeois want us to salivate over or cower in fear from.

As it stands, the predictions that workers would be replaced in large swaths by these AI services has not come to fruition in any sector, at least based on the limited available data where AI automation was the clear cause of job loss, as reported in bourgeois media. Customer service and call center work has been the hardest hit with low estimates being around 1-4% of jobs lost and higher ones being around 20-30%, the percentages for data entry and clerical are generally lower than call center work and retail and self-checkout numbers are even lower than that, as well as paralegals and truckers, who are barely affected currently. Anecdotally the petit-bourgeois are also affected as they are losing clients for graphics, animation and music work to AI companies offering generative services for that form of media.

Despite the current low actual numbers and the high variability and lack of confidence of these statistics, all the bourgeois management journals are projecting a steady increase in job loss across these and other industries in the coming years. So much so, that planners are considering slower roll-outs of AI agent systems instead of quicker ones, to lower the economic shock of such actions.

It must be noted that there are meaningful breakthroughs that occur every new round of AI product implementation. New medications and scientific discoveries are happening with the assistance of AI models and even some scientific and mathematical problems unsolved for decades are now becoming unlocked through the new form of computational technologies now being perfected. The currently adopted and available round of retail consumer tools in use, however,seem to mostly have the effect of changing the job rather than eliminating it and increasing productivity in only certain parts of the job, rather than tools which are capable of performing the full range of what is required by the job and requiring only some tuning and supervision by the managers or technicians. In workplaces where the entirety of the work is done via a computer the replacement of the workers will be the easiest but this is by no means a simple thing to implement and will likely take years to reach, during which time companies will burn through their reinvestment profits and through the credits they owe interest on, with no guarantee of success.

Full replacement of workers in all sectors is what the capitalists are ultimately aiming for but neither the technology is ready for this, even in fully computerized work,nor are they ignorant of the fact that the speed at which they implement this replacement can have such disastrous impact.

Time will tell exactly how and at what rate the evolution and implementation of this automation technology increases worker productivity, leading to less and less surplus value going into each individual commodity, dropping the profit rate of entire industries as a whole. The data so far shows that the claims of the bourgeois propagandists of AI that in 1-2 years entire industries would not require workers were very far from the truth, even if that’s what they want us to believe in order to keep workers afraid. Finance capital is painfully aware of this data and has been restructuring the assumptions it has been making in the last two years and hedging their bets more against an incoming bubble collapse.

Hedging Their Bets

On the heels of an escalating military conflict against Venezuela comes JPMorgan Chase’s "Security and Resilience Initiative,” a $1,5 trillion investment/financing plan that will span a 10 years. The bank will use investments (up to $10 billion for smaller firms) and debt financing as a way to temporarily increase circulation and attempt to kick-start the rest of the remaining productive capital of strategic importance for the nation, with focus on energy (LNG), defense, critical infrastructure, supply chain reshoring, and technology. These sectors are vitally needed for the future war efforts and these investments also act as a hedge against the likely AI bubble failure and overvaluation seen in digital assets.

Finance capital is attempting to safeguard its future by expecting returns in the form of dividends, interest income and capital appreciation from their investments in industries closely tied to a wartime economy, which are seen as much safer bets than AI, which is yet to prove itself capable of return on investment.

Impact on the Class War and the Environment

The data suggests that while employment is strong in AI infrastructure, it is declining across almost every other sector of the economy. The Bureau of Labor Statistics shows that close to 400,000 manufacturing jobs are currently unfilled. Those jobs are reported to be largely unfilled because the wages are too low for workers who are able to find higher paying work elsewhere. The recent mass deportations decrease the available pool of workers who would have been forced to do those jobs, as capital finds immigrant workers more useful outside the country, where they can work for even lower wages in one of the countries with subordinate economies to the United States, or funneled into documented immigration through the H2A visa program, which is often little more than a form of slavery that benefits the farming contractors of the USA rather than the cartel coyotes, who also treat these workers like indentured servants, all the while forcing the “native workers” back into lower paying jobs at home.

Compared to the dotcom bubble, the productive portion of AI sector capital is orders of magnitude more expensive to run and build than were the servers for websites of 2001, so the impacts of a financial bubble the size of the AI one popping will be much worse than the stock market crash of that age, sending finance capital reeling to save itself and make the working class foot the bill.

AI overproduction’s need for energy has turned working class neighborhoods into dumping grounds. AI datacenters are consuming 10% of global electricity and in the locations where they operate are making workers’ lives untenable with sharp increases in noise pollution, heat and toxic runoff. Workers in the US and India where AI datacenters are operated are increasingly reporting chronic health issues from the constant hum of servers, the contamination of local water sources, the costs of electricity, the impacts of having to work longer hours to afford living in such a hellscape, and the profits created in the process are funneled back to the tech and oil bourgeoisie. Local and global ecosystems are being destroyed and workers are made ill and die due to the byproducts of their own exploitation. Even if AI does end up being productive and the bubble does not create a stock market crisis, it will then have succeeded in replacing large numbers of workers and the overproduction itself will put the previously higher-paid members of working class on the chopping block to once again bail out the bourgeoisie out of the situation they created.

While some US workers currently have the option of not working lower paying jobs over higher paying ones, with “stagflation”/the next major capitalist crisis likely being tied up in the massive reduction of AI overproduction and paying off the effects of a corresponding financial crash, workers will be pushed more and more towards accepting any work they can find, lower wages, indentured servitude as soldiers in ever increasing imperialist wars, longer working hours and other forms of exploitation and deteriorating living conditions.

The question is of course: How long will we take this abuse? How long will workers remain inactive, unorganized and misled? No one knows for sure but what we do know is that the conditions are getting objectively worse and more ripe for revolution.

Revolution is the Solution

The AI overproduction crisis is driven by the capitalist mode of production’s relentless drive to expand itself to infinity in a world where there are only so many productively employed workers that it can siphon its profits from. The speculative investment in AI infrastructure, the displacement of workers, the environmental degradation caused by data centers, and the coming wars pushed on the world by monopoly cartels are screaming at us every day that capitalism cannot be reformed or voted away, that capitalism is killing us.

The only solution is to end it. The only class capable of doing this is the working class and the Communist Party and its the class unions through which the class exercises its power.. The working class is capable of stopping capitalism in its tracks because it produces everything and can stop doing this, if organized. Once overthrown, capitalism can be transformed to be production that is rational and based on a suitable matching of the needs and abilities of every member of society, where every human works for the benefit of every other human on the planet and this process will bring technology back into harmony with humanity and nature.

We encourage workers who are ready to fight to come in contact with the International Communist Party and to organize at their workplaces, within and without the current weak unions, for class-wide demands and the resurrection of the class unions, in order to set the ground for the general strikes and revolutionary civil wars of the future which will do away with this nonsensical and brutal system once and for all.