{"id":2633,"date":"2025-10-27T07:00:00","date_gmt":"2025-10-27T07:00:00","guid":{"rendered":"https:\/\/moneywithkatie.com\/?post_type=essays&p=2633"},"modified":"2025-10-28T21:11:16","modified_gmt":"2025-10-28T21:11:16","slug":"joan-didion-saw-the-ai-bubble-coming","status":"publish","type":"essays","link":"https:\/\/moneywithkatie.com\/essays\/joan-didion-saw-the-ai-bubble-coming\/","title":{"rendered":"Joan Didion Saw the AI Bubble Coming"},"content":{"rendered":"\n

As the S&P 500 continues to creep perilously higher with each passing week of 2025, I\u2019ve been reading a lot about AI and thinking equally as much about the late Joan Didion, one of the most famous women in the grand tradition of putting words on paper. This may seem a strange, spontaneous association, but her ruthless insistence on rejecting comforting American myths made me want to revisit her work in the context of AI speculation. Her own decades-long political evolution provides a useful case study in navigating accepted narratives, although it\u2019s certainly a less sexy element of her legend than the iconic photograph leaning on her Stingray, cigarette dangling idly between slender fingers.<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

Is it any wonder this person scored a CELINE campaign?<\/em><\/p>\n\n\n\n

While every cool progressive young woman today uses her Ruth Bader Ginsberg bobblehead as a bookend for the Didion shelf of her bookcase, Didion launched her career at the conservative magazine National Review<\/em>. (The publication was founded by none other than William F. Buckley, a man considered the architect of the modern conservative movement.) Her own conservatism<\/a> was, as Sam Adler-Bell put it, \u201cvery invested in complexity and rejecting the liberal belief in easy answers; the idea that human nature can be reduced to solvable social problems.\u201d It was former President Ronald Reagan who eventually turned her against the party, though you get the sense it was less that she disagreed with his politics and more that she found the whole Reagan family to be unbearably tacky. \u201cHad Goldwater remained the same age and continued running,\u201d she wrote in 2001, \u201cI would have voted for him in every election thereafter.\u201d<\/p>\n\n\n\n

Considering her upbringing among<\/a> \u201cconservative California Republicans,\u201d this checks out. But when you live by the pen, you change by the pen. She eventually turned her signature, unsparing method<\/a>\u2014\u201cno lying, no self-soothing delusions, no aspiring toward innocence in the face of evidence of culpability\u201d\u2014on herself. This emerges most stridently in a book she published when she was 68 called Where I Was From<\/em>, which is ostensibly about the history of California but ends up functioning as a record of personal disillusionment with the state\u2019s blinkered origin story and, to a certain reader, American exceptionalism more broadly.<\/p>\n\n\n\n

In it, she systematically juxtaposes her own ancestors\u2019 self-styled bootstrappy California landfall\u2014traveling with the infamous Donner-Reed Party, but escaping their cannibalistic fate by, poetically, refusing to take a shortcut\u2014with the realities of early land distribution. Describing how California was originally parceled out, she observes that land was \u201clargely acquired through imaginative interpretation of the small print in federal legislation.\u201d She unceremoniously lists the various loopholes which allowed for \u201csubsidized monopolization\u201d among a few wealthy landowners and railroad companies. (One such provision deemed any land relegated as \u201cswamp\u201d to be essentially handed out for free by the hundreds of thousands of acres, which led to a curious reclassification of vast tracts of the state.)<\/p>\n\n\n\n

A reinvention of this history, she writes, tends to carefully trim off the unsightly fat of federal government largesse in the amassing (or destruction) of private fortunes. \u201cStressing as it did an extreme if ungrounded individualism, this was not an ambiance that tended toward a view of life as defined or limited or controlled, or even in any way affected, by the social and economic structures of the larger world,\u201d she writes of early California myth-making. The implication is unavoidable: Where she once identified with an imagined, exceptional group of rugged frontierspeople determined to do whatever it took, she now sees plot holes that demand a rewrite.<\/p>\n\n\n\n

Speaking about the policies that created Southern California\u2019s broad consumer middle class in the late twentieth century, she manages to sneak in more than a little class analysis, most memorably in the chapters about the disquieting economic ripple effects of hundreds of thousands of aerospace industry layoffs in Los Angeles county in the 1980s and 1990s. \u201cWhat does it cost to create and maintain an artificial ownership class?\u201d she asks of the communities whose work had been furnished by federal defense contracts. \u201cWho pays? Who benefits?\u201d Then, a devastating addition: \u201cWhat happens when that class stops being useful?\u201d<\/p>\n\n\n\n

In 2025, that insistent \u201clarger world\u201d with all its \u201csocial and economic structures\u201d seems to be closing in on our \u201cextreme if ungrounded individualism\u201d at record pace, as the dissonance Didion observed in 1990s LA continues to compound under a new antagonist: artificial intelligence. As a result, we\u2019re relying more heavily than ever on the same flawed principles to explain what will happen if the corporations that once sustained a middle class no longer have any use for it. In other words, AI appears to be stretching the narrative limits of our most treasured story beyond the point of coherence.<\/p>\n\n\n\n

The US economy in its present state presents a dynamic contradiction. There\u2019s never been<\/a> a greater \u201cdivergence between equity returns and job openings,\u201d a conflict that Derek Thompson resolved by splitting the baby into separate realities: \u201ca booming AI economy and a lackluster everything-else economy.\u201d To put a finer point on it: JP Morgan estimated that AI-related stocks have driven 75%<\/a> of all S&P 500 growth since 2022, which might be why Ruchir Sharma wrote<\/a> for the Financial Times <\/em>that, at this point, the story of American optimism is indistinguishable from three Nvidia chips in a trenchcoat. A portfolio manager told<\/a> the Wall Street Journal<\/em> that \u201c\u2018[i]nvesting in US markets is almost becoming a one-way concentrated bet on the development and proliferation of AI,\u2019\u201d a statement prompting me to perform a nervous asset allocation check which revealed the metastasized US exposure in my portfolio. (It should be noted that, for all the talk of US stock market impenetrability this year, international stocks have outperformed the US<\/a> by the widest margin since 2009.) The closer your proximity to this \u201cbooming AI economy,\u201d the better you\u2019ve done. Still, watching your wealth grow from artificial intelligence at the same moment your job security is threatened by it is a little like using the right hand to repair what the left is actively destroying.<\/p>\n\n\n\n

Booming or not, the fundamentals of this gold rush leave something to be desired. OpenAI is, according to the magic of the market, \u201cworth\u201d $500 billion, despite its mere $12 billion in revenue. Nvidia, a company that makes chips, is somehow worth\u00a0more than the entire pharmaceutical industry combined<\/a>. A recent\u00a0Bloomberg<\/em>\u00a0visualization<\/a>\u00a0of these companies\u2019 financial interdependencies, which would appear to show a rat king of incestuous funding, offers little in the way of clarity about the true source of the demand or value:<\/p>\n\n\n\n

\"\"<\/figure>\n\n\n\n

The dominant story now is that the US economy is a complex puzzle that needs to be unlocked, and the alchemizing power of artificial intelligence will either forge a skeleton key that slides effortlessly into our most inscrutable problems, or it will destroy us all, or it will continue to be a useful if functionally limited chat partner for lonely young men and people weaning themselves off WebMD with large language model-powered symptom radar. Only time will tell, or so the story goes.<\/p>\n\n\n\n

A clearer picture emerges when we confront the uncomfortable reality that these disparate conditions could, under our current configuration, coexist indefinitely. For bulls, the logic goes\u00a0something like this<\/a>: \u201cThe main reason AI is regarded as a magic fix for so many different threats is that it is expected to deliver a significant boost to productivity growth, especially in the US. \u2026 Higher output per worker would lower the burden of debt by boosting GDP. It would reduce demand for labor, immigrant or domestic. And it would ease inflation risks, including the threat from tariffs, by enabling companies to raise wages without raising prices.\u201d The magical thinking of this \u201cbest-case scenario\u201d is revealing, because it relies on a tacit acceptance of the rusting, decades-old infrastructure of Reaganomics. This blind faith in \u201cproductivity gains\u201d as the cure-all, no other shifts required, represents how profoundly narrow our understanding of national flourishing has become. AI exuberance, then, belies a faith in the soothing myth that we can outrun a core rot exactly as quickly as we can make GDP go up. No matter how obvious it becomes that this hasn\u2019t been the case for at least 30 years, Didion\u2019s ethos rings true here: Soothing myths can be hard to part with, particularly if the majority of your resources depend on you (and everyone else) continuing to believe them.<\/p>\n\n\n\n

When spelled out so plainly, it becomes clear who, exactly, the \u201ceconomy\u201d in this accounting chiefly exists to serve: a set of people who, like Southern Pacific in California 150 years ago, have effectively expropriated and monopolized the resources of the US through a neat understanding of tax law and pay-to-play politicking. Didion\u2019s observations about Southern California\u2019s economic downswing feel eerily prescient:<\/p>\n\n\n\n

\n
\n
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This \u201cnew economy\u201d was to be built on \u201cinternational trade,\u201d an entirely theoretical replacement for the gold-standard money tree, the federal government, that had created these communities. Many seminars on \u201cglobal logistics\u201d were held. Many warehouses were built. The first stage of [construction] was near completion before people started wondering what exactly these warehouses were to bring them; started wondering, for example, whether eight-dollars-an-hour forklift operators, hired in the interests of a \u201cflexible\u201d work force only on those days when the warehouse was receiving or dispatching freight, could ever become the \u201cgood citizens\u201d of whom Mark Taper had spoken in 1969, the \u201centhusiastic owners of property,\u201d the \u201cowners of a piece of their country\u2014a stake in the land.\u201d<\/em><\/p>\n<\/blockquote>\n<\/blockquote>\n<\/blockquote>\n\n\n\n

Here, she\u2019s providing an answer to the question she posed earlier: What happens when an artificially created ownership class stops being useful? Put another way: What happens when a robot can do your job nearly as well as you can?<\/p>\n\n\n\n

Technologically, the world-changing potential of artificial intelligence\u2014while \u201centirely theoretical\u201d right now\u2014may be something genuinely novel. But economically, the more I read about the grandest flavor of conjecture, the more familiar its implications feel. No matter how valuable it becomes, it will leave our foundation, plagued with persistent and neglected cracks, untouched. A true repair would require a more wholesale rejection of the American delusions we take most for granted, like the sanctity of meritocracy’s equalizing powers, wealth concentration as the most reliable indicator of brilliance (that will eventually, it goes without saying, trickle down), and perhaps most of all, the myth of total self-sufficiency that Didion interrogated so soberly in Where I Was From<\/em>.<\/p>\n\n\n\n

The good news is that our current model of publicly traded (and publicly owned) companies is, in some respects, actually quite elegant. You\u2019d be hard-pressed to find a better mechanism for diversifying and distributing the spoils and risks of a complex, profoundly interrelated economic system. Chopping up ownership of every corporation into tiny, tradable shares that can be bundled together and distributed via a product like an index fund is (Wall Street Journal <\/em>subscribers, cover your ears) borderline socialist in its mechanics. We\u2019re all familiar with why and how this ends up falling short in our current iteration, but it can be summed up in two words, both of which apply to AI valuations: concentration and manipulation.<\/p>\n\n\n\n

Roughly 87% of those shares belong to 10% of people, per a Ritholtz analysis<\/a> from February, which is partially why consumer spending still looks so strong (the top 10% are spending almost as much as the bottom 90% combined), and short-term thinking is the name of the game in an era of stock buybacks and equity-based executive compensation packages. But an infrastructure already exists for something far more prosperous; something that distributes the value of this economy more evenly to the people who are laboring every day to produce it. The gamble on world-changing tech just makes Didion\u2019s project of abandoning our \u201cself-soothing delusions\u201d feel all the more urgent\u2014because if what the bulls say is true, our leverage as human workers to determine our fate will never again be greater than it is right now.<\/p>\n","protected":false},"excerpt":{"rendered":"

As the S&P 500 continues to creep perilously higher with each passing week of 2025, I\u2019ve been reading a lot about AI and thinking equally as much about the late Joan Didion, one of the most famous women in the grand tradition of putting words on paper. 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