of demand for that information from AI. The key to that is making sure that the demand only comes if technology is diffused for more applications, more utilizations. If technology is just the domain of the six hyperscalers, we will fail. And so to me, we don't have enough information yet. The key, how fast we diffuse it, how quickly is it adapted and adopted, to me are going to be the two key characteristics. The parallels for me for 1929 and evolving into 2029. To me, the big two factors that are the limiting factors are going to be can we grow out our economies fast enough to overcome our deficits. That's going to be one big issue, especially with the rising deficits of the US. And the capabilities of the capital markets to continue to fund these investments to make the western economies having the capabilities to have that J curve in the adoption of technology. Those are
Let me ask you, let me go to Ken on this. And it's reflective though of something actually Larry's talked about over the past couple years. You actually, Larry wrote a letter called the democratization of finance. That was a phrase used in the 1920s. There was a real effort to democratize finance, to raise funds from the public. There was a huge amount of debt that helped finance the decade. And I wonder how you think about this moment and sort of when you think about the systemic risk of this moment, the concentration of AI, the debt that's financing some of it. And I know some of the hyperscalers obviously enormously powerful and have extraordinary funds, but there is also a lot of debt behind all this that's sloshing around.
So first of all, it's a pleasure to be on the gloom and doom panel. The 1920s were an extraordinary period as I said at the beginning, it's not pre-ordained the end of the 1920s which was of course the Great Depression, Andrew. So let's take a step back and talk about where we are right here, right now. The area of recklessness is the spending of governments around the world who are all, with little exception, all spending well beyond their means. That's the recklessness of this moment in history. This is not a parallel to the 1920s in terms of the recklessness of the private capital markets. It's a story of the recklessness of government spending. Within the private sector, there's a huge question as to where AI will take us. And I was carefully taking notes and listening to what Larry has to say or to what Madame Lagarde has to say because this is one of the big issues of our moment. Will AI create the productivity acceleration that is honestly thus hoped for in Washington and in the halls of government around the world as a way to overcome the profligate spending that we're currently engaged in. Like the world needs a savior and the hope is that AI is the savior that we need for productivity. And the challenge with this is it may or may not be. We just don't know yet. Now, there's a tremendous amount of hype around AI. And in some sense, the large AI companies need to create that hype to raise the tens or actually hundreds of billions of dollars of investment that are going into the field. Like you wouldn't be able to raise hundreds of billions of dollars. We'll spend, and Larry can probably correct me on this, but roughly $600 billion this year in capex for data centers in the United States.
But does that mean that it's getting hyped up too much or it's just the hype is required as a sales mechanism?
Go ahead. First of all, so much of the data centers are being built for cloud, right? And the big issue is going to be in terms of monetization of the spend. The data centers are being built for AI requires more advanced chips. The question is what is the lifetime of that chip? If we have new technological changes, the lifetime of the chip is one year then that spend is going to be really a bad spend. If the lifetime as they expect it to be is four or five years and then those chips can be used for cloud then I think these investments are going to prove to be good investments. So I think it's going to be, you know, if the speed of technology changes and all these investments now they're going to be challenged but I agree with Ken. I think we don't know enough but I'm personally very optimistic on how AI is going to affect the world economy. Madame Lagarde, can I ask you a question to take on the issue that I think Ken raised just about the amount of debt in the system today? Not talking about corporate debt, but sovereign debt. And the reason I ask is back in the 1920s, at least in the United States, there was a budget surplus. I believe there was actually budget surplus in a lot of other countries as well. Not everywhere, of course. But today in the US, there's $38 trillion of debt. And the playbook that we all learned actually in the aftermath of 1929 is what do you do when there's a crisis to stem it? You throw money at the problem. Ben Bernanke learned this and effectuated in 2008. We did it again during the pandemic. And the thing that I've always thought about is the next time there is a panic of some sort and there will be a pullback of some sort. Whether the politicians say, 'Well, we now have the playbook. We know what we're supposed to do and we're going to write a check for $5 trillion because that's what we're supposed to do.' Except that we keep wondering is there some kind of invisible line in the bond market around the world that turns into a red line where the investor class says we're not doing it anymore. And then you sort of, by the way, you get into sort of an austerity vicious cycle.
Two things. I'm not going to address your question right away because I want to come back to a point that was made by both Larry and Ken, I think. And I'm not denying that investment in artificial intelligence can be extremely net positive and will deliver productivity gains. The amount of which is questionable and you have a spectrum that is quite large as to how much it will deliver. But I think that to come back to my corporate, my minimum corporation needed for that, we also have to consider that it's capital intensive, energy intensive and data intensive and we have to be mindful of the three in terms of energy intensity. What kind of energy is being used to manage data will matter. What the consequences will be on the people will matter as well. So I think that in this cooperation approach that we have which will have to take care of data privacy for instance and preferences in different corners of the world, we also need to be mindful of the energy consumption and what kind of energy it is and what impact it has on climate. And number two, we have to be mindful of the consequences for people because unless we move in this dream world of Ken's where working is a choice in a way which I don't see on the medium-term horizon. We have to understand what consequences it has on people unless we want to risk a dislocation of society. Now I come back to your point. Yes, debt has increased massively and is increasing in some corners more than others. I think the real question is what is done with that financing that the sovereigns are accumulating. Not all debts are the same. Debt that is invested in necessary productive projects or necessary for security purposes will always find people to finance it. That's my assumption. Debts that are not for productive purposes, that are not going to sustain growth on a sustainable basis. That will be far more difficult. So, I'm not going to tell you that there is a red line. I'm not going to tell you that central banks will always be around either. But I think that the nature of the purpose for which debt is subscribed will matter more than the actual volume.
Speak to what you did. You just said something very interesting.
I'm not going to speak more to it.
No, to the idea that central banks might not always be around. What did you mean by that?
Look, I went through a lot of crisis as many of you have as well and I remember the days when it was mentioned that central bankers are the only game in town. This is not the right approach to a balanced and durable equilibrium. Measures have to be taken by fiscal authorities. Reforms have to be undertaken. The purpose for which spending is organized has to be thought through and the consequences on people if we want society to stay together.
So just not trying to put words in your mouth but are you basically saying that in our legislative branches around the world we have abdicated responsibility of being fiscally prudent and thoughtful as to how we use society's resources and have become overly reliant upon central banks.
Yes. To continue to try to keep the economy going in the right direction against this onslaught of reckless spending. I'm not suggesting it's the case now, but we have observed it in the past.
I mean, the historic irony is that when people talked about central banks being the only game in town in the 2010s, what they were actually urging is more active fiscal policy, right? Because the problem was that we had a lowflation environment, a stagnant growth, including notable figures at BlackRock were arguing for a more assertive fiscal policy because there was a deep imbalance between the two levers of macroeconomic policy, which was also a lesson of the 1920s. And right now what you're arguing for, I take it is a more just abstract proposition that it is crucial to have, as Ken's suggesting, responsibility in every arm of government. And that responsibility pertains not just to the macroaggregates I'm hearing you say but to the specific type of spending. Your distinction between the productive and the unproductive is not just for economic purposes but also for the question of political legitimacy and social coherence. The crucial thing because the social bargain in Europe and in the United States but really in Europe is deeply stressed I think by the perception that modern welfare states are unproductive and a huge number of really vicious distribution struggles which are reawakening another 1920s ghost which is the ghost of fascism, right? The sort of political parties which certain visitors to the conference would quite like us to give more platform to who are direct heirs to that kind of tradition they are mobilizing in Europe right now around the delegitimization of public spending which acts on this productive unproductive national international migrant ethnic national and so that's why these politics are explosive.
But Adam, in 2010, the mantra was too big to fail, which Andrew wrote about, but because of that mantra, too big to fail, there was a societal view, do not bail out. So there was not much fiscal stimulus as much as necessary. But I would say the learning lesson from that was 2020 where you could argue we used huge amounts of fiscal stimulus probably too much looking backwards. So, I actually believe, you know, we're all evolving in which lever to pull. And so I think, Europe, especially after 2008 and probably did not use enough fiscal stimulus. But in the 2020s because of COVID, we probably used way too much fiscal stimulus.
It also depends on what structures you have again because the Europeans have job, they essentially have part-time working systems which keep people in employment whereas America with surging unemployment in 2020 and no national unemployment insurance system that actually works has to rely on this sugar high trillion dollar check in the mail emergency bailout of American society and it's easy to overdo that. I mean in my view it's one of the great macroeconomic success stories of recent times. But you're absolutely right where the learning here since the 1920s is surely one of the dramatic, we have not had another 1929.
That is a crucial point. I have a different question for Madame Lagarde. It's actually about the connection between the independence of central bankers relative to the political class and the reason I ask it is not just because of this particular moment. No, just happens to be Wednesday. But no, but this gets to an interesting parallel. It gets an interesting parallel if you go back and look at what happened actually in the 1920s and 1929 in particular. I read through some of the diaries of the Federal Reserve board members in the United States during this period. They were so worried about the politics of the moment. They were so cognizant of the politics. It wasn't by the way then that the president in that case President Hoover was telling them what to do exactly. It was that they were worried that the central bank unto itself would, which was considered an experiment still. It was still new. Yeah. Would be disbanded. You talked about whether central bankers will be here. They weren't sure whether they were going to tip the balance and the Congress was going to say enough with you. And so I wonder and there are lots of times also during some of these crises where the central bankers have to work hand in hand with the treasury departments and presidents. So here we are in this moment. You publicly came out recently and signed a letter around what's happening in the United States and our Federal Reserve. But how you think about that?
First of all, I would distinguish between what, tribute to your work because you really went into great details about how they thought in those days and what their fear was. But I would distinguish today between working hand in hand which in a way we did during COVID, let's face it, and fiscal dependency. So while working hand in hand in particular circumstances as exceptional as they were I think was completely legitimate whether there was more too much I think we, it's a good debate to have and what form it took is also an interesting one because between the shock absorber on one side of the authentic and the fiscal spending straight to the consumer I think the jury is out as to what was the most efficient but fiscal dependency is another matter which I would strongly argue against. You know, for me, the great champion and hero of breaking the back of this dependency of central bankers was Volcker who took the risk, major one to really affect the economy, jeopardize the economy to make sure that price stability would be delivered. And I think the standing he had with President Nixon at the time in order to demonstrate the independence of the central bank to restore price stability is something that we should keep in the back of our mind. I'm not going to comment on what's happening just right now including today actually. Suffice to say that with a couple of other colleagues we did take the initiative to argue in favor of central bank independence in the context of what happened about a week ago.
One of the really fascinating things is that the very idea of central bank independence is a product of the 1920s and it's a product of the 1920s because most central banks unlike the Fed are old institutions. It's like the Bank of England, the Bank of France and what they have to tackle in the early 20th century is the emergence of modern democracy. Modern democracy being multi-party populist social democrats, right-wingers. And it's in that context the Fed in a sense born into the crisis. One of the reasons America doesn't have a central bank earlier is it is a democracy and capitalist democracies are contentious and money is contentious in capitalist democracies and central banks are incredibly contentious and America doesn't get there until the compromise of 1913 under Wilson whereas the others the British the French the Germans of course have to actually figure out what it means to do market centered finance centered banking in an actual live social democracy and it's out of that that this notion. From the very beginning it was always agonistic to populist democracy from the 1920s onwards like the phrase is Montagu Norman's phrase nave proof, right? You want to make the central bank nave proof which has a certain resonance in the current moment, right? You need to make the central bank institutions proof against those kind of pressures and it's been I think one of the productive sites for thinking about the relationship between expertise politics and the pressures of the market ever since. Volcker one might have different views about but he certainly I would entirely agree with you set the paradigm of the modern independent central banker whether one likes the paradigm or not but it's clearly the definitional moment under Carter into Reagan withstanding the pressures of the Reagan presidency amongst other things.
