The 90s Internet Boom and The AI Revolution of Today

Summary

• The AI revolution is drawing comparisons to the 1990s Internet boom, but the macro context is fundamentally different and critical to outcomes.
• Chris Anstey argues technological revolutions do not occur in a vacuum; the wider macro environment is as important as the technology itself.
• In the 1990s, the Internet-driven productivity surge was accompanied by globalization, specifically China's integration into global supply chains, which aided disinflation.
• The president's economic team (e.g., Scott Bessent, Kevin Hassett) focuses on AI's potential productivity boost without inflation, mirroring the 1990s, but omits other key factors like globalization.
• Allen Greenspan was prescient in recognizing 1990s productivity gains early, allowing the Fed to keep interest rates low and sustain growth.
• Other 1990s dynamics included fiscal contraction and borrowing conditions that enabled private sector investment without higher long-term rates.
• A personal anecdote underscores the significant role of declining Chinese import prices in 1990s disinflation, a factor missing from current comparisons.
• The implication is that for AI to replicate 1990s-style growth without inflation, favorable macro conditions must align, which may not be present today.
• Key disagreement: The president's team is overly optimistic about AI's isolated impact, neglecting broader macro headwinds.
• Important uncertainty: Whether current macro policies can support AI-driven productivity gains without triggering inflationary pressures or labor market disruptions.