It was a time of enormous optimism, based mainly on one specific technology - Paul Krugman

It was a time of enormous optimism, based mainly on one specific technology that promised to have transformative effects on the economy. 

Businesses developing and implementing the new technology spent huge sums on construction and equipment. Individual investors piled into these businesses’ stocks, sending their prices soaring.

And enthusiasts were right about the technology’s potential. It would eventually transform the economy, indeed society as a whole. But long-term transformation doesn’t necessarily translate into profits for businesses at the cutting edge. 

As it became clear that the financial returns wouldn’t live up to the hype, some companies went bust, while stocks tied to the technology lost most of their value. And plunging capital spending pushed the economy into a nasty recession.

Yes, Britain’s Railway Mania of the 1840s was quite a story.

The way generative AI achieves these results is nothing at all like human reasoning. Instead, as best I understand it — and my understanding is basic at best — it compares inputs — be they sounds, words, or images — to existing patterns in vast amounts of data scooped up from the internet, and then extrapolates from those patterns. 

As Noah Smith says, it’s kind of like magic: Powerful but mysterious — we often can’t understand how it arrived at a particular answer — and prone to occasionally going very wrong.

Beyond the paywall I will address the following:

1. The AI boom in historical perspective

2. The logic of technology manias and bubbless

3. The “Winner Take All” nature of technology bubbles

4. What will happen if the AI boom goes bust?

Paul Krugman Substack Oct 12 2025 

https://substack.com/home/post/p-175904083

https://substack.com/@paulkrugman

I am trying to learn this channel.

Rolf Englund | Substack

Perhaps the greatest boom and crash in history was the railway mania of the 1840s.

https://englundmacro.blogspot.com/2025/09/ai-among-biggest-investment-booms-in.html

Railway Mania was a stock market bubble in the rail transportation industry of the United Kingdom of Great Britain and Ireland in the 1840s.

https://en.wikipedia.org/wiki/Railway_Mania