The Outsider Perspective Issue 470 | The Beltway Outsiders

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Good Friday Morning! I want to give a special shout-out to Andrzej Bargiel, who became the first person to ski down Mount Everest. The Polish Mountaineer filmed his experience with a GoPro and Red Bull sponsorship. It’s been a viral video on social media for a bit, but I’m only just seeing it. If you haven’t watched it, I recommend it. I held my breath on multiple occasions.

And when I say he skied down Mount Everest, he literally climbs to the peak, straps on skis, and starts going down. It’s an unreal feat. And I appreciated the top comment on the video, “Nice to finally see some footage of my grandads route back from school.”

I’ve also got that video featured in the Almanac today. I was super impressed. Speaking of the American Almanac, we’ve expanded to three issues a day, M-F, with single issues going out Saturday and Sunday. We’ve gotten fantastic feedback from readers like you, and so we’re scaling up, with more to come.

This week, I’m going to do a deep dive on how the AI moment we’re in is reshaping the economy into something akin to a war economy, or what America did with railroads – links to follow.

Quick Hits:

Democrats poised for midterms bounce back. I’ve got a column out this week arguing this point, and some of the better election analysis out there suggests the same. Michael Baharaeen has a good piece analyzing prospects for the midterms, with some cautionary notes for Democrats. We’re in a weird moment where neither party has a message to deal with what Americans care about: inflation and the economy. Trump is on a tariffs kick, and Democrats are having a civil war over socialism. It’s truly bizarre to witness.
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Where you can find me this week

Please subscribe, rate, and review The Horse Race on YouTube — the reviews help listeners, and readers like you find me. Make sure to sign up for the Conservative Institute’s daily newsletter and The American Almanac.

Lane Kiffin Needs To Own It – Conservative Institute

Trump And Republicans Should Heed Warning Signs – Conservative Institute

The J6 Case Biden Ignored – Conservative Institute

The AI War Economy

When I first started writing about AI, particularly after the launch of ChatGPT (three years ago in November), it was mostly about its transformative aspects. Chatbots were popping up, college students were cheating on tests, and entire swaths of the media ecosystem were being taken over by it within months.

What strikes me at this stage is the vastness of the AI moment. I’ve struggled to put into words what is happening because the dollar amounts involved with these companies are massive, the push into the real world is everywhere, and yet some people still feel like this isn’t a big deal.

There’s also been this ongoing debate about whether we’re in an AI bubble. I’ll go ahead and answer that question: we absolutely are in a supermassive economic bubble.

People are incorrectly comparing this to the dot-com bubble. On the surface, that comparison makes sense. We’re witnessing new tech companies explode with new technologies, and no one really knows how this will ultimately play out, hence the “Pets.com” comparisons.

But the second half of 2025 has really made it clear that this isn’t the dot-com bubble; this is something else entirely. We’re not talking about websites with cute URLs anymore; we’re talking about massive investment from private and government sources. Trump has changed the trajectory of AI. He’s effectively poured rocket fuel on a large fire, and that fuel isn’t letting up.

I was reading a piece this week that laid out comparisons to use:

In 1978, Charles Kindleberger published Manias, Panics, and Crashes, an instant classic history of investment booms and subsequent busts. Such booms can be divided between those that end up building something useful (such as a railway system in mid-19th-century Britain, the United States, and elsewhere); and those that do not (such as the Netherlands’ infamous 17th-century tulip mania and the subprime-mortgage madness of the early 2000s).

I suggest that we’re in a railroad moment. The hard infrastructure being built includes data centers, chips, semiconductors, and more.

Ben Hunt wrote a great piece in Epsilon Theory called “Word War AI,” and I agree with many of his conclusions. He skips railroads and goes with World War II. And to be frank, his math isn’t far off:

The same amount of inflation-adjusted money we spent on World War II — somewhere between $4 trillion and $5 trillion — is scheduled to be spent on AI and datacenter buildouts in the United States over the next four years.

Yes, our economy is proportionally bigger today, so this is ‘only’ something like 15% of US GDP ($30 trillion in 2025), but an economic mobilization of this magnitude will require a similarly massive reallocation of our fundamental economic building blocks — labor, capital and energy — especially capital and energy.

In other words, whatever comparison you make: railroads, world war, or something else, what we’re witnessing is a complete reshaping of the American economy to drive one single technological advancement across the finish line.

Hunt makes two invaluable points on the impact of AI on everyday Americans. The first is that we’re seeing consumer credit markets dry up. Things like credit card applications, home refinancings, and more are hitting multi-decade highs in rejections. Meanwhile, both big banks and private lenders (hedge funds) are pouring loans into these AI projects.

That’s why we’re witnessing the consumer get weaker at the moment, as consumer credit and buying power drop, while AI explodes. Everything in the U.S. economy is shifting toward developing better, more advanced AI tools.

The second big thing, which I’ve mentioned too, is electricity. We are not building enough energy generation to offset the massive drain on electricity from AI data centers and other uses. Hunt notes:

The datacenter slice of the U.S. electricity consumption pie is growing much larger and much faster than the pie itself can possibly grow.

Datacenters go from a rounding error in 2024 to consuming close to one-quarter of our electricity by 2030.

It is impossible to build enough new power generation supply to support both projected datacenter growth and growth in the rest of the U.S. economy.

I’ve been hitting the drum for a while that 2028 will be the year American electricity bills become an issue for the first time in decades, because the math is pretty clear. And the charts are all pointing in one direction.

Unlike the dot-com bubble, AI is having a direct impact on both the financial and hard infrastructure of the United States. Even if you’re not a person using AI, you are helping pay for it through energy costs, harder credit rules, and more.

And that brings me to the final point: both railroads and WWII were national projects that the government backstopped. Building a transcontinental railroad was a massive undertaking that reshaped the country. Railroads and telegrams connected everyone from coast to coast and truly made America a nation.

I remain ambivalent about which LLM will win the race. I’m partial to OpenAI’s ChatGPT and Elon Musk’s Grok, myself, but the LLM race is secondary to the race to build out the infrastructure to handle a massive AI ecosystem. The United States clearly sees itself in competition with China on this front, as no one else is even close.

AI is now a national security concern. Ben Hunt puts the war framing around this for good reason: in WWII, everyone had to do their part to win. Everyone paid some price. The same is true now: whether it’s a higher electricity bill or something else (which is inflationary, by the way), everyone is paying something.

The question I have at this stage is both simple and unanswerable: how do we know we’ve arrived? Presumably, the answer is AGI, aka Artificial General Intelligence. That’s the stage where we believe we’ve created true artificial intelligence that is on par with the human brain. I’m agnostic on whether that will happen.

If it doesn’t, the bill is going to come due on AI sooner or later. That bubble has to resolve itself into a new economic mountain, or we’re going to watch the mother of all bubbles pop in this economy. What’s more, we don’t know the full extent of the government’s bailout of these companies, either.

My opinions on that matter have to be put aside: either party will bail these guys out, at least on the hardware side. Nvidia is becoming a version of a Navy shipbuilder or a U.S. Steel. And the more it cozies up to that kind of role, the more protection it gets.

Three years ago, AI was one of those things people knew existed but didn’t really affect anyone. Algorithms and machine learning existed, but true AI did not. Three years into this revolution, it’s now becoming a massive part of the economy, and there’s no stopping it.

It’s all gas, no brakes. If you ever wondered what it was like to live through one of those big economic moments in a country, congrats, you’re in one. Because this is dwarfing the internet breakthroughs of the 2000s. We’re only just now starting to see the consequences of that.

Quick Hits:

Where you can find me this week

The AI War Economy

Links of the week

X/Twitter Thread(s) of the week

Satire of the week

Thanks for reading!