Professor Alan Blinder reveals that the rise of generative AI has created such a high risk of academic dishonesty that his department has abandoned modern assessment methods. They are reverting to proctored, in-class, handwritten exams, an example of "technological regress" as a defense against new tech.
Blinder asserts that while AI is a genuine technological revolution, historical parallels (autos, PCs) show such transformations are always accompanied by speculative bubbles. He argues it would be contrary to history if this wasn't the case, suggesting a major market correction and corporate shakeout is inevitable.
An AI stock market bubble, like the dot-com bubble of the late 90s, is primarily equity-financed, not debt-financed. Historically, the bursting of equity bubbles leads to milder recessions because they don't trigger systemic failures in the banking system, unlike collapses fueled by debt.
Former Fed Vice Chair Alan Blinder suggests businesses were hesitant to pass tariff-related costs to consumers because of constant policy changes. This uncertainty over the final tariff rate, while bad for investment, paradoxically suppressed the immediate inflationary impact many economists expected.
Alan Blinder argues that financial markets are severely underpricing the risk of political interference at the Federal Reserve. He cites the President's attempt to remove a governor and political appointments as clear threats that defy historical norms, calling it "one of the biggest underreactions" he's ever seen.
Alan Blinder identifies a pending Supreme Court case on the President's power to remove a Fed governor as a potential market catalyst. An adverse ruling would set a precedent allowing political removal of governors, which could abruptly awaken "bond vigilantes" to the reality of a compromised central bank.
Contrary to fears of automating low-skill work, economist Alan Blinder argues that AI is more likely to replace high-paying white-collar jobs in finance and professional services. Lower-wage manual and service roles are less vulnerable, a dynamic which could potentially compress the upper end of the income distribution.
Alan Blinder notes that politicians, driven by electoral cycles, lack the will to use fiscal tools (like tax hikes or spending cuts) to cool an overheating economy. The last instance was in 1968 under President Johnson, underscoring why an independent central bank is the only reliable institutional defense against inflation.