WASHINGTON — Today’s political consensus crosses all ages, demographics and party lines: Three out of four Americans think the economy is in a slump. It is not just in their heads. Economic growth this year has been practically stagnant, save for one exception, economists say.
A national California economy
Hundreds of billions of dollars invested by California-based tech giants in artificial intelligence infrastructure accounted for 92% of the nation’s GDP growth this year, according to a Harvard analysis, supported by other independent economic studies.
It is a remarkable boon for a handful of companies that could lay the groundwork for future U.S. economic leadership. But, so far, little evidence exists that their ventures are expanding opportunities for everyday Americans.
“You have to watch out for AI investments — they may continue to carry the economy or they may slow down or crash, bringing the rest of the economy together with them,” said Daron Acemoglu, an economics professor at MIT. “We are not seeing much broad-based productivity improvements from AI or other innovations in the economy, because if we were, we would see productivity growth and investment picking up the rest of the economy as well.”
Even in California itself, where four of the top five AI companies are based, the AI boom has yet to translate into tangible pocketbook benefits. On the contrary, California shed 158,734 jobs through October, reflecting rising unemployment throughout the country, with layoffs rippling through the tech and entertainment sectors. Consumer confidence in the state has reached a five-year low. And AI fueled a wave of cuts, cited in 48,000 job losses nationwide this year.
“It is evident that the U.S. economy would have been almost stagnant, absent the capital expenditures by the AI industry,” said Servaas Storm, an economist at the Institute for New Economic Thinking, whose own analysis found that half of U.S. economic growth from the second quarter of 2024 through the second quarter of 2025 was due to spending on AI data centers.
The scale of investments by AI companies, coupled with lagging productivity gains expected from AI tools, is spawning widespread fears of a new bubble on Wall Street, where Big Tech has driven index gains throughout the year.
The top 10 stocks listed in the Standard & Poor’s 500 index, most of which are in the tech sector, were responsible for 60% of the yearlong rally, far outperforming the rest of the market. And the few who benefited from dividends fueled much of the rest of this year’s economic growth, with the vast majority of U.S. consumption spending attributed to the richest 10% to 20% of American households.
“There were ripple effects into high-end travel, luxury spending, high-end real estate and other sectors of the economy driven by the financial elite,” said Peter Atwater, an economics professor at William & Mary and president of Financial Insyghts, a consulting firm. “It tells the average consumer that while things are good at the top, they haven’t benefited.”
Stan Veuger, a senior fellow in economic policy studies at the American Enterprise Institute and a frequent visiting lecturer at Harvard, said that slowing growth and persistently high inflation were diminishing the effects of the AI boom.
“Obviously, that’s not a recipe for sustainable growth,” he said.
U.S. growth today is based on “the hope, optimism, belief or hype that the massive investments in AI will pay off — in terms of higher productivity, perhaps lower prices, more innovation,” Storm added. “It should tell everyday Americans that the economy is not in good shape and that the AI industry and government are betting the farm — and more — on a very risky and unproven strategy involving the scaling of AI.”
Trump’s AI bet
The Trump administration has fully embraced AI as a cornerstone of its economic policy, supporting more than $1 trillion in investments over the course of the year, including a $500-billion project to build out massive data centers with private partners.
Trump recently took executive action attempting to limit state regulations on AI designed to protect consumers. And House Republicans passed legislation this week that would significantly cut red tape for data center construction.
Administration officials say the United States has little choice but to invest aggressively in the technology, or else risk losing the race for AI superiority to China — a binary outcome that AI experts warn will result in irreversible, exponential growth for the winner.
But there is little expectation that their investments will bear fruit in the short term. Data centers under construction under the Stargate program, in partnership with OpenAI and Oracle, will begin coming online in 2026, with the largest centers expected to become operative in 2028.
“AI can only fulfill its promise if we build the compute to power it,” OpenAI Chief Executive Sam Altman said at the launch of the Stargate project. “That compute is the key to ensuring everyone can benefit from AI and to unlocking future breakthroughs.”
In the meantime, the Americans expected to benefit are those who can join in the investment boom — for as long as it lasts.
“2025 has been a very good year for people who already have significant wealth, a mediocre year for everyone else,” said Kenneth Rogoff, a prominent economist and professor at Harvard. “While the stock market has exploded, wage growth has been barely above inflation.”
“Whether the rest of the economy will catch fire from AI investment remains to be seen, but near term it is likely that AI will take away far more good jobs than it will create,” Rogoff added. “The Trump team is nevertheless optimistic that this will all go their way, but the team is largely built to carry out the president’s vision rather than to question it.”
What else you should be reading
The must-read: After the fires: A glance back at The Times’ coverage of the Eaton and Palisades wildfires
The deep dive: ‘Both sides botched it.’ Bass, in unguarded moment, rips responses to Palisades, Eaton fires
The L.A. Times Special: Hiltzik: Republicans don’t have a healthcare plan, just a plan to kill Obamacare
More to come,
Michael Wilner
—
Was this newsletter forwarded to you? Sign up here to get it in your inbox.