The year 1929 is a yellow caution light constantly flashing in the national memory. In his March 4 Inaugural Address, Herbert Hoover proclaimed: “In no nation are the fruits of accomplishment more secure … I have no fears for the future of our country.” Just 239 days later — Oct. 29, Black Tuesday — the stock market crashed, causing … it is unclear what.
New York Times financial columnist Andrew Ross Sorkin has kicked a hornets’ nest by writing “1929,” his lively retelling of what preceded the crash, and what the crash precipitated. It is about the consequences of the crash itself that the hornets are being heard from. A pugnacious cohort, they correctly argue that, but for misguided New Deal policies from 1933 through 1939, the decade-long economic Depression would have been much milder and shorter. So, books would not be written about 1929.
The deep (33 percent) stock market collapse of 1920 did not provoke government activism. The Roaring Twenties followed.
Read Sorkin for fascinating details about the 1920s stock-buying mania. And for perspective on what today’s animal spirits are producing in artificial intelligence investments.
The 1920s brought, Sorkin says, “the birth of the modern consumer economy” — cars, radios, household appliances, etc. It was fueled by consumer credit. First, General Motors, then Sears, then many others began selling their products on credit. As did stock brokers.
Debt, as Sorkin says, “draws the wealth of tomorrow into the present.” A stock-picking astrologist became a national celebrity. As the stock market’s 1929 convulsions accelerated, a Manhattan lunch for financial high-flyers was disrupted by the household staff’s boisterous response to their stock ticker in the kitchen.
The New York Times did not rank the crash the top story of 1929 (Richard Byrd’s flight to the South Pole was). But a lost decade followed. Sorkin and the hornets can debate the causation. Now, about today.
The Wall Street Journal says business AI investments might have accounted for half of GDP growth, adjusted for inflation, in 2025’s first six months. JPMorgan Chase says this year rising AI stock prices boosted consumer spending almost 1 percent. And when the bubble bursts? 1929 and its aftermath again? Adrian Wooldridge, author (with Alan Greenspan) of “Capitalism in America,” suggests the 19th century again.
In a Bloomberg column, he discerns similarities between America’s railroad and digital revolutions. Both had transformative impacts on the entire economy, enriching “a handful of titans.” Capital spending on AI currently accounts for about the same percentage of the economy as railroads did in the 1860s. In the 1880s, railroads accounted for about 60 percent of the stock market.
Then came the shakeout as some railroads went bust. “Building ahead of demand,” Wooldridge says, “all but guarantees booms and busts.” However:
“Building rail lines in the middle of nowhere requires a big upfront investment. But once you have built the railway, civilization floods in and the value of the wilderness rises exponentially.”
In just four years (1868 through 1871), 33,000 miles of track were built. Fortunes were made — and lost. But when the financial dust settled, the nation was laced together by steel rails, connecting communities summoned into existence by trains.
Today, Wooldridge notes, “digital companies are investing heavily well before revenue streams come online.” Would-be titans gush about AI “in the same mystical tones that the railway barons once talked about manifest destiny.” By shrinking time and space, the railway boom hugely benefited the public, especially future generations. Will today’s AI boom?
The Economist says, “If America’s stockmarket crashes, it will be one of the most predicted financial implosions in history.” Stocks are 21 percent of households’ net worth, and AI-related assets “are responsible for nearly half the increase in Americans’ wealth over the past year.” And “a fall in stocks comparable to the [early 2000s] dotcom bust would reduce Americans households’ net worth by 8 percent. That could cause a big retrenchment in consumer spending.”
This will be messy. But bet on a net benefit from today’s AI investment mania, which now accounts for 1.5 percent of GDP.
In 1969, one enormous, ubiquitous company — Sears — accounted for 1 percent of GDP. Seven years earlier, however, a 44-year-old Arkansas retailer borrowed audaciously and opened a store named for him, sort of. Sam Walton called it Wal-Mart Discount City. In 2018, Sears filed for bankruptcy.Then as now, a new day dawning meant the sunset for older ways.
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