Former US Treasury Secretary Rubin warns: AI boom may bring productivity dividends but hidden financial and social risks

The Zhitong Finance App learned that former US Treasury Secretary Robert Rubin warned that the artificial intelligence (AI) investment boom may bring huge productivity increases, but it may also cause financial and social risks that are not fully priced in the market.

Rubin served as US Treasury Secretary during the internet boom in the late 1990s. He said he is particularly concerned about “circularity risk” (circularity risk) in the AI ecosystem. This term refers to overlapping promises between suppliers, customers, and investors, such as mutual commitments between chip makers and software companies.

In an interview at the Greenwich Economic Forum on Tuesday, Rubin said, “Some large AI companies have made huge promises, and at the same time, there are also a large number of suppliers, and many suppliers use these promises as a basis for borrowing. What happens if these companies are unable to deliver on these promises, or if all loans based on those promises become unrepayable? This is called cyclical risk.”

Rubin said that there are real risks of disturbance — for example, a party's failure to deliver on promises, leading to chain defaults. In his opinion, this risk is not “close to zero.” The former Goldman Sachs co-chairman said that there is a real possibility that this will happen.

This year, companies that build data centers and develop AI software issued debt on a large scale, and the scale of financing was so large that many market participants believed that this was driving up global borrowing costs. Benchmark government bond yields climbed further this week, and US 10-year Treasury yields hit their highest level since 2002.

This in turn has boosted government debt repayment costs and heightened market concerns about the fiscal sustainability of the US, France, and other countries. When Rubin joined Bill Clinton's administration, markets were already generally worried about budget deficits. He said that at present, the market has begun to show anxiety about large-scale borrowing.

He said, “I think what is happening now is that the market is becoming aware of our financial situation, and this awareness is beginning to affect the market in a way that hasn't been seen in a long time.”

He also pointed to inflation and an overall decline in market confidence in the government's ability to resolve fiscal issues. “When you face an unfavorable or unstable fiscal situation, it may further affect the market's confidence in the government's ability to handle this issue,” he said. He added that this dynamic could also eventually have an impact on the stock market, as uncertainty tends to dampen investment and productivity growth.

Productivity concerns

Rubin refuted the view that AI-driven productivity growth can effectively get the US out of financial trouble through economic growth. The former finance minister said that while increased productivity may indeed drive GDP growth, such gains may be accompanied by significant job losses, particularly among white-collar workers.

He predicted, “This will have a very serious impact on knowledge-based workers.” He said that lawyers, accountants, and TV industry workers may all face the risk of being replaced, which will raise a difficult question: how should people transition into new jobs. He pointed out that the US currently lacks an effective plan to deal with such employment shocks.

He said, “Can AI bring higher economic growth? Yes — most likely indeed. But I don't think it will solve the financial problems we have to solve.”

He also questioned whether large-scale investments in AI would ultimately yield sufficient returns. He said, “Will these investments pay off in the end, or won't they? I don't know, but neither do others.” “Some of these investments will end up with very good results, some companies will perform well, and a large number of others will perform badly.”

AI security concerns

Rubin said his concerns were not limited to the market and economy, but also extended to the security risks that increasingly powerful AI systems might bring. He said he believes AI security and climate change are “two huge existential risks,” and their nature is different from any risk humans have faced before. Rubin also pointed out that the US faces a double challenge: on the one hand, it is trying to set up security protection measures for AI, and on the other hand, it must also pay attention to competition with China.

Rubin also said, “America is still the best place to invest.” However, he believes that maintaining this advantage depends on whether the US political system can become effective enough to meet financial, technical, and other long-term challenges.

Rubin said, “Our political system has to be effective enough again—and it's not doing that right now. It doesn't need to be great, but it has to be effective enough to handle the problems we face.”