Economist Steve Hanke Warns AI's High Costs Will Limit Job Displacement

Steve Hanke, a veteran economist who once served on President Reagan's Council of Economic Advisers, told one outlet that the notion of AI being free and endlessly scalable is unrealistic and stems from flawed economic reasoning. He emphasized that AI models consume vast quantities of water, power and high-end graphics chips, prompting tech giants such as Microsoft, Alphabet, Amazon and Meta to plan roughly $700 billion in capital expenditures this year and a projected $1 trillion by 2027.

Hanke warned that businesses will not wholesale replace staff with AI when the cost of building and running data centers exceeds the price of human labor. He criticized many AI advocates as “charlatans and hucksters,” noting that unlike traditional software, AI services incur ongoing resource costs. While optimists cite future efficiency gains, Hanke and other skeptics like Mark Cuban and Michael Burry highlight the central role of Nvidia and the risk that the AI boom could falter if spending spirals out of control.