As artificial-intelligence startups accumulate record piles of cash, corporate bankruptcies have reportedly reached levels not seen since the Great Recession. The US economy is pulling in two very different directions. This trend could end well, or very badly.
On one side, the emergent AI sector is leading the stock market to record highs and making the tech oligarchs and their investors very rich. Companies and sub-sectors attached to the industry, such as power utilities and chipmakers, are riding the wave and growing fast. The wealthiest Americans are enjoying their newfound riches and spending to support the overall economy. Boosted by such consumption, the US economy remains resilient, suggesting that 2026 will continue to see solid growth.
But on the other side, in the traditional industrial economy of manufacturing, construction, transportation and retail, things are bad and getting worse. Companies are going to the wall, layoffs are rising, wage growth is slowing, and inflation is eating into people’s earnings. This unpleasant combination has left working Americans feeling worse off and pessimistic about the future. With consumer confidence extending its year-long decline, the omens from this everyday economy suggest a recession is coming in the new year.
In short, while sections of the country feel the boom times have arrived, much of the economy is already in recession. Yet, although these two Americas look very different from one another, they are in fact closely linked. That’s because the AI economy is, in no small part, thriving by cannibalising the traditional economy.
Investment in the sector is soaring largely because it’s sucking capital from everyone else, with overall capital expenditure consequently flat for the rest of the economy. Inflation, though stubborn, is nonetheless being kept under control because lower-income Americans are tightening their belts, and the margins of tariff-hit manufacturers and importers are getting squeezed. Meanwhile, demand for credit is keeping interest rates from falling. While the tech giants are able to sell bonds at discount rates, smaller firms and cash-strapped consumers are struggling to make their payments.
The Trump administration’s policies have further exacerbated this chasm, as the White House goes all in on its tech bet. Tariffs have hit many traditional producers, while the exemptions on offer tend to benefit tech firms disproportionately. And, despite rising public anxiety about the impact of AI, the administration has pushed an aggressively deregulatory agenda, giving tech companies free rein to operate and take risks — even, possibly, with the lives of their users.
This divergence between America’s two economies is unlikely to last, though. Sooner or later, the twain shall meet, and whichever one prevails will determine the course of the US economy — and in no small measure the world economy. If there are big breakthroughs in AI and general-purpose innovations that can raise productivity begin to appear, then those bankruptcies will turn out to be the normal churn of an economy in the active throes of creative destruction. As these innovations fan throughout the economy, they will put it on a sustainable growth path.
If, however, AI fails to deliver on its promise and the boom turns to a bust, wealthier Americans who see their riches plunge will join their less fortunate compatriots in cutting costs. Equally, if public concern over AI leads to a rise of anti-oligarchic populism in the 2026 midterm elections, the benefits the administration has delivered to tech bosses may come to a sudden end. Everything comes down to whether the AI revolution is real or hype, and the answer to that will determine whether America sinks or soars.