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The idea that artificial intelligence will be free to use and virtually costless to provide is delusional and dumb, Steve Hanke says.

"This belief is based on a disconnect from reality, as well as a good dose of idiotic economic reasoning," the professor of applied economics at Johns Hopkins University told Business Insider by email.

"AI is incredibly costly; it is very resource intensive," Hanke continued. "It requires huge amounts of water, power, and physical capital" like graphics chips, he added.

Microsoft, Alphabet, Amazon, and Meta have projected roughly $700 billion in combined capital expenditures this year, and $1 trillion in 2027, as they race to build out the data centers needed to power the next generation of AI models.

Hanke, who served on President Reagan's Council of Economic Advisers, also addressed widespread concerns that AI will cause massive job destruction.

"Businesses will not be firing everybody and replacing them with AI," he said, because in many cases that will be a lot more expensive than employing humans.

The veteran economist took aim at AI visionaries, describing many of them as "charlatans and hucksters." He said they're "comparing apples and oranges" when they liken AI to software, as providing AI to customers costs money whereas software, once developed, can be sold countless times at virtually no additional cost.

Hanke predicted the "cost of scarce resources that are gobbled up by AI will decide how far the 'AI revolution' goes."

AI optimists have countered that technological advances will make microchips and data centers more power-efficient over time, bringing down the cost of AI.

Elon Musk has made waves for predicting that AI will supercharge productivity and drive down production costs, ushering in an era of abundance where "anyone can have whatever stuff they want."

The Tesla and SpaceX CEO has recommended people stop saving for retirement in 10 or 20 years as "money won't matter." Personal finance and AI experts previously told Business Insider they resoundingly disagreed with Musk's advice.

Musk has predicted AI will take over most jobs, and the "best way" for governments to deal with the resulting unemployment is to provide a "universal high income" by mailing checks to everyone.

Mounting concerns about AI

Hanke has been skeptical of AI for a while, describing it to Business Insider in February as "overhyped and potentially dangerous."

Last fall, Hanke said the AI boom could falter if Big Tech companies failed to hit their numbers, and said it "might be wise to buckle your seat belt."

Mark Cuban, the former "Shark Tank" investor, and Michael Burry of "The Big Short" fame warned this week about the massive scale of AI spending and Nvidia's key role in financing it, underlining Hanke's concern about how much the technology costs.

Cuban said it was "truly scary" how central Nvidia is to the AI boom, and cautioned it "all could crumble" if the chipmaker gets outcompeted or makes a mistake.

Burry said Nvidia was "overreaching" in its campaign to strike deals with customers to support its chip sales, and its efforts threatened to "push the circular spending to biblical proportions."

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Theron Mohamed

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Theron Mohamed is a London-based correspondent on the Trending team at Business Insider. His coverage spans finance, investing, wealth, markets, and the economy.Theron joined BI in 2019 as a reporter at Markets Insider and rose to the rank of correspondent before moving to the Trending team in 2024. He previously covered tech, media, and telecom stocks for Investors Chronicle magazine and had a brief stint on the Financial Times' Data team. He interned at the Wall Street Journal in New York where he primarily wrote for Heard on the Street.Theron has freelanced for The Independent, The Telegraph, WIRED, and several smaller publications. He holds an undergraduate degree in geography from the London School of Economics, and a master's degree in journalism from Columbia University.Theron often covers Warren Buffett, Michael Burry, Jeremy Grantham and other top-flight investors. He also writes about the world's wealthiest people and shares financial advice from all manner of rich and successful people.Email Theron at [email protected] and follow him on X @theron_mohamed.Expertise

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