If the AI bubble does burst, taxpayers could end up with the bill

You might not care very much about the prospect of the AI bubble bursting. Surely it's just something for the tech bros of Silicon Valley to worry about—or the wealthy investors who have spent billions of dollars funding development.

But as a sector, AI may have become too big to fail. And just as they did after the financial crisis of 2008, taxpayers could be picking up the tab if it collapses.

The financial crisis proved to be very expensive. In the UK, the public cost of bailing out the banks was officially put at £23 billion, roughly equivalent to £700 per taxpayer. In the US, taxpayers stumped up an estimated US$498 billion (£362 billion).

Today, the big AI firms are worth way more than banks, with a combined value exceeding 2 trillion GBP. Many of these companies are interconnected (or entangled) with each other through a complex web of deals and investments worth hundreds of billions of dollars.

And despite a recent study that reports that 95% of generative AI pilots at companies are failing, the public sector is not shy about getting involved. The UK government, for example, has said it is going "all in" on AI.

It sees potential benefits in incorporating AI into education, defense, and health. It wants to bring AI efficiency to courtrooms and passport applications.

So AI is being widely adopted in public services, with a level of integration that makes it a critical feature of people's day-to-day lives.

And this is where it gets risky.

Because the reason for bailing out the banks was that the entire financial system would collapse otherwise. And whether or not you agree with the bailout policy, it is hard to argue that banking is not a crucial part of modern society.

Similarly, the more AI is integrated and entangled into every aspect of our lives, the more essential it becomes to everyone, like a banking system. And the companies that provide the AI capabilities become organizations that our lives depend upon.

Imagine, for example, that your health care, your child's education, and your personal finances all rely on a fictional AI company called "Eh-Aye." That firm cannot be allowed to collapse, because too much depends on it, and taxpayers would probably find themselves on the hook if it got into financial difficulties.