Edward Conard

Top Ten New York Times Bestselling Author

  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “Unintended Consequences represents the most cogent and persuasive analysis of the Financial Crisis to date.” - Andrei Shleifer, 1999 John Bates Clark Medal Winner
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences is far smarter and more thought-provoking than most economics written for the general public” - Greg Mankiw, Harvard University, Former Chairman of the Council of Economic Advisors
  • “Unintended Consequences is full of substance, it is one of the must-read books of the year, and once I finish it I will be giving it a second read through right away.” - Tyler Cowen, Professor, George Mason University
  • “There are an amazing number of good ideas and interesting points made in Unintended Consequences. The thinking underlying it, and the obvious depth of understanding of the author, are very impressive.” - Steven Levitt, coauthor of Freakonomics; 2004 John Bates Clark Medal
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
Upside of Inequality Oxford Unintended Consequences

AI Summary. The author argues that companies are collectively over-investing in artificial intelligence and that markets will correct when that belief dissipates. Because debt, particularly private credit, now finances much of this investment, the author contends a correction would spread beyond equity holders and produce a banking-style crisis driven by non-bank lenders.

Aswath Damodaran Musings on Markets
Date Posted:

Damodaran argues that the private credit industry’s increasing financing of the AI buildout is another sign that “a shakeout is overdue, which will separate the sloppy lenders from the good ones, and perhaps shrink private credit to healthier levels.”

Does debt financing of AI investment spread losses beyond shareholders?

Core argument: Damodaran contends that companies are collectively over-investing in AI, driven by what he calls the big market delusion, and that markets will have to correct when that delusion dissipates.

The coming together of [two storylines] on AI and private credit comes with a risk that may extend well beyond the players in these spaces. If you agree with my contention that companies are collectively over- investing in AI, driven by the big market delusion, there will be a time when that delusion dissipates and markets will have to correct. In an all or mostly-equity driven space, the pain will be borne by shareholders or owners of these companies, but while painful to them, its ripple effects will be limited. When debt enters the picture, as it has in the AI investment space, the effects of a correction will no longer be isolated to equity investors in these companies, and as private credit gets repriced (from the marking of debt down to reflect higher default risk), the pain to the rest of the economy increases. In effect, we will have a banking crisis created primarily by non-banking lenders behaving badly.

Takeaways by Macro Roundup® AI

  1. Damodaran contends that companies are collectively over-investing in AI, driven by what he calls the big market delusion, and that markets will have to correct when that delusion dissipates.
  2. In an all-equity or mostly-equity financed space, Damodaran argues the pain of an AI correction would fall on shareholders and owners, with limited ripple effects beyond them.
  3. Because debt has entered AI investment, Damodaran argues a correction that marks private credit down to reflect higher default risk would spread pain to the rest of the economy, producing a banking crisis created primarily by non-bank lenders.

Related Articles:

  • Alphabet Sells Almost $32 Billion Bonds as Tech Races to Fund AI — Alphabet raised almost $32bn of debt across dollar, sterling, and Swiss franc offerings, including an ultra-rare 100-year sterling note, reflecting the funding needs of tech firms building artificial intelligence capacity. Demand was strong, with US tranches drawing more than $100bn of orders and the century bond nearly 10x oversubscribed.
  • 2026 Credit Outlook: From Scarcity to Selection—The Return of a Buyer’s Market — Capital spending by Amazon, Meta, Oracle, Alphabet and Microsoft has tripled since 2023, and sell-side forecasts project more than $2.7tn of cumulative outlays through 2029, mostly tied to AI infrastructure. These programs, initially funded largely from internal cash flow, are shifting toward debt, with the companies pricing roughly $90bn of bond deals.
  • AI Capex – Financing The Investment Cycle — Global data center, AI infrastructure and related power buildout could cost over $5tn, requiring funding from every public capital market plus private credit, alternative capital providers and possibly governments. The largest cloud providers generate over $700bn of annual operating cash flow and reinvest roughly $500bn in capital spending, with about $300bn a year estimated to fund AI and data centers.
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