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AIs like ChatGPT rapidly got better in their early days, but what we’ve seen in the past 14-and-a-half months are only incremental gains, says Marcus. “The truth is, the core capabilities of these systems have either reached a plateau, or at least have slowed down in their improvement,” he adds.

the gaps between the performance of various AI models are closing. All of the best proprietary AI models are converging on about the same scores on tests of their abilities, and even free, open-source models, like those from Meta and Mistral, are catching up.

models work by digesting huge volumes of text, and it’s undeniable that up to now, simply adding more has led to better capabilities. But a major barrier to continuing down this path is that companies have already trained their AIs on more or less the entire internet, and are running out of additional data to hoover up. There aren’t 10 more internets’ worth of human-generated content for today’s AIs to inhale.

A mature technology is one where everyone knows how to build it. Absent profound breakthroughs—which become exceedingly rare—no one has an edge in performance

companies look for efficiencies, and whoever is winning shifts from who is in the lead to who can cut costs to the bone. The last major technology this happened with was electric vehicles, and now it appears to be happening to AI.

the future for AI startups—like OpenAI and Anthropic—could be dim.

Microsoft and Google will be able to entice enough users to make their AI investments worthwhile, doing so will require spending vast amounts of money over a long period of time, leaving even the best-funded AI startups—with their comparatively paltry warchests—unable to compete.

Many other AI startups, even well-funded ones, are apparently in talks to sell themselves.

the bottom line is that for a popular service that relies on generative AI, the costs of running it far exceed the already eye-watering cost of training it.

That difference is alarming, but what really matters to the long-term health of the industry is how much it costs to run AIs. 

Changing people’s mindsets and habits will be among the biggest barriers to swift adoption of AI. That is a remarkably consistent pattern across the rollout of all new technologies.

the industry spent $50 billion on chips from Nvidia to train AI in 2023, but brought in only $3 billion in revenue.

For an almost entirely ad-supported company like Google, which is now offering AI-generated summaries across billions of search results, analysts believe delivering AI answers on those searches will eat into the company’s margins

Google, Microsoft and others said their revenue from cloud services went up, which they attributed in part to those services powering other company’s AIs. But sustaining that revenue depends on other companies and startups getting enough value out of AI to justify continuing to fork over billions of dollars to train and run those systems

three in four white-collar workers now use AI at work. Another survey, from corporate expense-management and tracking company Ramp, shows about a third of companies pay for at least one AI tool, up from 21% a year ago.

OpenAI doesn’t disclose its annual revenue, but the Financial Times reported in December that it was at least $2 billion, and that the company thought it could double that amount by 2025. 

That is still a far cry from the revenue needed to justify OpenAI’s now nearly $90 billion valuation

the company excels at generating interest and attention, but it’s unclear how many of those users will stick around. 

AI isn’t nearly the productivity booster it has been touted as

While these systems can help some people do their jobs, they can’t actually replace them. This means they are unlikely to help companies save on payroll. He compares it to the way that self-driving trucks have been slow to arrive, in part because it turns out that driving a truck is just one part of a truck driver’s job.

Add in the myriad challenges of using AI at work. For example, AIs still make up fake information,

getting the most out of open-ended chatbots isn’t intuitive, and workers will need significant training and time to adjust.

That’s because AI has to think anew every single time something is asked of it, and the resources that AI uses when it generates an answer are far larger than what it takes to, say, return a conventional search result

None of this is to say that today’s AI won’t, in the long run, transform all sorts of jobs and industries. The problem is that the current level of investment—in startups and by big companies—seems to be predicated on the idea that AI is going to get so much better, so fast, and be adopted so quickly that its impact on our lives and the economy is hard to comprehend. 

Mounting evidence suggests that won’t be the case.

In Greece, an unlikely economic star since the pandemic, as many as 44% of all jobs are connected to tourism. 

Can Europe’s emerging “museum economy” support sustained wealth creation and the expansive welfare systems Europeans have become accustomed to since the end of World War II? And what happens if the dollar falls and the tourists leave?

Rent and other living expenses are rising in hot spots, making it harder for many locals to make ends meet. A heightened focus on tourism, which turns a quick profit but remains a low-productivity activity, tethers these economies to a highly cyclical industry

It also risks keeping workers and capital from more profitable areas, like tech and high-end manufacturing. 

some economists, residents and politicians are concerned about the boom’s long-term implications.

“It is literally, for Americans right now, the place to go,”

The strong dollar—and a powerful post-Covid recovery—has empowered millions of Americans who would have vacationed in the U.S. before the pandemic. They are now finding they can afford a lavish European holiday.

One reason is the brutal sovereign debt crisis that hit the continent’s south especially hard just over a decade ago. Unable to stimulate demand with public spending or to energize exports by devaluing their currency—the euro, which is shared by 20 states—those countries could only boost their competitiveness by lowering wages.

“Your dollar goes a lot further,” Cross said over coffee in the lobby of her five-star hotel. “You don’t feel you’re scrounging as much.”

Tourism now generates one-fifth of economic output in Lisbon and supports one in four jobs. That boom has reverberated far beyond the capital.

Portugal’s gross domestic product grew nearly 8% between 2019 and 2024, compared with less than 1% for Germany,

The government recorded a rare 1.2% of GDP budget surplus last year, and its debt-to-GDP ratio is expected to fall to 95% this year, the lowest since 2009

Portugal’s population is growing again after years of decline, thanks in part to an influx of migrant workers and to various tax incentives and investor visas that have attracted high-income workers. 

Moedas, Lisbon’s mayor, says there’s room for further growth. For a city that doubles in size to around one million every day, including commuters, only around 35,000 are tourists, he said. “We are very far from a situation of so-called overtourism.”

The trend is part of a global readjustment following the Covid-19 lockdowns. Spending on travel and hospitality worldwide grew roughly seven times faster than the global economy over the past two years, according to Oxford Economics. That pattern is expected to continue for the next decade, though to a lesser degree.

Europe, especially southern Europe, has benefited more than many other regions. Though it is home to just 5% of the world’s population, the European Union received around one-third of all international tourist dollars—more than half a trillion dollars—last year. This is up roughly threefold over two decades, and compares with about $150 billion for the U.S., where tourism has been slower to rebound.

In Portugal, a country of 10 million that juts out into the North Atlantic from Spain, Americans recently surpassed Spaniards as the biggest group of foreign tourists. 

This and a real estate collapse that left hundreds of thousands of workers suddenly available made the region’s tourist industry ultracompetitive, much cheaper than Caribbean beach destinations and on a par with Latin American destinations like Mexico. 

Once an owner of TAP, Neeleman increased the number of direct flights to the U.S. eightfold between 2015 and 2020, adding major hubs such as JFK and Boston Logan, betting that would open up an untapped market. As bookings soared, other U.S. airlines followed. 

“It was actually comical, because I went from knowing no one who had been to Portugal to everyone telling me they were going to Portugal,”

For Gonçalo Hall, a 36-year-old tech worker, the influx of foreign cash that has transformed Lisbon has been overwhelmingly beneficial for the city. When he lived in the capital 15 years ago, he wouldn’t walk in the historic downtown after 8 p.m. It was “full of homeless people, not safe. Lots of empty and abandoned buildings,” he said. 

“The quality of life in Lisbon doesn’t match the prices. Even expats are leaving,” said Hall, who moved to the Atlantic island of Madeira during the pandemic and continues to work remotely.  

The average Portuguese employee earns around €1,000 a month after tax, or around $1,100 a month, and only 2% earn more than €2,000. A one-bedroom apartment in Lisbon can easily cost more than €500,000 to buy, or over €1,200 a month to rent. Rents in nearby cities are also climbing as people leave the capital, squeezed out as lucrative short-term rentals transform the housing market. 

Jessica Ribeiro, a 35-year-old sociologist, pays around €490 a month for an apartment that she shares with her ex-husband in a town close to Lisbon. Neither can afford to leave. Both make a little more than the minimum wage of €820 a month, and soaring rents mean it is impossible to find an apartment in the neighborhood for less than €700, Ribeiro said. 

“The harm that tourism has brought is infinitely bigger than the benefits,” Ribeiro said. “It sends people away from their place of work, making their lives much harder.” 

A frequent complaint from residents and housing advocates is that some of the boom’s biggest winners are American companies, from Airbnb to Uber, which often pay little tax in the places where they do most of their business.

Lisbon is cracking down on Airbnbs and increasing taxes on tourists, doubling the nightly city tax from €2 to €4, which should raise €80 million a year. Airbnb has paid Lisbon and Porto, Portugal’s two biggest cities, more than €63 million after entering into voluntary tax collection agreements with local officials. Moedas said he is considering “a bit more regulation” of the city’s many Ubers, whose drivers he said don’t always respect traffic rules. 

Around nine in 10 Airbnb hosts in Portugal rent their family home and almost half say the extra income helps them afford to stay in their homes, according to a spokesperson for the company. “Guests using our platform account for just 10% of total nights booked in Portugal, and we follow the rules and only allow listings that are registered with local authorities,”

Higher rents are forcing many businesses and cultural and social spaces catering to locals to close, according to Silva. “This is not an economy that is serving the needs of the majority of people,” she said.

Signs of discontent are bubbling up across the region. Tens of thousands of local residents marched in Spain’s Balearic and Canary islands in recent months to protest mass tourism and overcrowding. On Mallorca, activists have put up fake signs at some popular beaches warning in English of the risk of falling rocks or dangerous jellyfish to deter tourists, according to social-media posts.

Serving foreigners is difficult to scale up and is more exposed to economic headwinds. Like the discovery of oil, southern Europe’s new focus on tourism can crowd out higher-value activities by hogging capital and workers, a phenomenon some economists have dubbed the “beach disease.”

“Portugal isn’t an industrialized country. It’s just the playground of the EU,” said Priscila Valadão, a 43-year-old administrative assistant in Lisbon. She makes €905 a month and rents a room from a friend for €250 a month. “The type of jobs being offered…are restricted to a type of activity that really doesn’t enrich the country,”

For Europe’s policymakers, having people open hotels or restaurants is easier than incentivizing them to build up advanced manufacturing, which is capital intensive and takes a long time to pay off, said Marcos Carias, an economist with French insurer Coface. 

“Tourism is the easy way out,” Carias said. “What is the incentive to look for ingenuity and go through the pain of creating new economic value if tourism works as a short-term solution?”

Proponents say tourism attracts capital to poor regions, and can serve as a base to build a more diversified economy. Lisbon’s Moedas said he is trying to leverage the influx of foreign visitors to build up sectors such as culture and technology, including by developing conferences and cultural events. 

“Some extreme left parties basically say we need to reduce tourism,” Moedas said, but that is the wrong approach. “What we have to do is to increase other sectors like innovation, technology…. We should still invest in tourism, but we should go up the ladder.”

While Dias, the hotel owner, is diversifying into nightlife, he refuses to envisage a future where the sector would have to rely heavily on visitors from elsewhere.

More than one-third of highly qualified Portuguese students leave the country after graduating,

Even higher-paid technology workers have started decamping to cheaper places. 

Tiago Araújo, chief executive of tourism tech startup HiJiffy, has held on to his employees but says many of them have been moving out of Lisbon. The trend, which started during Covid, is now being primarily driven by the housing crisis.

In Athens, Mayor Haris Doukas says he is working on extending the tourist season, increasing the average length of stay and promoting specific types of tourism, such as organizing conferences and business meetings, to attract visitors with higher purchasing power. He’s also called for new taxes to help the city accommodate the millions of additional tourists thronging to the ancient capital.

If Americans stop coming to Lisbon, he said, “I don’t think we can charge this kind of [price] because we will have to go to Europeans, and the Europeans, they don’t have money.”

In fact, the news from Wall Street lately has mostly been about retreat from climate goals, rather than recommitment. Banks and asset managers are withdrawing from international climate alliances and chafing at their rules. Regional banks are stepping up lending to fossil fuel producers. Sustainable investment funds have sustained crippling outflows, and many have collapsed.

In some cases, it’s a classic prisoner’s dilemma: If firms collectively shift to cleaner energy, a cooler climate benefits everyone more in the future

in the short term, each firm has an individual incentive to cash in on fossil fuels, making the transition much harder to achieve.

when it comes to avoiding climate damage to their own operations, the financial industry is genuinely struggling to comprehend what a warming future will mean.

A global compact of financial institutions made commitments worth $130 trillion to try to bring down emissions, confident that governments would create a regulatory and financial infrastructure to make those investments profitable. And in 2022, the Inflation Reduction Act passed.

What about the risk that climate change poses to the financial industry’s own investments, through more powerful hurricanes, heat waves that knock out power grids, wildfires that wipe out towns?

“If we think about what is going to be the best way to tilt your portfolios in the direction to benefit, it’s really difficult to do,”

“These will probably be great investments over 20 years, but when we’re judged over one to three years, it’s a little more challenging for us.”

Some firms cater to institutional clients, like public employee pension funds, that want combating climate change to be part of their investment strategy and are willing to take a short-term hit. But they aren’t a majority

And over the past couple of years, many banks and asset managers have shrunk from anything with a climate label for fear of losing business from states that frown on such concerns.

On top of that, the war in Ukraine scrambled the financial case for backing a rapid energy transition. Artificial intelligence and the movement toward greater electrification are adding demand for power, and renewables haven’t kept up

All of that is about the relative appeal of investments that would slow climate change

If you bought some of the largest solar-energy exchange-traded funds in early 2023, you would have lost about 20 percent of your money, while the rest of the stock market soared.

There is evidence that banks and investors price in some physical risk, but also that much of it still lurks, unheeded.

“I’m very, very worried about this, because insurance markets are this opaque weak link,” Dr. Sastry said. “There are parallels to some of the complex linkages that happened in 2008, where there is a weak and unregulated market that spills over to the banking system.”

Regulators worry that failing to understand those ripple effects could not just put a single bank in trouble but even become a contagion that would undermine the financial system.

But while the European Central Bank has made climate risk a consideration in its policy and oversight, the Federal Reserve has resisted taking a more active role, despite indications that extreme weather is feeding inflation and that high interest rates are slowing the transition to clean energy.

“The argument has been, ‘Unless we can convincingly show it’s part of our mandate, Congress should deal with it, it’s none of our business,’”

a much nearer-term uncertainty looms: the outcome of the U.S. election, which could determine whether further action is taken to address climate concerns or existing efforts are rolled back. An aggressive climate strategy might not fare as well during a second Trump administration, so it may seem wise to wait and see how it shakes out.

big companies are hesitating on climate-sensitive investments as November approaches, but says that “two things are misguided and quite dangerous about that hypothesis.”

One: States like California are establishing stricter rules for carbon-related financial disclosures and may step it up further if Republicans win

And two: Europe is phasing in a “carbon border adjustment mechanism,” which will punish polluting companies that want to do business there.

at the moment, even European financial institutions feel pressure from the United States, which — while providing some of the most generous subsidies so far for renewable-energy investment — has not imposed a price on carbon.

The global insurance company Allianz has set out a plan to align its investments in a way that would prevent warming above 1.5 degrees Celsius by the end of the century, if everyone else did the same. But it’s difficult to steer a portfolio to climate-friendly assets while other funds take on polluting companies and reap short-term profits for impatient clients.

“This is the main challenge for an asset manager, to really bring the customer along,” said Markus Zimmer, an Allianz economist. Asset managers don’t have sufficient tools on their own to move money out of polluting investments and into clean ones, if they want to stay in business,

“Of course it helps if the financial industry is somehow ambitious, but you cannot really substitute the lack of actions by policymakers,”

According to new research, the benefit is greater when decarbonization occurs faster, because the risks of extreme damage mount as time goes on. But without a uniform set of rules, someone is bound to scoop up the immediate profits, disadvantaging those that don’t — and the longer-term outcome is adverse for all.

Before the pandemic, a number of variables were statistically significant indicators for consumer sentiment in our model; in particular, the most salient variables appear to be vehicle sales, gas prices, median household income, the federal funds effective rate, personal savings and household expenditures (excluding food and energy).

During the pandemic, the personal savings rate soared. In April 2020, the metric was nearly double its previous high, recorded in May 1975.

All this taken together meant Americans were flush with cash but had nowhere to spend it. So despite the fact that the savings rate went way up, consumers still weren't feeling positively about the economy — contrary to the relationship between these two variables we saw in the decades before the pandemic.

Fast forward to 2024, and the personal savings rate has dropped to one of its lowest levels ever (the only time the savings rate was lower was in the years surrounding the Great Recession)

during and after the pandemic, Americans saw some of the highest rates of inflation the country has had in decades, and in a very short period of time. These sudden spikes naturally shocked many people who had been blissfully enjoying slow, steady price growth their entire adult lives. And it has taken a while for that shock to wear off, even as inflation has cre

the numbers align with our intuitive sense of how consumers process suddenly having their grocery store bill jump, as well as the findings from our model. In simple terms: Even if inflation is getting better, Americans aren't done being ticked off that it was bad to begin with.

surprisingly, our pre-pandemic model didn't find a notable relationship between housing prices and consumer sentiment

However, in our post-pandemic data, when we examined how correlated consumer sentiment was with each indicator we considered, consumer sentiment and median housing prices had the strongest correlation of all****** (a negative one, meaning higher prices were associated with lower consumer sentiment)

during the pandemic, low interest rates, high savings rates and changes in working patterns — namely, many workers' newfound ability to work from home — helped overheat the homebuying market, and buyers ran headlong into an enduring supply shortage. There simply weren't enough houses to buy, which drove up the costs of the ones that were for sale.

That's true even if a family has been able to save enough for a down payment, already a difficult task when rents remain high as well. Fewer people are able to cover their current housing costs while saving enough to make a down payment.

Low-income households are still the most likely to be burdened with high rents, but they're not the only ones affected anymore. High rents have also begun to affect those at middle-income levels as well.

In short, there was already a housing affordability crisis before the pandemic. Now it's worse, locking a wider array of people, at higher and higher income levels, out of the home-buying market

People who are renting but want to buy are stuck. People who live in starter homes and want to move to bigger homes are stuck. The conditions have frustrated a fundamental element of the American dream

In our pre-pandemic model, total vehicle sales had a strong positive relationship with consumer sentiment: If people were buying cars, you could pretty reasonably bet that they felt good about the economy. This feels intuitive — who buys a car if they think the economy

Cox Automotive also tracks vehicle affordability by calculating the estimated number of weeks' worth of median income needed to purchase the average new vehicle, and while that number has improved over the last two years, it remains high compared to pre-pandemic levels. In April, the most recent month with data, it took 37.7 weeks of median income to purchase a car, compared with fewer than 35 weeks at the end of 2019.

"Right before the pandemic, the typical average transaction price was around $38,000 for a new car. By 2023, it was $48,000," Schirmer said. This could all be contributing to the break in the relationship between car sales and sentiment, he noted. Basically, people might be buying cars, but they aren't necessarily happy about it.

Inspired by our model of economic indicators and sentiment from 1987 to 2019, we tried to train a similar linear regression model on the same data from 2021 to 2024 to more directly compare how things changed after the pandemic. While we were able to get a pretty good fit for this post-pandemic model,******* something interesting happened: Not a single variable showed up as a statistically significant predictor of consumer sentiment.

This suggests there's something much more complicated going on behind the scenes: Interactions between these variables are probably driving the prediction, and there's too much noise in this small post-pandemic data set for the model to disentangle i

Changes in the kinds of purchases we've discussed — homes, cars and everyday items like groceries — have fundamentally shifted the way Americans view how affordable their lives are and how they measure their quality of life.

Even though some indicators may be improving, Americans are simply weighing the factors differently than they used to, and that gives folks more than enough reason to have the economic blues.