The conclusion that soaring asset prices mean the economy is strong and so all is well is a hallucination that goes unrecognized because the entire financial system is hallucinating because it’s “training” on artificial data that it generated in a self-referential feedback loop of artificial stimulus and the resulting rise in asset valuations and spending. That none of this stimulus boosted utility value or productivity is left out of the “training,” which focuses solely on curated data that supports the hallucination.
Here is how the author of the Unified Theory of Model Collapse describes this process:
“Training on AI-generated data causes models to hallucinate, become delusional, and deviate from reality to the point where they’re no longer useful: i.e., Model Collapse.
The more ‘poisoned’ the data is with artificial content, the more quickly an AI model collapses as minority data is forgotten or lost. The majority of data becomes corrupted, and long-tail statistical data distributions are either ignored or replaced with nonsense.
Those models lose the capacity to understand long-tail information (improbable, but important data) that is no longer represented. Information on topics like serious injuries, getting punched in the nose, how dangerous wild animals can be, and what it’s like to truly be hungry because you can’t find food. Their models default to synthetic human artifice instead of understanding real implications.
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The conclusion here is striking: the entirety of the modern world of Progress–urbanized, detached from the “raw” real world in service of convenience and abundance, a world where we “train” our mental models on “cooked,” curated, processed artifices–is all a vast, inter-connected, self-reinforcing hallucination bound for a collision with an inconveniently “raw” real world.
The Bubble Economy will be the first point of contact.