Former US Treasury Secretary Rubin Warns: AI Boom May Bring Productivity Dividends But Also Poses Financial and Social Risks

According to Zhitong Finance APP, former U.S. Treasury Secretary Robert Rubin has warned that the artificial intelligence (AI) investment boom could bring massive productivity gains, but may also generate financial and social risks that the market has not fully priced in.

Rubin, who served as U.S. Treasury Secretary during the late-1990s internet boom, said he is particularly concerned about “circularity risk” in the AI ecosystem. This term refers to overlapping commitments among vendors, customers, and investors—for example, mutual commitments between chip manufacturers and software companies.

In an interview at the Greenwich Economic Forum on Tuesday, Rubin said: “Some of the large AI companies have made enormous commitments, and at the same time, there are numerous suppliers, many of whom take those commitments as the basis for borrowing. If these companies fail to fulfill those commitments, or if all the borrowing based on those commitments cannot be repaid, what happens? That is called circularity risk.”

Rubin noted that some disruptive risks are very real—for example, one party failing to fulfill obligations, triggering a domino effect of defaults. He believes this risk is not “close to zero.” The former Goldman Sachs co-chairman said such a scenario is genuinely possible.

This year, companies building data centers and developing AI software have issued debt on a massive scale, to the point where many market participants believe this has contributed to the rise in global borrowing costs. This week, benchmark government bond yields climbed further, with the U.S. 10-year Treasury yield reaching its highest level since 2002.

This, in turn, has driven up government debt servicing costs, intensifying market concerns over the fiscal sustainability of the United States, France, and other countries. When Rubin joined the Bill Clinton administration, markets were already widespreadly concerned about budget deficits. He noted that markets are now beginning to show anxiety over large-scale borrowing.

He stated, “I think what’s happening now is that the market is starting to become aware of our fiscal situation, and this awareness is starting to affect the market in a way that hasn’t happened in a long time.”

He also highlighted inflation and a general decline in market confidence in the government's ability to address fiscal issues. He said, “When you are in an adverse or unstable fiscal situation, it can further affect the market’s confidence in the government’s ability to handle the issue.” He added that this dynamic could ultimately impact the stock market, as uncertainty often suppresses investments and productivity growth.

Productivity Doubts

Rubin rebutted the argument that AI-driven productivity growth would allow the United States to effectively escape its fiscal predicament through economic expansion. The former Treasury Secretary said that while accelerated productivity could indeed drive GDP growth, such gains might be accompanied by significant job losses, especially among white-collar workers.

He predicted, “This will have a very serious impact on knowledge workers.” He noted that lawyers, accountants, and television industry professionals could all face being replaced, which raises a thorny question: how should people transition to new jobs? He pointed out that the U.S. currently lacks effective solutions to cope with this kind of employment shock.

He said, “Can AI deliver higher economic growth? Yes—it probably can. But I don’t think it’s going to solve the fiscal problems we need to deal with.”

He also questioned whether the large-scale investments in AI would ultimately generate sufficient returns. “Will these investments ultimately pay off or not? I don’t know, and neither does anyone else. Some of these investments will end up very successful; some companies will do extremely well, while a large number of others will do poorly.”

AI Safety Concerns

Rubin said his concerns go beyond markets and the economy, extending to security risks posed by increasingly powerful AI systems. He argued that AI safety and climate change are “two enormous existential risks” unlike anything humanity has faced before. He also noted that the U.S. faces a dual challenge: setting AI safety safeguards on one hand, while also remaining attentive to competition with China.

Rubin also stated, “The United States remains the best place to invest.” But he believes maintaining this edge depends on whether the American political system can become effective enough to tackle fiscal, technological, and other long-term challenges.

Rubin said: “Our political system must become effective again—and right now it isn’t. It doesn’t need to become truly outstanding, but it must be effective enough to handle the problems we’re facing.”