Why the Economy Hasn't Crashed yet [video](youtube.com)

    AI Investment Boom
    Significant capital is being funneled into AI-related infrastructure such as data centers, semiconductors, and software development. This sector contributed a substantial portion of GDP growth and private demand in 2025, providing a strong economic floor.

    Fiscal Policy Tailwinds
    Tax cuts, especially favoring wealthy households, alongside deficit spending, maintain high demand. The top 10% of earners drive approximately half of consumer spending, supported by elevated asset prices and strong stock market valuations.

    Political Backstop Hypothesis (Weaker Claim)
    Markets and investors believe Donald Trump will take extraordinary measures—sometimes beyond traditional presidential authority—to avoid an economic downturn. This belief acts as a “backoff button” for the market, reducing perceived risks because the administration prioritizes keeping the economy stable to maintain political power.

    Large corporations may engage in demonstrations of loyalty to the Trump administration (e.g., hefty donations, high-visibility support events) to secure favorable regulatory treatment and reduced enforcement risk.
    This creates a system where political allegiance supersedes competition and innovation as the primary business strategy.
    The economy risks drifting toward an oligarchy, where power consolidates around a few dominant firms rewarded for loyalty rather than performance or consumer service.
    Such a system, while stabilizing markets short-term, undermines long-term economic dynamism, innovation, and resilience, turning the market into a rent-seeking, extractive environment rather than a competitive, productive one.

    Wealth Effect and Stock Market Influence
    Rising asset prices and housing wealth underpin consumer spending, especially among the wealthy. The top 10% wealthiest Americans sustain a significant portion of economic activity.

    AI Sector’s Dominance
    AI-related industries dominate GDP growth and stock market earnings but create fewer jobs relative to the investment scale. This sector benefits disproportionately from favorable policies and serves as a key pillar of current economic strength.

    Credit Accessibility
    Consumer credit products, including installment plans and credit cards, help maintain spending despite lower confidence and wage stagnation for many.

    Market Vulnerabilities
    The economy exhibits a K-shaped recovery, with lower-income groups struggling while wealthier consumers are insulated by asset holdings. A significant stock market correction could trigger a large contraction due to the wealth effect.

    Political and Financial Dynamics
    Some large firms strategically align with the Trump administration to reduce risk exposure, while smaller companies and ordinary workers face uncertainty and hardship.