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Authored by SPENGLER via The Asia Times,

We’ve been there before, in the crash of the dot-com bubble of 2000, when we believed that downloading pop music and porn would drive the economy of the future.

We’ve done it again: We made another tech bubble on the premise that Americans would write the apps and Asians would make the hardware, and the miracle of connectivity would bring the world together in Mark Zuckerberg’s utopian vision. Internet community and Artificial Intelligence were the two blasts of hot air that inflated the bubble. Social media as a substitute for actual human interaction and computation as a substitute for human thought were going to waft us into the future.

This week’s double crash of these delusions was the sort of irony that makes one intimate the hand of God in human history.

The crown jewel of Artificial Intelligence shattered when Uber’s autonomous SUV ran over Ms. Elaine Herzberg at the corner of Curry and Mill Street in Tempe, Arizona. And the concept of Internet community vaporized when news reports alleged that Cambridge Analytica improperly retained Facebook profiles of 50 million users. Facebook promptly lost 7% of its stock market value in yesterday’s trading, and other big tech names fell by 3% to 4%.

All the hype in the world can’t stand up to the ugly fact of a dead human body on the road. A few skeptics, including the distinguished physicist and venture capitalist Dr. Henry Kressel, have warned that AI in general and self-driving cars, in particular, are mainly hype. As Kressel wrote last year in Asia Times:

In a well-controlled environment (like driving on a track), the computer can be expected to respond to situations consistent with programmed information. The problematic situations are the accidental ones when something happens on the track that requires a quick response different from the programmed actions. This is where the awareness and quick response of a human driver come into play and where the response of a computer making the decisions is quite another matter. And this is the skill that differentiates race-car drivers from the rest of us – and computers from all of us.

A glance at the intersection where Uber’s vehicle killed Ms. Herzberg tells the whole story. It is one of those massive, amorphous, ill-designed and opaque suburban crossings that human drivers traverse in fear of their lives. One makes eye contact with other drivers and pedestrians, taps the breaks, and proceeds with extreme caution. To ask a computer to navigate through this sort of mess is foolish. We do not know the precise circumstances of Ms. Herzberg’s death; we only are surprised that it did not happen before. If that seems complex, try fighting the yellow cabs in Manhattan with a self-driving car.

Self-driving vehicle tests are now suspended, which will collapse valuations across a range of Silicon Valley enterprises. But that is minor compared to the blow to the public’s perception of the future of AI technology.

The Information, a consulting organization that showcases industry specialists, recently held a conference call on self-driving where one expert warned: “You have to remember that self-driving does not work, at least in… a highly functional, driverless robotaxi sense. It does not work. And there are many folks clamoring for architectures to get there. Again, think back to flight. Do you ever watch those YouTube videos where the guy pumping the umbrella and the dude with a big corkscrew and the person with the bird wings? I would think of it more that way. It is left to be seen which one of those architectures gets you to a useful outcome.”

America simply doesn’t have the infrastructure to support autonomous vehicles, the expert added. China is another matter, he added:

If you’ve been to China… over the last couple of years and watched it grow, they are literally building new cities all of the time and then they move populations into them. And these cities frequently have infrastructure that is unheard of in the US. Just as an example, fences that keep people off the roads. Someone who jumped the fence and runs out into the road and gets hit by a car – that’s the pedestrian’s fault. Simple things like that make the self-driving problem several orders of magnitude easier [emphasis added]. So even without looking at their “technology pool,” just their ability to do simple things like that I think really makes China a very, very attractive target for developing autonomy. I think it would be foolish to count them out in any way, shape or form. The China market may end up being something that is very big and profitable for the companies that are there.

The last tech bubble was based on entertainment, as I wrote in my maiden column for this website’s predecessor, Asia Times Online, in January 2000:

What if [the Internet stock boom] isn’t a bubble? What if consumers want to double or quadruple their spending on whatever it is the Internet has to offer every year for the next 20 years? What if they will pay a premium to watch their favorite episode of Pee-Wee Herman or the Lone Ranger rather than the latest sit-com? What if they will spend heavily to explore the cutting edge of anatomical possibility on the porn sites?

Americans woke up one day in early 2000 and realized that salacious entertainment could not support equity market valuations indefinitely. Now Americans have discovered that cars won’t drive themselves like magic and that the Facebook fishbowl is not a substitute for ordinary human interaction, but rather a vast commercial experiment in profiling their behavior.

Only a handful of Facebook users will delete their accounts and cancel their broadband connections, to be sure, but the bloom is off the lily: The Internet giant no longer can sell the concept of community, and it is not clear what it will sell except the sort of connectivity that is provided by any number of competitors.

The idea that Americans would be the designers and Asians would be the manufacturing worker-bees had an obvious and fatal flaw. At some point, the advancement of the technology requires real physical infrastructure, and research and development will come to grief without a working partnership with the factory floor. Without the sort of physical infrastructure that China is building into its new cities, computation can’t solve all the problems that arise in intersections like the corner of Mill Avenue and Curry St. in Tempe, Arizona.

Infrastructure, R&D budgets, and technological innovation by themselves don’t explain major economic transformations, however. More important than all of these put together, Prof. Edmund Phelps argued in his 2013 book Mass Flourishing (which I reviewed for Standpoint magazine). The people of China have leapt from traditional life into the modern world, and their entire life experience is a sequence of innovations. They are far more eager than Americans or Europeans to adopt new technologies because they never made a habit of old ones. For example, E-commerce now accounts for 30% of retail sales in China, but less than 10% of retail sales in the United States.

China’s alternative to Facebook behind the Great Firewall is Wechat, Tencent’s premier product. Unlike Facebook users, who feel violated when they learn that their personal data was appropriated by big data firms, Chinese social media users have no expectation of privacy. The issue simply doesn’t arise: Everything that one does in China is subject to examination by the state.

America’s tech stocks won’t blow up in the fashion of early 2000 when the tech sector traded at 60 times forward earnings vs. about 16 times today. Unlike the era of maximized burn rates, they are monopolies with stable profits. But the tarnished tech sector won’t drive stock market valuations the way it did during the past five years. It isn’t clear what will.