The warning from downtown Seoul
Economist Kenneth Rogoff, a Harvard professor and former chief economist of the International Monetary Fund, said Thursday that the bursting of the artificial intelligence-related bubble is bound to come and will be particularly painful for South Korea. He spoke during a panel following his lecture on secular stagnation at the Bank of Korea, in downtown Seoul. The news was reported by The Korea Herald.
According to Rogoff, the phenomenon is unavoidable: at some point the AI bubble will burst and the consequences will be severe. His assessment is that the Korean economy, precisely because of its strong link to the global technology cycle, would be more exposed to this risk than others.
A boom that brings benefits but also volatility
Rogoff acknowledged that Korea has benefited greatly from the expansion of AI, describing it figuratively as a kind of suburb of Silicon Valley. That position is better than that of economies left out of the technological expansion.
However, he warned the government against multiplying spending commitments during phases of economic expansion. The AI-driven boom, he added, could expose the country to greater volatility, making it harder to manage public finances when the favorable phase comes to an end. He also observed that the rapid growth of AI could push up living costs and resource prices, including land and minerals, due to demand for dedicated infrastructure.
The generational knot and the move on the won
Another issue raised by the economist concerns tensions between generations. In Korea, he explained, older groups hold a disproportionate share of wealth and real estate, while younger workers are more exposed to the labor market transformations induced by AI. According to Rogoff, the real pressure on budgets and fiscal policy will be finding a balance between the elderly, who built the country's prosperity, and the young, who need prospects.
On the monetary front, Rogoff welcomed the Bank of Korea's efforts to internationalize the won. Wider use of the currency in cross-border transactions, he said, could reduce costs and strengthen the economy's resilience. He specified that the won will not become a global currency, but that internationalization can still bring benefits. It remains to be verified, based on the available material alone, what specific measures the central bank is adopting and on what timeline.
