Rogoff warns South Korea of painful AI sector bubble
Harvard economist Kenneth Rogoff warned Thursday that South Korea faces a painful bubble burst in its AI sector, urging policymakers to prepare for heightened economic volatility and fiscal strain.
The former International Monetary Fund chief economist made the comments during a panel discussion following a lecture on secular stagnation at the Bank of Korea in central Seoul.
Rogoff cautioned the government against expanding spending commitments too aggressively during economic upswings, warning that the AI-driven boom could expose the economy to greater instability.
Kenneth Rogoff said, “You are starting from a very favorable position, but then that is going to make the demands very big.”
He also warned that rapidly expanding AI could put upward pressure on living costs and resource prices, including land and minerals, as demand for AI infrastructure grows.
Kenneth Rogoff stated, “I guarantee you that is not going to be a budget that is just going to go up in general, including land prices, but also obviously in minerals. There are many resources which AI will devour.”
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Generational Wealth Disparity
Kenneth Rogoff highlighted growing generational tensions as a major challenge for the country, noting that older generations hold a disproportionate share of wealth and housing assets while younger workers face greater exposure to AI-driven labor market disruption.
Kenneth Rogoff said, “This is going to involve reshaping how money is spent and how things are done across many societies. That is going to be the biggest pressure on budgets, on fiscal policy: How do you cut a deal between the elderly who worked very hard and created a great country, and yet the young people do need to have hope?”
Monetary Policy Shift
Turning to monetary policy, Kenneth Rogoff welcomed the Bank of Korea’s efforts to internationalize the Korean won, saying wider use of the currency in cross-border transactions could reduce costs and strengthen the economy’s resilience.
Kenneth Rogoff stated, “Obviously the won is not going to be a global currency, but you can still get a lot of benefits by internationalizing the won.”
He noted, “I gather the Bank of Korea is moving to do that. I think that is very smart, saving a lot of costs, protecting yourselves to some extent. Modern technology makes this possible in a way that it was not much cheaper.”
