Rogue AI agents, interest rate hikes, warnings of imminent doom if we don’t surrender all of our freedoms to a handful of AI CEOs and their newly founded world government…last week was quite the week. What to tackle first?
AI CEOs are scared of the monsters they have created and now they want government to step in and provide regulations. I will openly admit to not being technical enough to know the best path to guide the development of AI, but I know enough about economics, regulation, and self-interest to know that I don’t trust a CEO who is actively and publicly lobbying for partnership with the government. Does Hyman Roth ring a bell? For those who missed it, this is precisely what Anthropic CEO Dario Amodei has suggested, and a handful of other AI CEOs have concurred.
What has Amodei so scared? If you believe him, then he is scared that the new generation of AI they are working on has learned to think for itself and resist human control. An Anthropic researcher named Jacob Coxon resigned on September 8 warning that, “The people building AI earnestly believe that it could kill us all by the end of the decade.” One of his colleagues agreed and put the odds at greater than 10 percent within a decade. Wall Street Journal columnist Peggy Noonan obviously believes Amodei and has written about it.
Many on Wall Street, myself included, are a little more skeptical. Is Amodei scared of causing the end of the world, or is his fear that if AI becomes smart enough to train itself, then a smaller competitor could leapfrog Anthropic in a flash? Government regulation is a great defense. In economic terms this is called rent-seeking. Amodei wants regulations, largely crafted by him and his colleagues, to protect them from competition.
Regulation is tricky; it is necessary, but it is also easily gamed. The usual problem is that regulation becomes too complicated and promotes an environment where box-checking compliance replaces common-sense ethics. This exemplifies a major problem we have in the American system today: lots of red tape, but very little personal accountability. In a true free market economy there is a relationship between risk and reward, but in America today there are too many times where modern entrepreneurs want all the reward, but offload the risk to others.
Less is often more. I’ll regulate AI now: If AI goes rogue and breaks the law, the CEO of the company who created it goes to jail for life. There, job done in one sentence. No Amodei-controlled world government needed. Let’s not forget that “Frankenstein” was not the name of the monster, it was the name of the doctor. It is the humans behind the machines that scare me.
Speaking of the art of brevity, I am developing a man crush on our new Fed Chair. Kevin Warsh is only a year younger than I am, yet not only does he still have a very full head of hair, but it hasn’t even turned grey. More importantly, he believes that actions speak louder than words. The Federal Open Market Committee (FOMC), which Mr. Warsh chairs, just voted unanimously to raise the Fed Funds rate by 0.25 percent. He then gave one of the shortest post-FOMC meeting press conferences in history. He refuses to give forward guidance, which is troubling to many market participants who have, in my opinion, become too reliant on the Fed chair doing their work for them. It is so much easier for the Fed to just tell everyone what it plans to do, as opposed to one doing his own homework and figuring it out for himself.
Mr. Warsh actually believes in a free market, which requires individuals making independent decisions. He recognizes that markets set the interest rates that actually matter in the real world. The Fed only controls one rate, the Federal Funds Rate, which is the rate that banks pay each other for overnight loans. The longer-term rates that impact consumers are all determined by the market; the most important of these is the 10-year Treasury rate, which was 5 percent on Tuesday before the rate hike and is still 5 percent as I write this.
The market had already raised rates before the FOMC meeting even adjourned, because the market realizes that inflation is a problem – and inflation, unlike the revolution of the machines, is here now and is unquestioningly real.
A friend recently asked if people should get cash out of their bank accounts and put it under the mattress for protection from the AI uprising. I don’t know about artificial intelligence, but human intelligence is often used to run right into one trap by trying to avoid another. With inflation over 3 percent, cash loses 3+ percent of its value while siting under a mattress. That loss is real; the scary AI stories are artificial.
Warm regards,
Chuck Osborne, CFA
