Edward Conard

Top Ten New York Times Bestselling Author

  • “Unintended Consequences provides a provocative interpretation of the causes of the global financial crisis and the policies needed to return to rapid growth. Whether you agree or not, this analysis is well worth reading.” - Nouriel Roubini, New York University; Chairman, Roubini Global Economics
  • “…a comprehensive explanation of the modern economy.” - Julian Robertson, Founder, Tiger Management
  • “…challenges misconceptions that distort our economic debates.” - Arthur Brooks, President of the American Enterprise Institute
  • “Unintended Consequences offers deep and well-argued analyses on almost every issue.” - The New York Times
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “…serious thinking for serious thinkers. …a thought-provoking blueprint for growing middle- and working-class incomes.” - Mitt Romney, former Governor of Massachusetts
  • “A full-throated defense of economic dynamism.” - The Wall Street Journal
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a fresh argument for the productive value of inequality.” - David Autor, Professor of Economics, Massachusetts Institute of Technology
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…a must-read for serious students of economic policy.” - Glenn Hubbard, Dean, Columbia Business School, and former Chairman of the Council of Economic Advisers
  • “…reminds us that inequality sends a signal of what society lacks most, in America’s case, entrepreneurship and risk taking.” - Lawrence Lindsey, CEO, The Lindsey Group, former Director of the National Economic Council
Upside of Inequality Oxford Unintended Consequences

Macro Roundup


Tuesday, June 6, 2023

AI Summary. The authors estimate that borrowers whose student loan payments were frozen ended with about $1,500 more in student loan balances and $1,200 (3%) more in other household debt, including mortgage, auto, and credit card borrowing, than borrowers without a payment stoppage. The findings suggest the pause raised short-term consumption and overall leverage, with effects concentrated among borrowers never previously delinquent.

Michael Dinerstein, Constantine Yannelis and Ching-Tse Chen University of Chicago
Date Posted:
Is Database:
Database

The 2020 student loan moratorium failed to reduce student loan balances and increased borrowers’ net leverage by 3% as borrowers took on additional student loans, mortgage, auto, and credit card debt. @mikedinerstein

Do frozen student loan payments increase borrowers' overall household debt?

Core argument: Borrowers subject to the student loan payment freeze held an additional $1,500 in outstanding student loan balances by the end of 2021 relative to borrowers whose payments were not paused.

By the end of 2021, borrowers subject to the payment freeze had an additional $1,500 in outstanding student loan balances relative to those that did not see a payment stoppage. Despite having higher cash on hand, borrowers do not use their additional liquidity to pay down other debt. In fact, household leverage rises as borrowers make higher payments on other loans, and mortgage, auto, and credit card debt rise. Overall, excluding student loans, household leverage increases by $1,200 (3%) for households subject to the pause. Student loan balances increase by a similar amount. The results suggest that the payment pause led to higher durable and non-durable consumption in the short term, but higher overall leverage, consistent with binding liquidity constraints. We find that the effects are concentrated among borrowers who have not previously been delinquent on a loan. These borrowers likely had no change in their supply of credit. Instead, their increased use of credit implies that their demand for credit increases as they have more liquidity.

Takeaways by Macro Roundup® AI

  1. Borrowers subject to the student loan payment freeze held an additional $1,500 in outstanding student loan balances by the end of 2021 relative to borrowers whose payments were not paused.
  2. Excluding student loans, household leverage rose by $1,200 (3%) for households subject to the pause, as mortgage, auto, and credit card debt increased rather than being paid down with the added liquidity.
  3. The effects concentrate among borrowers with no prior loan delinquency, whose credit supply likely did not change, suggesting their demand for credit rose as liquidity increased.

AI Summary. The number of US banks exceeding federal regulators' guidelines for commercial real estate loan concentration has risen from about 300 to nearly 700, leaving banks more vulnerable to a decline in commercial real estate prices.

Torsten Sløk Apollo
Date Posted:

Torsten Sløk @apolloglobal notes over the past two years the number of banks exceeding the FDIC’s CRE loan concentration guidelines has more than doubled from 300 to 700.

Are US banks growing more exposed to commercial real estate prices?

Core argument: The number of US banks exceeding the FDIC's commercial real estate loan concentration guidelines has risen from about 300 two years ago to nearly 700, leaving US banks more vulnerable to a decline in commercial real estate prices.

Two years ago, the number of banks exceeding the FDIC’s CRE loan concentration guidelines was about 300. Today there are almost 700, see chart. In other words, US banks have become much more vulnerable to a decline in commercial real estate prices. [Note: blue segment on chart shows banks with construction and development (C&D) loans of at least 100% of risk-based capital. Green segment shows banks with commercial real estate (CRE) loans at least 300% of risk-based capital and 36-month CRE growth of 50% or higher.]

Takeaways by Macro Roundup® AI

  1. The number of US banks exceeding the FDIC's commercial real estate loan concentration guidelines has risen from about 300 two years ago to nearly 700, leaving US banks more vulnerable to a decline in commercial real estate prices.
  2. The FDIC concentration measures capture banks with construction and development loans of at least 100% of risk-based capital, and banks with commercial real estate loans of at least 300% of risk-based capital combined with 36-month CRE growth of 50% or higher.

AI Summary. American banks have tightened lending standards and reduced credit availability for both business and household loans, amid a weaker macroeconomic environment, limited liquidity, and elevated financial risks. The degree of tightening matches levels previously seen only during the 2008 recession and the onset of the COVID-19 pandemic.

Joseph Politano Apricitas Economics
Date Posted:

In the wake of SVB’s collapse, banks have tightened both business and household lending standards to levels not seen since the 2008 recession or the initial COVID pandemic. @JosephPolitano

Have banks tightened lending standards to levels seen only in past recessions?

Core argument: American banks have tightened lending standards and credit availability following the collapse of Silicon Valley Bank, with the tightening spanning both business and household loans.

The deteriorating macro environment, relative lack of liquidity, and elevated financial risks have caused American banks to further tighten lending standards and credit availability in the wake of SVB’s collapse. That’s true for both business and household loans, where banks are tightening at levels not seen since the 2008 Recession or the initial COVID pandemic.

Takeaways by Macro Roundup® AI

  1. American banks have tightened lending standards and credit availability following the collapse of Silicon Valley Bank, with the tightening spanning both business and household loans.
  2. Bank tightening for business and household credit has reached levels not seen since the 2008 recession or the onset of the COVID pandemic.
  3. A deteriorating macro environment, a relative lack of liquidity, and elevated financial risks are cited as the drivers of banks' pullback in lending.

AI Summary. US manufacturers' construction spending has more than doubled over the past year to an annual rate of nearly $190bn, according to the Census Bureau. Manufacturing now makes up about 13% of all non-government construction, the highest share in a data series going back to the early 1990s.

Ben Holland and Alexandre Tanzi Bloomberg
Date Posted:
Is Database:
Database

Year-over-year domestic construction spending by US manufacturers has doubled in the last year to $190B or 13% of private construction spending, the highest on record since the series started in the 1990s. @bloomberg

Is US factory construction spending reaching record highs?

Core argument: US manufacturing construction spending reached an annual rate of almost $190 billion in April, more than double the level of a year earlier, according to the Census Bureau.

Construction spending by manufacturers in the US has more than doubled in the past year, reaching an annual rate of almost $190 billion in April, according to the Census Bureau. Manufacturing now accounts for about 13% of all non-government construction, the highest share on record in a data series stretching back to the early 1990s. As part of the most ambitious US industrial policy in decades, the government is offering subsidies worth tens of billions of dollars for companies to make all kinds of key products — from semiconductors to electric cars and their components — at home.

Takeaways by Macro Roundup® AI

  1. US manufacturing construction spending reached an annual rate of almost $190 billion in April, more than double the level of a year earlier, according to the Census Bureau.
  2. Manufacturing accounts for about 13% of all non-government US construction, the highest share in a data series going back to the early 1990s.
  3. The US government is offering subsidies worth tens of billions of dollars for domestic production of semiconductors, electric cars and their components, as part of the most ambitious US industrial policy in decades.

Related Articles:

  • Why Laws Meant to Create Jobs Can Be So Destructive for Our Cities — State audits and independent evaluations of corporate tax incentive programs have found poor targeting, weak oversight, and excessive costs that harmed rather than benefited local governments. Examples include $5.5bn in New York tax credits for a Micron facility and up to $1.75bn in Michigan incentives for a Ford electric vehicle plant.

Wednesday, June 7, 2023

AI Summary. Analysts estimate that if inflation is brought down without a recession, the Federal Reserve's policy rate will stabilize nearer 3–3.25% than the 2.5% longer-run median projection of Federal Reserve officials. Projected shifts in government debt and demographics imply a roughly 0.5 percentage point net increase in the neutral rate over the next decade.

David Mericle and Manuel Abecasis Goldman Sachs
Date Posted:

David Mericle and Manuel Abecasis argue that the FFR will likely settle in a range of 3-3.25% going forward, higher than the FOMC’s 2.5% median projection, driven by increased demand for investment and government debt over the next decade.

Is the neutral interest rate higher than policymakers project?

Core argument: The authors' best guess is that the federal funds rate eventually stabilizes closer to 3–3.25% than to the FOMC's 2.5% median longer-run dot, provided the Fed solves the inflation problem without a recession.

Our best guess is that if the Fed solves the inflation problem without a recession, the funds rate will eventually stabilize closer to 3-3.25% than to the FOMC’s 2.5% median longer run dot. We expect a slightly higher r* both because our analysis of factors that influence r* suggests a more limited decline, and because we put some weight on the long-run advanced economy average of a roughly 1% real short-term rate and on the higher average rate seen for quite a while after the last inflation surge. Projected changes in factors such as government debt and demographics imply a net increase of about 0.5pp over the next decade, and larger increases are possible if artificial intelligence or the green energy transition boost investment demand.

Takeaways by Macro Roundup® AI

  1. The authors' best guess is that the federal funds rate eventually stabilizes closer to 3–3.25% than to the FOMC's 2.5% median longer-run dot, provided the Fed solves the inflation problem without a recession.
  2. The authors attribute their higher neutral rate estimate to analysis suggesting a more limited decline in r*, plus weight on the roughly 1% long-run average real short-term rate in advanced economies and the higher average rate after the last inflation surge.
  3. Projected changes in factors such as government debt and demographics imply a net increase of about 0.5pp over the next decade, with larger increases possible if artificial intelligence or the green energy transition boost investment demand.

Related Articles:

  • The Fed and the Secular Decline in Interest Rates — The authors find that the long-run decline in US Treasury yields since 1980 is fully accounted for by movements in a narrow window around Federal Reserve policy meetings, while yield changes outside that window prove transitory. They suggest the Federal Reserve conveys information to markets about the long-run level of interest rates.

AI Summary. The number of US single-establishment firms relocating across state lines roughly doubled to 6,384 over the period studied, with the migrant share of all firms rising from 0.07% to 0.12%. In-migration consistently exceeded out-migration in the South, while out-migration exceeded in-migration in the Northeast and Midwest.

Akbar Sadeghi, Kevin Cooksey, and Anthony Colavito Bureau of Labor Statistics
Date Posted:

A new analysis from @BLS_gov finds firms in the professional, scientific, and technical services industry sector have been increasingly moving across state lines. In 2021 migration for this sector was 390% of its 1994 levels vs. 145% for all firms.

How many US firms move across state lines, and where?

Core argument: A total of 6,384 firms moved across U.S. state borders in 2021, almost twice the number in 1994, with the migrant share of the total firm population rising from 0.07% to 0.12% over that period.

We measured the annual number of single establishments and their employment and wages for those firms that moved across states and regions from 1994 to 2021. We found that in 2021, a total of 6,384 firms moved across state borders, almost twice the number than in 1994. As a percentage of the total firm population, the migrant share rose from 0.07%to 0.12% during this period. In 2020, more than 30% of migrant firms were in the professional, scientific, and technical services sector. Data show that the number of migrant firms generally grows in expansionary periods and declines or shows less growth during economic downturns. However, in the 2020 COVID-19 pandemic-induced recession, the number of migrant firms rose sharply. Although migrant firms move in and out of every state and region, data from 1994 to 2021 show that in-migration in the South has been consistently higher than out-migration. In the Northeast and Midwest regions, out-migration exceeded in-migration. In the West, in-migrations and out-migrations were generally in balance.

Takeaways by Macro Roundup® AI

  1. A total of 6,384 firms moved across U.S. state borders in 2021, almost twice the number in 1994, with the migrant share of the total firm population rising from 0.07% to 0.12% over that period.
  2. More than 30% of migrant firms in 2020 were in the professional, scientific, and technical services sector, and the number of migrant firms rose sharply during the 2020 COVID-19 pandemic-induced recession, counter to the usual pattern of growth in expansions and declines in downturns.
  3. From 1994 to 2021, in-migration of firms in the South consistently exceeded out-migration, while out-migration exceeded in-migration in the Northeast and Midwest, and the two were generally in balance in the West.

AI Summary. Goldman Sachs economists estimate that if inflation is brought down without a recession, the federal funds rate will stabilize near 3–3.25% rather than the Federal Reserve's 2.5% longer-run median projection. At that neutral rate, 30-year fixed mortgage rates would sit in the low-to-mid 6% range, around 6.45% with a 4.45% 10-year Treasury yield.

Bill McBride Calculated Risk
Date Posted:

.@calculatedrisk notes a Goldman Sachs forecast that the FFR will stabilize around 3-3.25% and argues this implies 30-year mortgage rates will remain in the recent 6-7% range.

Will a higher neutral rate keep mortgage rates in the mid-6% range?

Core argument: Goldman Sachs economists estimate the federal funds rate will eventually stabilize closer to 3–3.25% than to the FOMC's 2.5% median longer-run dot, if the Fed solves the inflation problem without a recession.

Goldman Sachs economists argued the neutral rate will likely be higher than the Fed currently expects. "Our best guess is that if the Fed solves the inflation problem without a recession, the funds rate will eventually stabilize closer to 3-3.25% than to the FOMC’s 2.5% median longer run dot." If the neutral rate is in the range Goldman economists expect, then the 30-year fixed mortgage rate will be in the low to mid 6% range. With a 3.25% Fed Funds rate, a 4.45% 10-year yield, we’d expect 30-year mortgage rates around 6.45%. This is close to the recent range! Note that with this neutral rate, the 10-year yield would likely increase even as the Fed lowers the Fed Funds rate.

Takeaways by Macro Roundup® AI

  1. Goldman Sachs economists estimate the federal funds rate will eventually stabilize closer to 3–3.25% than to the FOMC's 2.5% median longer-run dot, if the Fed solves the inflation problem without a recession.
  2. With a 3.25% fed funds rate and a 4.45% 10-year Treasury yield, 30-year fixed mortgage rates would be expected around 6.45%, close to the recent range.
  3. Under the higher neutral rate Goldman Sachs economists expect, the 10-year Treasury yield would likely increase even as the Fed lowers the fed funds rate.

Related Articles:

  • What Have We Learned About the Neutral Rate? — Analysts estimate that if inflation is brought down without a recession, the Federal Reserve's policy rate will stabilize nearer 3–3.25% than the 2.5% longer-run median projection of Federal Reserve officials. Projected shifts in government debt and demographics imply a roughly 0.5 percentage point net increase in the neutral rate over the next decade.

AI Summary. The US became the absorber of global trade surpluses because of its large consumer markets and safe, liquid, profitable asset markets. The author argues the end of dollar dominance would mean not merely a switch to another trade currency but the end of large, persistent trade and capital imbalances and of mercantilist surplus policies.

Michael Pettis Financial Times
Date Posted:

.@michaelxpettis argues that the end of dollar dominance would mean an end of the entire global trading system and mercantilist policies that allow surplus countries to become competitive at the expense of foreign manufacturers and domestic demand.

.@michaelxpettis argues that the end of dollar dominance would mean an end of the entire global trading system and...

Would the end of dollar dominance end persistent global trade imbalances?

Core argument: The end of dollar dominance would mean the end of the anglophone economies' willingness and ability to absorb up to 70–80% of global trade surpluses, not merely a shift in which currency denominates trade.

Absorbing foreign demand means exporting domestic savings, and because of its huge domestic consumer markets and safe, profitable, and liquid asset markets, the obvious choice was the US. Probably because of the exigencies of the cold war, Washington encouraged them to do so. Only later did this choice congeal into an economic ideology that saw unfettered capital flows as a way to strengthen the power of American finance. This is why the end of dollar dominance doesn’t mean a global trading system that simply and non-disruptively shifts from denominating trade in dollars to denominating it in some other currency. It means instead the end of the current global trading system — I.e., the end of the willingness and ability of the anglophone economies to absorb up to 70-80% of global trade surpluses, the end of large, persistent trade and capital flow imbalances, and, above all, the end of mercantilist policies that allow surplus countries to become competitive at the expense of foreign manufacturers and domestic demand.

Takeaways by Macro Roundup® AI

  1. The end of dollar dominance would mean the end of the anglophone economies' willingness and ability to absorb up to 70–80% of global trade surpluses, not merely a shift in which currency denominates trade.
  2. The US became the obvious absorber of foreign demand because of its huge domestic consumer markets and its safe, profitable, and liquid asset markets, and absorbing foreign demand means exporting domestic savings.
  3. Washington encouraged foreign economies to export savings to the US, probably because of the exigencies of the cold war, and only later did that choice congeal into an ideology treating unfettered capital flows as a way to strengthen American finance.

AI Summary. Germany's labor supply is projected to shrink by 3m people, or 7%, over the next decade unless retirees are replaced by migrants, requiring about 400,000 newcomers a year just to hold steady. The offsetting trends of large-scale immigration and rising female employment are now fading as baby boomers retire.

Alexander Weber and Andre Tartar Bloomberg
Date Posted:

Germany’s workforce is on pace to shrink by 7%, or 3 million workers over the next decade.

Is a shrinking labor supply putting Germany's growth at risk?

Core argument: Germany's labor supply is projected to shrink by 3 million people, or 7%, over the next decade unless retiring Germans are replaced by a significant influx of migrants.

Over the next decade, the labor supply will shrink by 3 million people, or 7%, unless retiring Germans are replaced by a significant influx of migrants. Just to stay flat, the country needs 400,000 newcomers a year. While this figure has been reached at various points in the past, migration to Germany has been boosted by refugees coming from countries including Syria and Ukraine. And after the experience of those years, voters are skeptical of promises that migration can boost growth. That was the claim back in 2015 but only around half of the refugees who arrived during that wave had found work five years later. The working-age population in Germany actually peaked at the end of the last century, but the country has managed to stave off demographic decline for some time thanks to the arrival of millions of immigrants and the rising number of women going to work. But both trends are now fading just as the post World War II baby-boomers are retiring.

Takeaways by Macro Roundup® AI

  1. Germany's labor supply is projected to shrink by 3 million people, or 7%, over the next decade unless retiring Germans are replaced by a significant influx of migrants.
  2. Germany needs 400,000 newcomers a year just to keep its labor supply flat, a figure reached at various points in the past when migration was boosted by refugees from countries including Syria and Ukraine.
  3. Only about half of the refugees who arrived in Germany during the 2015 wave had found work five years later, and voters are skeptical of promises that migration can boost growth.

AI Summary. US manufacturing construction spending has more than doubled over the past year and risen as a share of gross domestic product, a surge attributed to two laws: the Inflation Reduction Act, whose core is green energy subsidies, and the CHIPS Act, which promotes domestic semiconductor production.

Paul Krugman Krugman Wonks Out
Date Posted:

.@paulkrugman points to manufacturing investment driven by the Inflation Reduction and CHIPS acts and argues that these policies are “exceeding even the most optimistic expectations.”

Are industrial subsidies driving the surge in manufacturing construction spending?

Core argument: U.S. manufacturing construction spending has more than doubled over the past year, a surge better gauged as a share of GDP than in raw dollars, with the 2023 figure taken as April spending against first-quarter GDP.

Under Biden, manufacturing construction, as some people put it, has gone parabolic, more than doubling just over the past year. Raw dollar figures can be misleading, especially when you’re looking at the long run; spending needs to be compared with the size of the economy as a whole. Here’s manufacturing construction as a % of G.D.P. over the past three decades (the number for 2023 is April spending as a % of first-quarter G.D.P.). There’s no real question about the causes of the surge. It’s being driven by two major pieces of legislation: the misleadingly named Inflation Reduction Act, whose actual core is subsidies for green energy, and the CHIPS Act (“creating helpful incentives to produce semiconductors” — call in the acronym police!), which is supposed to protect national security by promoting domestic production of, um, chips. It’s good news that the boom is happening, indeed exceeding even the most optimistic expectations.

Takeaways by Macro Roundup® AI

  1. U.S. manufacturing construction spending has more than doubled over the past year, a surge better gauged as a share of GDP than in raw dollars, with the 2023 figure taken as April spending against first-quarter GDP.
  2. The manufacturing construction boom is driven by two laws: the Inflation Reduction Act, whose core is green energy subsidies, and the CHIPS Act, intended to protect national security by promoting domestic semiconductor production.
  3. The manufacturing construction boom has exceeded even the most optimistic expectations.

Related Articles:

  • Factory Boom Sweeps US With Construction at Record $190 Billion — US manufacturers' construction spending has more than doubled over the past year to an annual rate of nearly $190bn, according to the Census Bureau. Manufacturing now makes up about 13% of all non-government construction, the highest share in a data series going back to the early 1990s.
  • Why Laws Meant to Create Jobs Can Be So Destructive for Our Cities — State audits and independent evaluations of corporate tax incentive programs have found poor targeting, weak oversight, and excessive costs that harmed rather than benefited local governments. Examples include $5.5bn in New York tax credits for a Micron facility and up to $1.75bn in Michigan incentives for a Ford electric vehicle plant.

AI Summary. China's electric vehicle industry grew from a niche industrial policy project into a large ecosystem of mostly private companies after Tesla was permitted to open a wholly owned factory in Shanghai, which industry analysts credit with spurring competitiveness among local makers.

Greg Ip Wall Street Journal
Date Posted:

China’s highly competitive and creative internal market has left its automakers well positioned vs. western firms in the global EV market. @greg_ip

How did foreign competition transform China's electric vehicle industry?

Core argument: China's EV sales remained weak until 2019, when Beijing let Tesla open a wholly-owned factory in Shanghai, a catalyst that Tu Le of Sino Auto Insights says boosted interest and raised the competitiveness of local Chinese automakers.

Sales of EVs remained weak until 2019, when China let Tesla open a wholly-owned factory in Shanghai. “It took this catalyst…to boost interest and increase the level of competitiveness of the local Chinese makers,” said Tu Le, managing director of Sino Auto Insights, a research service specializing in the Chinese auto industry. Back in 2011 Pony Ma, the founder of Tencent, explained what set Chinese capitalism apart from its American counterpart. “In America, when you bring an idea to market you usually have several months before competition pops up, allowing you to capture significant market share,” he said, according to Fast Company, a technology magazine. “In China, you can have hundreds of competitors within the first hours of going live. Ideas are not important in China—execution is.” Thanks to that competition and focus on execution, the EV industry went from a niche industrial policy project to a sprawling ecosystem of predominantly private companies. When Western auto executives flew in for April’s Shanghai auto show, “they saw a sea of Chinese brands,” said Le. “They hear the sounds of the door closing, sit inside and look at the quality of the materials, the fabric or the plastic on the console, that’s the other holy s— moment—they’ve caught up to us.”

Takeaways by Macro Roundup® AI

  1. China's EV sales remained weak until 2019, when Beijing let Tesla open a wholly-owned factory in Shanghai, a catalyst that Tu Le of Sino Auto Insights says boosted interest and raised the competitiveness of local Chinese automakers.
  2. Tencent founder Pony Ma said in 2011 that a product in China can face hundreds of competitors within hours of going live, versus several months of lead time in America, concluding that "ideas are not important in China—execution is.".
  3. China's EV industry went from a niche industrial policy project to a sprawling ecosystem of predominantly private companies, and Tu Le says Western executives at April's Shanghai auto show saw a sea of Chinese brands whose materials and build quality had caught up.

Related Articles:

  • China’s Auto Export Wave Echoes Japan’s in the ’70s — The shift from petroleum-fueled internal combustion vehicles to electric vehicles moves resource leverage from Persian Gulf oil producers to critical minerals, with China holding more than half of global processing capacity for lithium, cobalt, and graphite and about a third for nickel. Chinese companies have spent $4.5bn acquiring stakes in nearly 20 lithium mines, mostly in Latin America and Africa.

AI Summary. The article argues that large AI companies, startups, and open-source AI should all be allowed to build and compete without regulatory capture or government-protected cartels justified by overstated claims of AI risk. It contends the private sector, scientific institutions, and governments should work together to secure Western AI dominance over China.

Marc Andreessen Marc Andreessen Substack
Date Posted:

.@pmarca argues that the panic around “harmful” AI is overstated but for one thing, “The single greatest risk of AI is that China wins global AI dominance and we – the United States and the West – do not.”

.@pmarca argues that the panic around “harmful” AI is overstated but for one thing, “The single greatest...

Should AI be left to compete freely rather than regulated into cartels?

Core argument: Andreessen contends big AI companies, startups, and open source AI should all be allowed to build and compete aggressively, without regulatory capture, without a government-protected cartel justified by incorrect claims of AI risk, and without government assistance for startups.

I propose a simple strategy for what to do about this – in fact, the same strategy President Ronald Reagan used to win the first Cold War with the Soviet Union. “We win, they lose.” Big AI companies should be allowed to build AI as fast and aggressively as they can – but not allowed to achieve regulatory capture, not allowed to establish a government-protect cartel that is insulated from market competition due to incorrect claims of AI risk. Startup AI companies should be allowed to build AI as fast and aggressively as they can. They should neither confront government-granted protection of big companies, nor should they receive government assistance. They should simply be allowed to compete. If and as startups don’t succeed, their presence in the market will also continuously motivate big companies to be their best – our economies and societies win either way. Open source AI should be allowed to freely proliferate and compete with both big AI companies and startups. Even when open source does not beat companies, its widespread availability is a boon to students all over the world who want to learn how to build and use AI to become part of the technological future. AI can be an incredibly powerful tool for solving problems, and we should embrace it as such. To prevent the risk of China achieving global AI dominance, we should use the full power of our private sector, our scientific establishment, and our governments in concert to drive American and Western AI to absolute global dominance, including ultimately inside China itself. We win, they lose. And that is how we use AI to save the world.

Takeaways by Macro Roundup® AI

  1. Andreessen contends big AI companies, startups, and open source AI should all be allowed to build and compete aggressively, without regulatory capture, without a government-protected cartel justified by incorrect claims of AI risk, and without government assistance for startups.
  2. Andreessen argues that open source AI's widespread availability benefits students worldwide learning to build and use AI even when it does not beat companies, and that competition from startups pushes big companies to be their best.