Tag Archives: political economy

Experts Everywhere

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A couple of professors at the University of Pennsylvania’s Wharton School Department of Legal Studies and Business Ethics want a body of Experts to supervise risks from emergent AI, saying that such a body would be better than an FDA-like regulatory body, or Congress through statutorily enabled product-safety laws.

They’re right that having a government body of experts like the FDA do this sort of thing is determinedly suboptimal. They’re right, also, regarding Congress, although Congress is considerably more malleable than a department or agency of bureaucrats.

But another body of Experts?

Bank supervision, which emerged in the Civil War and took its current form out of the Great Depression, offers the best framework for overseeing the most advanced AI labs.

After all,

Frontier AI labs such as OpenAI, Anthropic, and Google DeepMind are different.

And there’s always an excuse for standing up yet another bureaucratic regulatory body. In the case of their bank supervision model, about which they’re so enthusiastic, they give their game away [emphasis added].

Banks are too complex to govern through legislated rules alone, too important to leave to market discipline, and too dynamic for one-time approval.
Bank examiners often sit inside the institutions they oversee.

That’s the problem with our economic system government overlords. With the Panic of 2008, the Federal government created out of whole cloth the myth of some (ultimately government favored) businesses are too big to fail and so must always be guaranteed a government bailout. That confidence in the Federal apparatchiks sitting inside the banks also is misplaced. It’s only necessary to see the failures of the Silvergate, Signature, and First Republic banks to see the intrinsic failure of this. Those banks didn’t only fail through their own mismanagement; they also failed because their regulators were incompetent enough or lazy enough or complacent enough to miss those bank managers’ basic economics error of borrowing short-term while lending long-term and letting those two get ‘way out of balance. That allowed their short-term debts to come due before they had the long-term debt income to cover.

But the good professors want a board of Expert Apparatchiks inside the OpenAIs, Anthropics, and DeepMinds to oversee how these handle risks of emergent AI.

And this:

Banks share information with supervisors that they could never safely disclose publicly.

AI software is too important, too critical to national security, to share with apparatchiks of government. Our Federal government is infamous for its inability to defend against PRC cyber espionage. It’s infamous, also, for its bureaucrat employees leaking confidential financial data about businesses and persons of which those bureaucrats personally disapprove.

And this:

An AI risk supervisor could be funded by industry fees. Its leaders should be Senate-confirmed and removable by the president, but its expert staff should be insulated from day-to-day political pressure.

No.

Experts have their uses, often very important uses. On the witness stand to explain this or that aspect of a crime, balanced by another expert on the witness stand with a differing explanation. In police department forensics sections. As teachers in environments where their expertise is more important to the teaching than their teaching style. In medical and mental health doctor offices.

But in government? Not so much. Experts are useful when they’re part of a range of experts advising, as employees, the government’s decision makers. But as government decision makers? Definitely not so much. For the lack of utility of that last role, it’s only necessary to look at the Fauci-Collins-led experts as bureaucrats, or at the experts of the John Brennan and James Clapper CIA and ODNI, respectively.

The Supreme Court was right when it greatly reduced Chevon Deference in its Loper Bright Enterprises v. Raimondo ruling, making clear that “experts” in government aren’t owed any particular deference on matters of government behaviors and decision-making.

So it is with emergent AI.

Who’s In Charge?

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Is it a company’s leadership, ultimately hired by the company’s owners, the shareholders. or is it a couple of proxy advisers, whose income depends on being the ones consulted over management decisions?

Exxon Mobil, having grown fed up with the anti-business climate of New York, has put before its owners, its shareholders, the proposition that the company should go out from New York, move to Texas, and redomicile there.

The two largest Proxy Advisors aggregate to somewhere between 90% and 97% of the American proxy advisory market. The two, Glass Lewis and Institutional Shareholder Services, are pushing those shareholders to reject the move.

(Aside: they’re not even American companies. Glass Lewis, although headquartered in San Francisco, is owned by Peloton Capital Management, a Canadian company. Institutional Shareholder Services, although headquartered in Rockville, MD, is owned by the German company, Deutsche Börse AG.)

Their motive is obvious. Texas, for instance,

lets companies domiciled in the state require that investors hold at least $1 million in market value, or 3% of voting shares, for six months to submit shareholder proposals. Companies can also require shareholders to own at least 3% of shares to bring lawsuits for breaches of fiduciary duty and self-dealing.

A successful move to Texas would encourage lots more companies to leave States with high business taxes, excessive regulatory environments, and especially relevant to this context, a heavily advisor-permissive suite of regulations. This is a significant reduction in the “advisors'” ability to…influence…the companies they choose to target.

Who runs, then, Exxon Mobil: the shareholders or Glass Lewis and Institutional Shareholder Services?

Government Union Extortion

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Five unions that operate the New York State-owned (through the Metropolitan Transit Authority) Long Island Rail Road went on strike—all 3,500 members—and stranded 300,000 residents, keeping from their jobs and errands. The strike lasted 3 days before the government capitulated and gave (I assume; the agreement parameters remain unreleased to the public) what these public unions demanded.

Never mind the baseline from which those union members were proceeding.

At $49.92 in wages before overtime, a Long Island Railroad engineer makes $103,000 per year. Even in an upscale city like Plano, Texas, on a relative cost of living basis, that works out to an equivalent annual income of $66,000 to live in Plano.

Significantly, the cost of commuting to/from work in Plano is more than 50% cheaper than in LIRR’s New York.

Yet the city allows this extortion to punish its residents because, well, the LIRR unions are all public unions, which is to say, run by the city.

“Politically Viable Tax”

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That’s what New York City’s Progressive-Democratic Party and Democratic Socialists of America Party mayor Zohran Mamdani is looking for in order to address the city’s budget shortfall.

This is yet another installment in Party politicians’ cynical (I say) effort to raise ever more taxes in order to cover ever more spending, or as so often is the case with Party’s resolutely profligate spending, to “chip away” at the budget deficits and resulting debts that Party’s habits create.

It’s instructive that Mamdani wants to raise taxes in whatever way he can get away with. It’s further instructive that he can’t—no Party politician can, it seems—conceive of cutting spending, if not overall, at least in those areas not part of his social(ist) program, in order to free up non-deficit and -debt inducing spending for his goals. Mamdani can’t even conceive of simply reallocating existing spending goals to achieve his social(ist) goals.

This ever-increasing taxing is what New York City voters affirmatively chose to inflict on themselves, and it’s a threat the rest of us face if we don’t choose more wisely in our own coming elections, from the national level on down to our city and village levels.

Don’t Mention Cutting Spending

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Don’t you dare. The newly proposed Australian budget contains some tax cuts here, some tax structural changes nearby, and some tax increases there.

The tax cuts and structural changes are small steps in the right direction. The tax increases, though, are rationalized in this way: Saul Eslake, ex-Chief Economist at Merrill Lynch in Australia is claiming, as paraphrased by the WSJ:

If the process of reform is to be extended from here, policy makers should consider increasing and/or broadening the country’s goods-and-services tax to repair the revenue side of the federal budget and help ease the significant tax burden faced by wage earners and companies[.]

“Repair the revenue side?” What’s to repair? It isn’t the government’s money; it belongs to the good citizens of Australia. Their government only takes the money away from them; any seeming shortfalls in collections are nothing less than more money in those citizens’ hands.

And this from Shane Oliver, AMP Ltd‘s Head of Investment Strategy and Chief Economist:

If you do one reform without looking at income tax, then you miss the bigger picture[.]

There are two things wrong with these criticisms. One is the utter lack of justification for the amount of money the government collects through its taxing regime, whether current or as proposed. That “need” is simply assumed as received wisdom. The other is the equally utter lack of consideration of government spending cuts. The supposed necessity of current (or increased) spending levels also is simply assumed as received wisdom, albeit the spending is occasionally weasel-wordedly justified by announced social need—but even that isn’t seriously justified, merely announced from on high.

If Australia—and others, including us—want serious, durable prosperity, it’s necessary to cut taxes and cut spending further. That’s not austerity, no matter how hysterically the Left generally proclaims it to be. Leaving more money in the hands of the citizens is not austerity being inflicted on them, it’s their prosperity being restored to them. And that’s the bigger picture that Oliver is missing.