Tweet

The Wall Street Journal‘s Editorial Board wisely counsels skepticism of AI CEOs’ calls for government regulation of AI. A slice:

The CEOs [of AI firms] can also see how the politics of AI are moving toward panic. The opposition to data centers based on misinformation is one signal. They can also see the plaintiff bar circling in wait for an incident when rogue agents do more harm than the Hugging Face event.

The warnings of Apocalypse are also growing, often uninformed and amplified by those like Bernie Sanders who want government to stop the industry until the politicians can run it. By offering to slow down on their own, and invite outside monitors to inspect their models, the CEOs are hoping to head off such an outcome.

But then nothing now is stopping these firms from “pacing the frontier” on their own, to use Mr. Amodei’s phrase. OpenAI and Anthropic are leading the frontier. If what they see in their shops is truly dangerous, by all means be responsible and “align” development. Slow down on your own.

The complication comes when these firms seek outside help to aid their cause. One ever-present risk is regulatory capture, in which government rules entrench market leaders—in this case especially OpenAI and Anthropic. If Mr. Amodei wants to bring in an outside referee for its models, go right ahead. But nonprofit monitors come with their own biases and business ties. We should be wary of entrenching them as de facto regulators for everyone.

Also writing wisely on the topic of government regulation of AI is David Sacks: (HT Kevin Briggs)

Dario has written that we need to “pace the frontier,” and Sam has agreed. People may be surprised by my response: go ahead.

You guys are the frontier. By any reasonable metric — market share, revenue growth, model capability — the two of you have a duopoly on frontier intelligence. You’ve also claimed the lead is widening because of recursive self-improvement.

I don’t see what you see in the lab. If the unreleased models are scary enough that you think you should slow down, I support your decision to be responsible.

But stop pretending you need anyone else’s permission. Stop pretending antitrust law has to be suspended so you can form a cartel. Stop pretending you need a regulatory approval process that supersedes product liability. Stop pretending METR is independent when it is intertwined with Anthropic’s investors and staff. Stop pretending you need those same evaluators to police competitors who aren’t even at the frontier.

Most of all, stop pretending the motivation to slow down is purely altruistic. You face massive product-liability exposure if your products enable a truly damaging cyberattack. The market already punishes models that behave in unpredictable or unauthorized ways. After the Hugging Face episode, it is simply good business for OpenAI and Anthropic to trade some raw power for reliability and predictability. Call it alignment if you want. It is also just giving customers what they want.

Pacing the frontier would also create breathing room for a more intelligent conversation about regulation than Bernie Sanders’ “shut it all down.” China is very unlikely to join a global agreement, as you know, and that has to be taken into account as well.

So go ahead and pace the frontier. You are the ones setting it. The easiest way not to build superintelligence is for you to agree not to build it. Demanding your preferred regulatory framework as the price of that will look like blackmail of the public and the political system. So just do it.

If you do, you’ll buy goodwill for the next conversation. If you don’t, we’ll know this was just another bid for regulatory capture — or an election-season psyop.

Alejandra Martínez Canchica writes insightfully about “Trump’s Venezuela oil deal.”

Ilya Somin, a GMU colleague over in the Scalia School of Law, argues that Trump’s Section 338 tariffs on some Canadian products punitive taxes on Americans’ purchases on some Canadian products are unlawful. A slice:

Section 338 was part of the infamous Smoot-Hawley tariff act of 1930, which gravely exacerbated the Great Depression. There is a strong case that Trump’s Section 338 tariffs are illegal both because Section 338 (which has never been used previously) was superseded by later legislation, and because Trump’s tariffs do not meet the textual requirements of Section 338. On the former point, see this 2025 Volokh Conspiracy guest post by Philip Zelikow of the conservative Hoover Institution. On the latter, see this excellent guest post by Georgetown University trade policy experts Peter Harrell and Jennifer Hillman.

Scott Lincicome tweets:

Just when you thought our Strategic Trade Policy™ couldn’t get any more strategicky: “Trump Says He’ll Remove US Tariffs on Irish Whiskey.”

The Editors of National Review decry what they rightly call “Trump’s reckless $5,000 ‘dividend.'” A slice:

As is his habit, Trump waved away any objections to this plan. Asked later if he would need Congress to agree to the payment, he said, “We think not.” Asked if it would add to the deficit, he said, “I’m not at all worried about that.” Asked why he couldn’t do it now, given that the Republicans already run Congress, he said, “Because they can’t. I’ll tell you what, because the Democrats can’t do it, because with them it’s negative growth. With us, it’s so positive.”

Glad we cleared that one up.

Not to be outdone, Vice President JD Vance got in on the action with nonsense of his own. Asked by Bret Baier about the potential consequences for the “deficit and debt” and “inflation,” Vance insisted that the checks could be paid for from tariff revenues. “We’re taking in an extraordinary amount of revenue,” he said.

None of this is true. In his speech, the president described the potential payout as a “Trump Dividend.” But this is a brazen misuse of that term. Were his plan to come to fruition, it would be good old-fashioned government spending — nothing more, nothing less. Under the U.S. Constitution, that spending would have to be authorized by Congress, not by the president. And, because the federal government is running multi-trillion-dollar deficits, that spending would have to be borrowed, which would increase the debt. If President Trump’s vow is to be taken literally, the cost would be between $1.3 trillion and $1.5 trillion. Adding that amount of money into the economy would undoubtedly make inflation worse, and, because it would eventually be paid back unequally via our highly progressive tax system, it would represent precisely the sort of “socialism” that Trump spent the rest of his speech in Texas denouncing. As for Vance’s preposterous claim that the project would be covered by the revenues from tariffs? The projecteted tariff haul in 2027 is $125 billion — less than 10 percent of the cost of Trump’s plan.

My intrepid Mercatus Center colleague, Veronique de Rugy, talks with Stephanie Slade about the conservatives’ wrong turn.

Tweet

… is from page 11 of Thomas Sowell’s “Introduction” to Compassion Versus Guilt, a 1987 collection of some of his popular essays:

Another political concept often heard in our times is “solution.” Early in these essays, I argue that there are no real solutions in politics – only trade-offs. That theme also recurs in the essays that follow, and extends to foreign policy as well as domestic issues, to economics as well as law, to educational issues no less than to issues of race and sex.

Tweet

Here’s a letter to the Washington Post.

Editor:

Kudos to Dominic Pino for the reminder that those of us living in today’s industrialized, commercial economies enjoy nature only because nature for us has largely been tamed and sanitized by industrialization and commerce (“A hike through the woods feels natural. It’s anything but.” September 13). As Aldous Huxley wrote in 1928, reacting to William Wordsworth’s romantic attraction to nature,

The Wordsworthian adoration of Nature has two principal defects. The first … is that it is only possible in a country where Nature has been nearly or quite enslaved to man. The second is that it is only possible for those who are prepared to falsify their immediate intuitions of Nature. For Nature, even in the temperate zone, is always alien and inhuman, and occasionally diabolic…. Nature-worship is a modern, artificial, and somewhat precarious invention of refined minds. Admirable, but somehow, in too many instances, rather ridiculous in being so refined, so rootlessly high-class.*

More succinct, but no less accurate, were Will and Ariel Durant:

Word peddlers tend to idealize the countryside if they are exempt from its harassments, boredom, insects, and toil.**

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

* Aldous Huxley, “Wordsworth in the Tropics” (available here).

** Will and Ariel Durant, The Age of Voltaire (1965), p. 45.

Tweet

AIER’s Laura Williams reflects on Americans’ freedoms since 9/11.

Wall Street Journal columnist Holman Jenkins reflects on the U.S. government’s increased fiscal recklessness since 9//11. A slice:

A poorer country than the U.S. would have had to parcel out its resources more carefully in response to 9/11. Instead, the U.S. was distributing taxpayer checks to heiresses and hedge-fund managers because they happened to live in the vicinity of downtown.

The fiscal debacle of 9/12, to me, would come to seem of a piece with the fiscal debacle of ObamaCare, the fiscal debacle of climate policy and, in crescendo fashion, our Covid response.

Our globe-girdling society produces complex policy challenges. It has a hard time producing intelligent policy responses. In their place, we get bankrupting spending extravaganzas in which politicians demonstrate their caring by how much money they set on fire, facilitated by the accident of the world’s seemingly bottomless appetite for U.S. debt.

Jefferson famously said if forced to choose between living without newspapers and living without government, he’d prefer the latter. But the press no longer plays the role he expected, policing government policy failure—say, by discovering that the Affordable Care Act produces insurance so unaffordable nobody would buy it without a subsidy, or that green-energy handouts reduce emissions only in an imaginary world where energy consumption is capped.

It took two decades, but something new has come into the world perhaps to alter the path I trace here from Sept. 12. A voter can ask a large language model whether government policy makes sense and get a nuanced answer. I may be alone but I don’t see doom coming from AI. I see better decision-making, at last.

George Leef documents yet another instance in a long, sordid list of labor-unions’ assault against the rights and freedoms of workers.

The Editorial Board of the Wall Street Journal reports on new research that gives strong evidence that heavy taxes discourage economic innovation (and, hence, economic growth). A slice:

Economists keep warning politicians that incentives matter, and the latest teachable moment concerns taxation and innovation. New research suggests how sensitive investors in start-up companies are to changes in tax policy, and what this means for the economy.

In short: A big tax break for investment in new companies, introduced in 2009, resulted in more business unicorns. In a working paper published by the National Bureau of Economic Research, Murillo Campello and Guilherme Junqueira of the University of Florida track the effects of changes to the Qualified Small Business Stock (QSBS) tax break, which Congress made significantly more generous after 2009 and 2010.

Previously the law had offered a trivial tax break for investments in small companies. The changes eliminated capital-gains taxes on qualified investments—meaning newly issued shares in C corporations with assets of less than $50 million in certain industries.

This allowed the economists to compare investment decisions and performance in the relevant industries before and after that change. The researchers also distinguish between different kinds of investors with different incentives, such as “angels” investing their own money, venture-capital firms pooling money from many investors, and corporations that can’t benefit from the QSBS break. It adds up to a sample of 158,000 investment deals from 2004 to 2022, tracking those deals from initial investment to exit or failure.

The central insight is that by improving the return investors can hope to achieve, this capital-gains tax cut encouraged more risk-taking. After the tax cut, venture firms (the investors most sensitive to the tax break) were 81% more likely to invest in the earliest development stage of a new company. They were also more likely to invest in startups that already carried debt, or where the venture firm had no previous experience in the industry—all markers of higher investment risk.

Many of those bets didn’t pay off. The rate of failure for firms that received venture funding was 71% higher after than before the 2009 tax cut. But those that succeeded did so in spectacular fashion: Valuations for successful exits after 2009 were 131% higher than before, and startups whose investors were eligible for the tax break were twice as likely to become unicorns with valuations exceeding $1 billion.

The economic intuition here is straightforward. In order to take more risks, investors require higher returns. By allowing investors to keep their gains, this capital-gains tax cut increased the expected return of successful investments, encouraging venture firms to swing for the fences. The counterintuitive benefit of the tax break may be that it makes investors more tolerant of potential failure.

Wesley Smith tells of just how terrifyingly authoritarian are those people who believe that society is a science project.

Tweet

… is from page liv of David Hart’s superb “Introduction” to Liberty Fund’s 2016 expanded English-language edition, brilliantly edited by Hart, of Frédéric Bastiat’s indispensable work Economic Sophisms and “What Is Seen and What Is Not Seen”:

Bastiat shared Bentham’s view of “deception” as an ideological weapon used by powerful vested interests to protect their political and economic privileges. Bastiat saw that his task in writing the Sophisms was to enlighten “the dupes” who had been misled by la ruse, or the “trickery,” “fraud,” and “cunning” of the powerful beneficiaries of tariff protection and state subsidies.

Tweet

Here’s a letter to a new correspondent.

Mr. Brennick:

Thanks for your email. I’m sorry that you find my letter in today’s Wall Street Journal “thoroughly unconvincing.”

No one can really know how Alexander Hamilton, were he alive, would judge Trump’s tariffs. The best we can do is to consult his writings on trade, the most famous of which is his 1791 “Report on the Subject of Manufactures.” In that “Report,” Hamilton’s clear purpose is to prompt government to use both subsidies and tariffs to foster fledgling manufacturing in the fledgling United States. His belief was that manufacturers in Europe, being well-established and capitalized, would out-compete upstart manufacturers in the U.S. Hamilton argued that U.S. manufacturers could grow to maturity only if they’re protected in their infancy.

I’m confident that Hamilton was mistaken to believe in the need for infant-industry protection – a protectionist belief that reveals that Hamilton’s understanding of the case for free trade was deficient. Hamilton’s sympathy for protectionism, therefore, does indeed lend some credence to the case that he would support Trump’s tariffs. But on the other side, Hamilton also understood that government protection of infant industries can go too far. He wrote:

The continuance of bounties on manufactures long established must almost always be of questionable policy: Because a presumption would arise in every such Case, that there were natural and inherent impediments to success. But in new undertakings, they are as justifiable, as they are oftentimes necessary.

Although he here explicitly mentions only bounties (what we today call “subsidies”), elsewhere in the “Report” Hamilton describes a protective tariff as “a virtual bounty” for protected industries. His reasoning therefore provides good grounds for extending his warning about prolonged subsidies to prolonged protection through tariffs.

Unlike Trump, Hamilton would never have called himself “Tariff Man,” or scribbled in the margins of a speech that “TRADE IS BAD.” Also unlike Trump, Hamilton did not believe that Americans are harmed by U.S. trade deficits (that is, net capital inflows) – quite the opposite. This latter difference is especially significant because the single trade ‘fact’ mentioned most often by Trump as justification for his tariffs – and as the justification for his “Liberation Day” tariffs – is that the U.S. regularly runs trade deficits. On this matter especially, Trump is completely bonkers – an assessment with which Hamilton would surely agree.

Because nearly all U.S. industries covered by Trump’s tariffs are long-established and have access to the world’s most efficient capital market, it’s impossible to conclude from Hamilton’s writings that he would support Trump’s tariffs. Nevertheless, because Hamilton, for all of his brilliance, ultimately did not adequately appreciate how free markets work, he very well might, were he resurrected, endorse Trump’s tariffs. Any such endorsement, however, would reflect Hamilton’s weak grasp of economics rather than any specific policy that he endorsed while alive.

Sincerely,
Donald J. Boudreaux
Professor of Economics
andMartha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

Tweet

The Editorial Board of the Wall Street Journal warns that today’s continuing inflation is helping to keep Americans’ real wages from growing. A slice:

The worst news for workers in the report is that real hourly average wages fell 0.1% in August. They’re down 0.3% over the past year, as the nearby chart tracks. The burst of inflation in the spring crushed average earnings, which barely grew in 2025 as well. This goes a long way to explaining why Americans feel sour about the economy, and getting those wages up ought to be the President’s highest economic priority.

The war in Iran has caused energy prices to rise, but the President’s job approval rating on the economy was underwater before he launched the attacks in late February and gasoline prices shot up. A big reason is his border taxes, which have contributed to rising prices.

From Unleash Prosperity: (HT David Henderson)

The Washington Post‘s Editorial Board decries the Trump administration’s blatantly unconstitutional – read the 14th Amendment – attempt to exclude from the census count immigrants to America who are neither U.S. citizens nor holders of green cards. A slice:

No matter your view on immigration, the move would clearly violate the 14th Amendment, which mandates that representation in Congress be apportioned according to “the whole number of persons in each state.” The text makes no mention of the citizenship or legal status of those individuals, nor their “allegiance.”

The Constitution codified a simple democratic principle: Members of Congress represent every person in their state or district, regardless of whether those residents voted for them or even could. That reflects the reality that even people who are living in the United States illegally are subject to its laws, pay taxes and retain unalienable rights. Elected officials can choose to not care about some of their constituents as much as others, but they cannot pretend that they do not count at all.

Tosin Akintola reports that, succumbing to pressure from Trump, South Korea will increase the U.S. trade deficit. A slice:

On Thursday, The Wall Street Journal reported that the South Korean government would soon announce an investment of over $100 billion for eight nuclear power plants and a natural-gas project in Texas. The nuclear power plants will likely be built on federal land and use the AP1000 design by U.S.-based company Westinghouse Electric.

Scott Lincicome tweets:

They said the government’s equity stake in Intel was essential for national security. Now, per Secretary Lutnick, it’s ACTUALLY a (much too small) slush fund to bribe voters.

Tweet

… is from pages 10-11 of Richard Epstein’s brilliant 1995 book, Simple Rules for a Complex World:

Battles over legislation are likely to be more bitter and protracted given the conflicts between groups that are difficult to compromise and broker whenever a majority is in a position to expropriate wealth from a minority. Legislation, in a word, works best in homogenous societies where agreement on basic values reduces the overall level of conflict.

DBx: Yes. In large, diverse, and dynamic societies, it’s best to rely as much as possible on private sources of ordering, such as the market, and on common-law processes.

Tweet

Here’s a letter to the Wall Street Journal.

Editor:

Peggy Noonan is so frightened of AI that she not only calls on investors to stop funding it, but on government to “hit the brakes hard” on this technology (“Pause AI for Humanity’s Sake,” September 11).

Ms. Noonan imagines AI unleashing a terrible dystopia. Yet what we imagine should be informed by the past. Ms. Noonan’s imagination isn’t. Were she to consult the past, she’d encounter a few realities beyond the obvious one that countless technologies that we today celebrate were, when introduced, reproached as imperiling humanity.

One such reality is that when insiders stir up alarm about their own industries, they’re often angling for regulation that shelters them from competition. As classic case involves AT&T: it warned that telephony would collapse into chaos unless regulated as a natural monopoly. Established bankers played the same game during the Depression, warning that, without government-imposed interest-rate ceilings, ruinous competition for deposits would breed financial crises. In each case the peril lay less in the absence of regulation than in the ‘cures’ – a fact that points to a second and more fundamental reality: a far greater danger than new technology to humanity is government authority to regulate technology.

History gives us every reason to distrust government with the awesome power to determine just how new technologies will develop, and how and when we should be permitted to uses these technologies. In short, history teaches that the wealthiest and safest societies are ones in which innovation is, as Adam Thierer calls it, “permissionless.” If we’re to hit the brakes hard, it should be on the ages-old, fear-fueled impulse to put control of economic forces and technological advances into the hands of politicians and bureaucrats.

Sincerely,
Donald J. Boudreaux
Professor of Economics
and
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030