Happy Thursday.
We’re live right now on YouTube and 𝕏.
The current thing is OpenAI CFO Sarah Friar’s recent comments about a federal backstop for AI companies.
Let’s get to it.
Today’s lineup
Sierra Co-Founder and CEO Bret Taylor at 12:15 PM
Roblox Co-Founder and CEO Dave Baszucki at 12:30 PM
Robinhood Co-Founder & CEO Vlad Tenev at 1:00 PM
Overwolf Co-Founder and CEO Uri Marchand at 1:30 PM
Metropolis Co-Founder and CEO Alex Israel at 1:40 PM
fomo Co-founder and CEO Paul Erlanger at 1:45 PM
Beacon Software Founder and CEO Nilam Ganenthiran at 1:50 PM
Run of Show: The Bull Case for Backstops
Wow, wild headline from the WSJ: “OpenAI Wants Federal Backstop for New Investments” - this reads very crazy, very bearish, it feels like if things are going well you don’t ask for a backstop. Of course, there is nuance here, and OpenAI’s CFO Sarah Friar clarified the comments she made on stage at the WSJ’s Tech Live event. She wasn’t asking for a backstop for OpenAI’s investments, she was “making the point that American strength in technology will come from building real industrial capacity which requires the private sector and government playing their part.”
OpenAI has so completely dominated the zeitgeist that every quote is going to be analyzed to death. This is one of my favorite things to do. So let’s walk through it.
First, should a federal backstop exist for large-scale industrial projects? I would argue that one already exists and that’s what Sarah was referring to. Sam Altman actually touched on a similar concept in his conversation with Tyler Cowen that went live yesterday as well (crazy timing). Basically, Tyler mentions that the government provides insurance for nuclear energy projects and wonders if the government might play a similar role in AI soon.
Here’s Sam’s answer: “At some level, when something gets sufficiently huge, whether or not they are on paper, the federal government is kind of the insurer of last resort, as we’ve seen in various financial crises and insurance companies screwing things up. I guess, given the magnitude of what I expect AI’s economic impact to look like, I do think the government ends up as the insurer of last resort.”
This is just true. There are a bunch of different political groups that dislike “backstops” and “bailouts” for a variety of reasons, but before you interrogate what “should” happen, you should interrogate what “will” happen. In 2008, there was a global financial crisis, banks were overleveraged on housing, and the government came in and acted as a lender of last resort. Tons of people hated this (see Occupy Wall Street), many economists argued that the bailout was better than the alternative of further financial spiraling.
If there is a sudden collapse in the American economy, the government has historically intervened. Like it or not, backstops are bipartisan. The backstop might be slight rate adjustments, buying up distressed assets, providing low-cost debt, or one of several other tools for controlling the economy. America has maybe the freest market, but it’s never been a completely free market.
I do like that we already have clarification on what tools might be employed if there is a market correction though. AI czar David Sacks said: “There will be no federal bailout for AI. The U.S. has at least 5 major frontier model companies. If one fails, others will take its place.” - This is great, the government shouldn’t be picking winners, or even bailing out specific sectors. In 2001, there was no technology sector bailout for dot‑com equity investors. The fed loosened monetary policy and there were some tax changes to help the economy get back on track, but if you were in Pets.com we didn’t socialize your losses.
America has a playbook for backstops, I don’t think Sarah Friar or anyone at OpenAI is asking to rewrite the playbook, but there is something that feels moral hazard-y about the CFO of the most important company at the center of a massive economic wave sort of telling everyone how the magic trick works.
— John
Headlines
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