Kings of AI: Money Before Country, Again

U.S. industrial policy in a nutshell

Hat tip: Mark Ames here

The U.S. has been losing its manufacturing base since Reagan gave away our basic industries to Japan (and was well rewarded afterward for doing it). To many, that seems a failure of planning, of policy — the untamed market gone wild.

But no — as Robert Reich maintains, this was actual policy, a “comprehensive, deliberate and consistent” industrial plan, and one that succeeded. It’s just that a plan like this can’t be stated out loud.

U.S. Industrial Policy and the Asian Deal

U.S. industrial policy has been the same since the rich got Reagan and launched their own revolution. Here is U.S. industrial policy is in a nutshell:

Move our industrial base out of the country at the fastest possible rate, then hand the untaxed savings to billionaires, using corporations as a pass-through.

It is, in short, to enrich the already rich at the nation’s expense. In a plutocracy, where wealth owns the government and serves only itself, that policy makes perfect sense.

In contrast, Chinese industrial policy is to improve the lives of its people, using the industrial activity of its wealthy to do it. In effect, the U.S. has said to China and Asia, “We’ll let you impoverish our people if you make our rich richer.” Asian governments said, “We’ll take that deal.”

The parties shook hands, and that’s how we got where we are.

Industrial Policy and the Tech Oligarch Deal

Our government has since made a similar deal with tech oligarchs, the kings and queens of Silicon California. As Ryan Grim put it on Twitter (emphasis mine):

The Silicon Valley social contract forced on the public by Obama and then Trump [and the rest] was straight forward: We will let these bros become the richest people in human history and in exchange they will develop a tech industry that makes the U.S. dominant for a century.

Half that deal worked. The techies made themselves rich, then greed got them out-competed by orders of magnitude, first by Chinese social media companies, then by the Chinese startup DeepSeek and its vastly superior (and cheaper) AI technology (see also here).

As a result, AI development in the U.S. is cratering; it’s just too expensive with DeepSeek available. For example, this is a chart of Nvidia stock, a key AI company, for the last thirty days:

Nvidia matters because it makes a powerful processing unit (called a GPU) that backend AI servers absolutely need. Without good GPUs, AI requests are served up very slowly. (More on that here and here.) The problem is, DeepSeek gets the same or better results using far fewer GPUs than American AI, making it cheaper and more energy-efficient (AI in general is an energy hog).

The “tech bros” took the money, in other words, then failed to compete. Why? Because monopolies guarantee wealth, until they don’t. More from Grim:

[The tech bros] did the first part [made themselves richer than God], then built monopolies to try to keep out competition rather than continue to innovate at a top level […] and then [they] got out-competed by Chinese companies in both AI and social media. They are the losers we always thought they were — and now so are we.

In the U.S., billionaire wealth always comes first. As a result, these outcomes are always inevitable.

Lina Khan Was Right

There’s a Lina Khan dimension to this discussion. Grim again (emphasis mine):

Lina Khan, as chair of the Federal Trade Commission under former President Joe Biden, became a folk hero as she warned that greed and consolidation weren’t just harming consumers and workers, but that the sclerotic companies themselves would eventually suffer from the lack of competition. “Our history shows that maintaining open, fair, and competitive markets, especially at technological inflection points, is a key way to ensure America benefits from the innovation these tools may catalyze,” Khan said in 2023.

Now it’s become clear that the moat the U.S. built to protect its companies from domestic competition actually created the conditions that allowed them to atrophy. They got fat and happy inside their castles. … With a tiny fraction of the resources, and without access to the full panoply of U.S. chip technology, the Chinese company DeepSeek has pantsed Silicon Valley.

Because profit comes first, Sam Altman did this:

The U.S. company OpenAI began as a nonprofit dedicated to making AI widely available, as its name suggests. Its top guy, Sam Altman, managed to transition it to a for-profit and close it off.

The potential profit’s considerable: $500 billion in government money. That’s half a trillion in kitchen table terms. Now Altman’s stuck: DeepSeek AI is open-source, freely available, cheaper, faster and better. That’s not just a kick in his pants, but our pants as well. The AI action will now happen in Asia.

Lina Khan (Graeme Jennings/AP)

For all her trouble (and patriotism) Lina Khan has been sidelined. Commissioner Andrew Ferguson replaced Khan as Chair on January 20, 2025. He’s expected to take the FTC in a Trump-loyal direction.

Making the rich more rich at our expense. Why is anyone surprised? It’s been policy since Reagan, and nothing has changed.