Biden declares war on innovation

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Last week, the Justice Department and Federal Trade Commission agreed to divide the responsibilities for investigating three of the U.S. companies that are at the cutting edge of developing artificial intelligence technology. The DOJ will take the lead on investigating possible antitrust wrongdoing by Nvidia. The FTC will look into the relationship between Microsoft and OpenAI and whether the business dealings between the two companies are anti-competitive and signal illegal monopolization behavior. 

Purportedly, the federal government is concerned about the large market shares the three companies possess in the fast-developing AI industry. But that can’t be the true reason for the investigations and the wide publicity regarding the division of responsibility between the DOJ and FTC. Antitrust law is very clear that large market dominance obtained through innovation cannot be characterized as illegal monopolization.

A foundation of the U.S. system of free market capitalism is to promote innovation, creative destruction, and a vibrant economy in which productivity is constantly growing. U.S. antitrust law is all about economic efficiency and consumer welfare. AI has the potential to increase the economic growth rate of the United States by up to 1.5% a year for a decade or maybe longer. Such an increase would be profoundly positive in the context of the current trend of GDP growth of around 1.5% to 2%. In plain words, AI could almost double the growth rate of U.S. GDP. 

It’s important to note that Nvidia achieved dominance in the market for accelerated computing semiconductors through innovation. Nvidia engineers realized their graphics processing chips, or GPU, for gaming could also be used for accelerating the rate of data processing. Nvidia aggressively increased its R&D budget for accelerated computing. When the field of AI suddenly emerged, Nvidia was ready. Its GPUs were vastly superior to competitors’ semiconductors in creating the large language models necessary for AI. Today, Nvidia has about a 92% market share in AI accelerated computing, all because of innovation, completely legal under U.S. antitrust law. And completely positive from a societal benefit perspective. Importantly, Nvidia continues to invest aggressively in R&D because AMD and Intel, as well as the giants of technology, are all developing chips to compete with Nvidia.

Free market capitalism is working. It is no different for Microsoft and OpenAI. They are both aggressively investing in AI. The two companies have achieved strong market positions in AI through innovation. Moreover, the two companies are not monopolies. They do not have dominant market positions. Alphabet-Google is a formidable competitor. Meta is a strong competitor, and Meta is offering the public an open-source AI platform.

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The market also says that Apple, Amazon, and Tesla are investing heavily in AI platforms. Competition is ferocious. The U.S. is the world leader in AI because of the principles of free market capitalism. Sadly, President Joe Biden’s DOJ and FTC are run by liberals who want to emulate the economic regulation policies of the European Union that, in significant part, are the reason why the EU is almost completely absent from markets regarding AI and advanced technology more broadly. The U.S. innovates. The EU regulates and strangles innovation. 

Biden’s progressives do not believe in Adam Smith’s invisible hand. They bow to the administrative state. Biden’s progressives believe they can manage an economy approaching $30 trillion in size. They are wrong both economically and legally. The market shrugs its shoulders at progressive foolishness. The share prices of both Nvidia and Microsoft were not affected by the antitrust news. 

The writer owns shares in Nvidia and Microsoft. 

James Rogan is a former U.S. foreign service officer who later worked in finance and law for 30 years. He writes a daily note on the markets, politics, and society.