“Exit through the state” could fail

AI firms are on the ropes, having spent way too much money building infrastructure for tools that are valuable, but not nearly valuable enough to support the money already spent, let alone what they’re planning to spend over the next two or thee years. This is bound to come to a bad end.

As Jerry Holkins puts it:

They can only loan each other money for so long. Then, they’ll socialize the losses through nationalization.

Source: Cyberbullies – Penny Arcade

At least, that’s their plan. Oliver Jutel and Gil Duran have a name for this plan: “exit through the state.”

Because I’m at heart an optimist, I like to imagine a more hopeful solution—one where this plan fails. And I legit think it might.

If Congress changes hands, and Trump becomes even more toxic (two things that seem very likely), there might not be anybody in a position to lead the charge for socializing the losses. A toxic Trump trying to hand another bunch of taxpayer money over to billionaire tech bros might actually be very unpopular. And if a Republican minority in Congress can’t get it together to come up with a plan that a significant number of Democrats will support, socializing the losses just might not happen.

But it has to “not happen” right then—with a Democratic (or divided) Congress.

If the AI firms can hold things together (with circular financing, SPVs, and the like) until there’s a Democrat in the White House, that guy will probably not be able to resist the pressure to “do something.”

If—as I hope, and kind of expect—it comes to a head before that, the Republicans might well not be able to come up with a plan that meets the demands of all their different constituencies, while the Democrats refuse to join in any plan that a large subset of Republicans will agree to. The result might just be that we just let the sucker go down.

Letting the sucker go down is what George W. Bush wouldn’t do in 2008. Except, of course, he kinda did, as far as homeowners were concerned. Banks, investment firms, and insurance companies got saved. Homeowners got hung out to dry.

My point being that the government is totally willing to let some suckers go down. The Republicans would like those suckers to be ordinary investors, computer users, and (in particular) tax payers. But I like to imagine that there’s at least some chance that the politicians will simply be unable to cobble together an arrangement to accomplish that, with the result that the AI firms go down, a bunch of AI firm executives get prosecuted for investment fraud, and all that infrastructure (data centers and large language models) gets sold off in bankruptcy, ending up in the hands of people with a certain amount of rationality (and much less debt).