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December 9, 2023 | When Government Does Not Understand Something – Regulate It Until They Kill It

Martin Armstrong

Martin Arthur Armstrong is current chairman and founder of Armstrong Economics. He is best known for his economic predictions based on the Economic Confidence Model, which he developed.



The golden rule of government is that whenever something new emerges – regulate it even when you do not understand what you are doing. While the details are not yet set, the EU wants to be the first to regulate AI. This new legislation requires foundation models such as ChatGPT and general-purpose AI systems (GPAI) to comply with transparency obligations before they are put on the market. These include drawing up technical documentation, complying with EU copyright law, and disseminating detailed summaries about the content used for training.

AI Artificial Intelligence

The real problem is what is AI? I can write a program that will talk, mimic a human, list all the known diseases in a database, then you answer some questions and it will say you have this or that. That is not AI. That is just a look-up program. How do we even define AI? I fear that they will simply take a look-up program and attribute that to AI. The regulation will become such a nightmare that you cannot participate in such a marketplace.

1865 Red Flag Act

The EU legislation stands a high probability of killing AI development in Europe and, in fact, closing off its citizens from even using AI. The classic example is how England lost the Industrial Revolution and effectively outlawed automobiles, so the Industrial Revolution shifted to America. That one decision led to England’s subservient status to America.

The English politicians were bribed by the horse & buggy industry to pass the Locomotive Act (1865), which required self-propelled vehicles (automobiles) on public roads to be preceded by a man on foot waving a red flag and blowing a horn. The legislation succeeded in shifting the Industrial Revolution to Germany and America. The status quo bribed the politicians fighting against this wave of Creative Destruction. The English Parliament finally removed the need for the red flag in 1878 and abolished the law entirely in 1896.

Hed Fund Industry

The Hedge Fund Industry was created by overregulation. In 1985, I warned Congress that unless they merged the SEC and Commodity Futures Trading Commission, they would force serious fund management offshore, which became the hedge fund industry. They would not merge the two agencies, so managing funds for an American became impossible. I was offered to manage $60 billion domestically and declined. Why? Because by law, the maximum I could hedge if I thought the stock market would decline was 17% using futures. If I used more than the equivalent of 17%, I would not be an equity fund regulated by the SEC but a futures fund under the CFTC. If you obey the laws of one, you go to jail under the other. Hence, you had to go offshore. For an American to invest in a hedge fund offshore, they must create a corporation outside the USA and that invests – not an American citizen. Then the IRS snoops around.

Domestically, there are countless funds that are all specialized. It became your burden to understand if you should be in bonds, stocks, real estate, or commodities. Each fund will naturally tell you they are the best. As a hedge fund manager, clients came to me, and I made that decision, which I could not do in a domestic fund because of all the regulations.

With some of the suggestions already being mentioned in the EU, the drastic overregulation will more likely than not mean AI can never be developed in Europe, and we may be looking at the same outcome as England’s Red Flag legislation of 1865.

In the US, the Constitution forbid Ex Post Facto Laws. They cannot put Socrates out of business by suddenly writing laws today that apply retroactively. While we have been working on this project to allow clients to interact with Socrates asking it questions and even monitoring your portfolio, that may become impossible in Europe.

Socrates Real Estate

The Global Market Watch was actually created for one of the top banks in the world. They wanted something that at a glance they could just look down and see what was highlighted instead of reading a 1,000 written reports daily.

The major question, will Europe kill its own future once again?

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December 9th, 2023

Posted In: Armstrong Economics

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