Tech giant OpenAI generated significant backlash this week after one of its top executives floated potential loan guarantees from the US government to help fund its massive infrastructure buildout.There's a lot going on in that passage. The concluding paragraph brings to mind a Paul Krugman quip from at least a quarter century ago about information technologies showing up everywhere but in the productivity statistics. But wherever the Next Big Thing looks like it might be an internal improvement, as surely as Packer fans hold their team to a high standard, the rent-seekers will do what they can to wet their beaks. "The public roads and waterways have long been a federal project, all the way back to the American System of Internal Improvements, and there are still people who labor under the delusion that these can be paid for out of general revenues. I'm still waiting for the penny to drop." Public Citizen types might have particular distrust of Our President, notorious rent-seeker and grifter after subsidies for sketchy entertainment ventures: their argument generalizes. "[R]esources devoted to early public works, whether the National Road or the various canals or the land-grant railroads, might have been prematurely and inefficiently allocated, and that it took subsequent private investment to put the Pacific Railroad in a state of good repair."
In a Wednesday interview with The Wall Street Journal, OpenAI chief financial officer Sarah Friar suggested that the federal government could get involved in infrastructure development for artificial intelligence by offering a “guarantee,” which she said could “drop the cost of the financing” and increase the amount of debt her firm could take on.
When asked if she was specifically talking about a “federal backstop for chip investment,” she replied, “Exactly.”
Hours after the interview, Friar walked back her remarks and insisted that “OpenAI is not seeking a government backstop for our infrastructure commitments,” while adding that 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.”
Despite Friar’s walk-back, OpenAI CEO Sam Altman said during a podcast interview with economist Tyler Cowen that released on Thursday that he believed the government ultimately could be a backstop to the artificial intelligence industry.
“When something gets sufficiently huge... the federal government is kind of the insurer of last resort, as we’ve seen in various financial crises,” he said. “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.”
Friar and Altman’s remarks about government backstops for OpenAI loans drew the immediate ire of Robert Weissman, co-president of consumer advocacy organization Public Citizen, who expressed concerns that the tech industry may have already opened up talks about loan guarantees with President Donald Trump’s administration.
“Given the Trump regime’s eagerness to shower taxpayer subsidies and benefits on favored corporations, it is entirely possible that OpenAI and the White House are concocting a scheme to siphon taxpayer money into OpenAI’s coffers, perhaps with some tribute paid to Trump and his family.” Weissman said. “Perhaps not so coincidentally, OpenAI President Greg Brockman was among the attendees at a dinner for donors to Trump’s White House ballroom, though neither he nor OpenAI have been reported to be actual donors.”
JB Branch, Public Citizen’s Big Tech accountability advocate, said even suggesting government backstops for OpenAI showed that the company and its executives were “completely out of touch with reality,” and he argued it was no coincidence that Friar floated the possibility of federal loan guarantees at a time when many analysts have been questioning whether the AI industry is an unsustainable financial bubble.
“The truth is simple: the AI bubble is swelling, and OpenAI knows it,” he said. “Big Tech is building a mountain of speculative infrastructure without real-world demands or proven productivity-enhancing use cases to justify it. Now it wants the US government to prop up the bubble before it bursts. This is an escape plan for an industry that has overpromised and underdelivered.”
An MIT Media Lab report found in September that while AI use has doubled in workplaces since 2023, 95% of organizations that have invested in the technology have seen “no measurable return on their investment.”
Which is why the Oakes Ames monument, built to honor the rent-seeker "whose wealth, influence, talent, and work were key factors in the construction of the first coast-to-coast railroad in North America. The contribution made by Oakes was especially significant despite being implicated in an 1873 scandal involving the financing of the railroad construction," is no longer alongside the Union Pacific crossing of Sherman Summit, as private capital paid for a line relocation with an easier grade.
But there was a Railway Mania in the mid-nineteenth century, and Action Had To Be Taken By The Government. The object of the mania changes but the objective stays the same.
OpenAI’s top executives raced to contain growing alarm over the artificial intelligence company’s financial situation on Thursday after its chief financial officer suggested that the U.S. government could “backstop” the firm’s funding deals.It might already be too late. The "picking of winners" is present whenever there is an allocation tsar, whether he admits to it or not, and the bubble might also be present. The rent-seekers, grifters, and Wise Experts will destroy emergence in the hopes of managing it.
Sarah Friar, OpenAI’s chief financial officer, faced widespread online pushback after she raised the prospect of government aid for the company at a Wall Street Journal technology conference on Wednesday. OpenAI has embarked on a deal spree to build computing infrastructure to power A.I. development, and Ms. Friar said the company wanted to find creative ways to finance its ambitious — and expensive — plans.
“This is where we’re looking for an ecosystem of banks, private equity, maybe even governmental, the ways governments can come to bear,” Ms. Friar said at the conference in Napa, Calif., adding that it would be “the backstop, the guarantee that allows the financing to happen.”
Her comments set off concern amid rising unease over whether an industrywide A.I. spending frenzy can be sustained. OpenAI, Meta, Google, Microsoft and other A.I. companies are pouring billions of dollars into building data centers and related infrastructure to power the development of the technology, with some of the companies increasingly turning to creative financing deals to fund the expansions.
Critics have said many of these deals are circular chains of financing, with chipmakers, data center providers and A.I. labs trading cash and stock back and forth with no immediate promise of a return on investment. It also remains unclear if A.I. products can generate large enough revenues to justify the costs of the infrastructure boom, leading to fears of a potentially dangerous bubble.
Late Wednesday, Ms. Friar said in a LinkedIn post that using the word “backstop” had “muddied the point.”
“I 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,” she wrote.
On Thursday morning, David Sacks, the White House’s artificial intelligence and crypto czar, said the federal government had no intention of providing any kind of bailout to A.I. companies that floundered.
“The U.S. has at least 5 major frontier model companies,” Mr. Sacks wrote on social media. “If one fails, others will take its place.”
His post stoked the debate further. On Thursday afternoon, Sam Altman, OpenAI’s chief executive, weighed in.
“We do not have or want government guarantees for OpenAI data centers,” Mr. Altman posted on social media. “We believe that governments should not pick winners or losers, and that taxpayers should not bail out companies that make bad business decisions or otherwise lose in the market.”
An OpenAI spokesman did not provide further comment.
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