President Biden recently vetoed bipartisan legislation that would have allowed financial institutions to hold customers’ cryptocurrency. It is disconcerting to see him veto legislation specifically crafted to foster financial innovation and safeguard consumer choice.
By disallowing banks from securing digital assets, the veto will impede the development of new financial technologies and reinforce the dominance of traditional financial systems that many view as outdated and excessively regulated. This action could stifle innovation in the financial sector and limit the potential benefits of decentralized currencies, which offer users more privacy and freedom.
Ever since British textile workers destroyed machines in cotton and wool mills in the early 1800s, fearing they would threaten their jobs, technological change has been marveled at by many and feared by some.
Known as the Luddites, members of this movement effectively sought to end human progress and advancement. Today, it isn’t bands of workers armed with clubs seeking to destroy technology, but often it is government bureaucrats and policymakers who take destructive actions to preserve the status quo, seemingly out of fear of the unknown.
Cryptocurrency, sometimes referred to as “freedom currency,” operates without a central network controlled by a single entity, which makes it challenging for the government to regulate transactions. That appears to be why the president and his administration oppose promoting its use in the financial system.
Biden appears to be more comfortable with exploring developing a Central Digital Currency (CDC), which the government would run. However, a CDC would have the opposite effect as today’s cryptocurrency. It would empower the government to monitor every transaction, gain unprecedented access to the American people’s personal financial data, and potentially dictate how they spend their money.
Cryptocurrency is not the only technological change the president seems intent on stifling. His administration is also taking an ad hoc approach to regulating the artificial intelligence industry, which could stifle its development.
Artificial intelligence (AI) is a powerful tool with the potential to revolutionize numerous industries, from health care to finance and even education. It can significantly boost productivity and economic growth by automating routine tasks, enhancing decisionmaking processes and creating new opportunities for innovation.
In a remarkably short amount of time, AI has become integrated into business, finance, education and health care, driving advancements in personalized learning, improving customer service through chatbots, optimizing supply chains, and even contributing to medical research and diagnostics. That is why it is so worrisome to see the Biden administration seemingly working to slow-roll and even put a stop to it across industries.
For example, President Biden recently railed against — and the Department of Justice recently began investigating — AI-based proptech software companies that help landlords and property owners price their units. The software suggests a rental price that the owner can use as a guide to remain competitive in the market while optimizing revenue based on hundreds of factors, including neighborhood, schools, ZIP code, market conditions and size.
The modern-day Luddites’ argument — that multiple companies using similar algorithms represents “tacit collusion” — seems to be based on a misunderstanding of what AI technology does (and does not) do.
AI-generative technology does not mandate or penalize users for not following its recommendations. Many of its users do not strictly follow such algorithmic outputs; they just use them as guideposts. So there is not much of an antitrust argument here.
There is little debate that if the Biden administration continues to challenge AI technology like this, it could set a precedent that threatens technological advancements and the overall promise of AI. As legal experts recently put it at a University of California, Berkeley School of Law symposium, increased scrutiny and regulation will lead to a “wave of litigation” over AI technology, which will force courts to analyze the “black box” of corporate AI algorithms.
These professors are correct. Car rental companies, ride-share companies like Lyft and Uber, the airline industry and the hotel and hospitality sector all use similar technology to find the most competitive pricing models. Demonizing the broad spirit of and basis of this AI-generative software will not bode well for economic innovation.
While AI and blockchain technologies promise to transform our society, their potential can be realized only if America’s elected representatives understand and embrace such innovations with thoughtful and forward-looking policies. The Biden administration’s approach to cryptocurrency and AI regulation seems rooted in a fear of the unknown and a desire to maintain the status quo. This short-sighted strategy could leave the U.S. lagging behind in the global race for technological leadership — and that is an outcome that should be avoided at all costs.
John K. Paglia is a professor of finance at Pepperdine Graziadio Business School, where he has been on the faculty since 2000.