Investors are pushing AI stocks to eye-popping heights because they think the industry will stay unregulated, Harvard economist says

• Bets that the AI industry will stay unregulated are fueling the tech rally, Harvard economist Ken Rogoff wrote in Project Syndicate.
• Regulators could borrow from oversight of the financial industry after the 2008 crisis, he said.

Artificial intelligence was key to igniting the rise in tech stocks last year. But extending into 2024, bets that the industry will avoid oversight are the real reason the rally is still ablaze, Kenneth Rogoff wrote in Project Syndicate.

"The current stock-market rally is partly fueled by the expectation that AI will remain unregulated, despite the potential displacement of tens of millions of workers, the threat of political instability, and the distortion of public discourse," the Harvard economist wrote.

No matter who wins the presidency in November, regulation is unlikely to change, he added.

Since the launch of ChatGPT in late 2022, frenzy around the technology took over, and leading firms have raced to develop their own AI offerings — whether that be chatbots, virtual assistants, or image generators.

A stock boom followed, with investors piling in on the conviction that AI will spur a new tier of economic growth. In 2023, the S&P 500 jumped over 22%. Tech-heavy mega caps led the way, with the top seven accounting for the majority of these gains.

Warnings against the dangers of AI haven't managed to quash this enthusiasm. That's despite concern that it poses an existential risk to humanity, a message touted by industry heavy hitters, such as OpenAI's Sam Atlman. Still others worry it will erase jobs across global economies.

To reckon with this, regulators could learn from financial regulation in the post-2008 era, Rogoff said. Although stringent measures did pull down market efficiency after the market crash, the oversight ensured institutions were ready to absorb pandemic shocks years later.

But so far, not enough is being done to counter potential risks. While President Joe Biden has signed an executive order to manage possible threats, his administration needs to step up efforts to reel in Big Tech, Rogoff argued.

That's only to become less likely given how politically divided the US has become. Whatever the election results, the chances of a president controlling both houses of Congress for the long-term is doubtful:

"With political gridlock becoming the norm in Washington, the Big Tech firms accounting for a large share of the stock market's recent gains, owing to an AI boom, are less likely to face anti-monopoly regulation," Rogoff outlined.

He later added: "Essentially, the market is operating under the assumption that AI companies will thrive, regardless of the outcome of the US presidential election."