California Forces a Rethink of A.I. Regulation

How should A.I. be regulated?

The most sweeping effort yet to regulate artificial intelligence, a California bill that could have informed laws around the world, is going back to the drawing board.

Gov. Gavin Newsom vetoed the legislation, known as S.B. 1047 — under strong pressure from Silicon Valley giants. Now, governments must again try to figure out the best way to rein in the fast-growing technology’s excesses, while letting innovation flourish.

“I do not believe this is the best approach to protecting the public,” Newsom said of his veto. It was a rebuke that underscored the divide over S.B. 1047, which mandated safety testing of A.I. models that required a certain level of computing power and cost at least $100 million to train.

• Proponents, including Geoffrey Hinton, an A.I. pioneer, and Elon Musk, said that S.B. 1047 provided necessary guardrails, and they urged California policymakers to reject intense pressure from software giants against the bill. Hollywood actors and writers also supported the legislation.

• Opponents, including prominent venture capitalists and tech executives, called S.B. 1047 a blunt instrument that threatened to choke off innovation. Smaller tech companies also pushed back, worried that A.I. giants might not make their models publicly available if the legislation passed. (Representative Nancy Pelosi also urged state legislators to reject the bill and applauded Newsom’s decision.)

The Wall Street Journal notes that there are nuances in how A.I. models work: Some smaller models handle decision-making for critical situations such as power grids, while larger models are sometimes deployed for relatively safe matters including customer service.

Regulating A.I. has proved tricky to do. While governments around the world (and A.I. leaders including Sam Altman of OpenAI and Demis Hassabis at Google) broadly agree that guardrails are needed, none has passed anything as sweeping as S.B. 1047. The broadest law so far is the European Union’s A.I. Act, which focuses on the riskiest use of the technology but also includes transparency requirements for the largest models.

California would be among the most influential potential regulators of A.I. The bill would have affected any companies that do business in the state; included requiring a kill switch for rogue A.I. systems; and gave the state the right to sue companies for harm caused by their technologies. (Newsom has already approved some A.I. legislation, including crackdowns on deepfakes.)

Newsom said he would convene a board of experts to help create a more acceptable set of limits. They include Fei-Fei Li, the Stanford computer scientist whom he called the “godmother of A.I.,” who has founded an A.I. start-up and argued last month against S.B. 1047.

The big question is whether the federal government will step in — and whether Congress can navigate the tricky terrain that California stumbled on.

• In other A.I. news: Peter Thiel’s Founders Fund has backed a nuclear power start-up, as A.I. companies strain national electricity grids.

HERE’S WHAT’S HAPPENING

DirecTV clinches a deal to buy Dish. The satellite TV company said on Monday that it would buy its heavily-indebted rival in a two-step transaction. First, the investment giant TPG, a minority shareholder in DirecTV, will buy out AT&T’s majority stake for $7.6 billion. Then DirecTV will buy Dish for just $1 — and assume its hefty debt, about $2 billion of which comes due in November. One big question: Will government regulators approve a deal this time around?

Chinese stocks enter a bull market after Beijing’s new stimulus measures. Shares in mainland China had their single best trading day since 2008, extending a rally that began after policymakers unveiled measures to boost growth last week. But many analysts warned that the stimulus measures aren’t enough to boost sagging demand in the world’s second-biggest economy.

U.S. economic data and Nike results are on the agenda this week. The jobs report on Friday will cap a series of data releases this week that are likely to provide fresh indications of the nation’s economic health. In corporate results, Nike will report quarterly earnings tomorrow, almost two weeks after it replaced its C.E.O. Also tomorrow, Gov. Tim Walz and Senator JD Vance will face off in a vice-presidential debate.

Trump turns his fire on Google

Donald Trump has frequently threatened people and companies he doesn’t like. That list now includes Google, which he threatened to prosecute should he win in November — over a vague accusation that it favors unfavorable coverage of him.

What set Trump off: The former president referred to unsubstantiated (and unclear) accusations that the search giant showed only positive coverage of Vice President Kamala Harris and negative stories about him.

From his post on the matter on his Truth Social network:

This is an ILLEGAL ACTIVITY, and hopefully the Justice Department will criminally prosecute them for this blatant Interference of Elections. If not, and subject to the Laws of our Country, I will request their prosecution, at the maximum levels, when I win the Election, and become President of the United States!

A Google representative denied that the company’s search engine favored one candidate over another, and noted that both presidential campaigns’ websites consistently appeared at the top of results for relevant queries.

Google is joining a long list of companies that Trump has threatened. In recent months, he’s suggested that he would impose a 200 percent tariff on John Deere after the company disclosed plans to move some manufacturing to Mexico from Iowa. And in August, Trump accused Mark Zuckerberg of having “plotting” against him in 2020 and said that the Meta chief would “spend the rest of his life in prison” if he did so again.

As president, Trump assailed companies including General Motors and Carrier over moves like closing plants.

Does the strategy work? Trump’s critics have accused him of “unscrupulous behavior” for threatening his political opponents with prosecution and long prison sentences.

But while companies initially worried about being the subjects of presidential Twitter tirades during Trump’s first term, they gradually became inured to such attacks, and some business leaders eventually dismissed the threats as bluster. On that point: John Deere’s share price has gone up since Trump’s attack.

That said, corporate executives — including Zuckerberg — have stepped up their outreach to Trump, presumably to cover their bases if he wins re-election.

• In other political news: Harris took in $55 million at fund-raisers in California over the weekend, her last such events before the election. And Netflix reportedly saw a spike in subscriber cancellations in the days after its co-founder, Reed Hastings, endorsed Harris for president.

A strike looms over eastern U.S. ports

Thousands of workers at ports from Maine to Texas are set to go on strike early tomorrow morning, halting cargo shipments along the East Coast and potentially costing the economy billions a day.

A work stoppage would be another blow to supply chains and represent organized labor’s latest effort to reassert its power in an election year.

A recap: The International Longshoremen’s Association has battled for months with shipping companies over a new contract, demanding higher wages and benefits and pushing back against automation at ports.

After reaping windfall profits in 2021 and 2022, shippers face challenges to their businesses, including a drought that has affected the Panama Canal and attacks on ships in the Red Sea that forced them to make costly detours around the Suez Canal.

Worth noting: West Coast ports won’t be affected after unions reached a deal that averted a potential strike there last June.

Companies are preparing contingency plans, including pulling deliveries forward and booking reservations with West Coast ports and rail operators. That has pushed up freight costs and raised the prospect of delays ahead of the crucial holiday shopping season.

President Biden won’t block a walkout. The president has the power to force the longshoremen back to work, but he said on Sunday that he wasn’t considering intervening. No talks between the sides are planned on Monday, with the current labor agreement scheduled to expire tonight.

Some experts see election-year politics as influencing his decision. “They just don’t want to have a fight with labor going into the election,” Harry C. Katz, a labor expert at Cornell University, told The Times, “because you need the unions to get out the vote.”

What next for oil prices?

A confluence of global forces — including persistently weak demand in China and a potential production ramp-up by Saudi Arabia — have kept the lid on oil prices. Brent crude, the international benchmark, is down about 3.8 percent over the last five days and sitting at just above $71 this morning.

But a growing number of analysts see a wild card in Israel’s escalating clash with Hezbollah, with fears growing of a wider regional conflict, Vivienne Walt writes for DealBook.

Volatility could hit the oil market. The concern is that regional instability, especially if it spreads to the Gulf’s oil-producing areas, could lead to a supply disruption that would send crude prices higher. That could potentially scramble central bankers’ fight against inflation and reignite global growth fears.

Last week, analysts at UBS raised their year-end forecast for Brent crude to $87.

“A war in the Middle East could bring extremely high prices, and the U.S. would not be immune to that,” Claudio Galimberti, an economist at Rystad Energy, a research and consulting firm, told DealBook.

Traders may be underplaying the Middle East risk. “They’re saying, ‘Until I see a disruption, I’m not going to price one in,’” Helima Croft, head of global commodity strategy and Middle East research at RBC Capital Markets, told DealBook. The bank has forecast an average fourth-quarter price of $76 for Brent crude. “Investors are a bit too blasé,” Croft added.

High oil prices pack a possible political risk. The affordability crisis was a major drag on President Biden’s approval ratings and remains so for Vice President Kamala Harris. Donald Trump has repeatedly pinned the blame for inflation on Biden and Harris. Lower energy prices — especially at the gas pump — have helped tame inflation in recent months, a period that has coincided with Harris’s improved poll numbers on managing the economy.

If crude were to spike, that would have an impact at the pump “and on inflation, which would be a problem for the Democrats,” Galimberti said.

THE SPEED READ

Deals

• CVS will reportedly meet with Glenview Capital, a hedge fund investor pushing for changes at the embattled health care company. (CNBC)

• An Australian real estate company backed by Rupert Murdoch abandoned its 6.2 billion pound ($8.3 billion) takeover bid for Rightmove, a big British real estate listings platform. (CNBC)

Elections, politics and policy

• How an aide to Mayor Eric Adams pushed New York City officials to hire a technology company under scrutiny over its ties to China — that he had personal ties to. (Politico)

• California extended its sweeping privacy regulations to protect people’s brain data from being misused by neurotechnology companies. (NYT)

Best of the rest

• “The Stock Market Isn’t All About AI Anymore” (WSJ)

• “Megalopolis,” the long-troubled movie by Francis Ford Coppola — who spent over $100 million to make it — grossed just $4 million in its debut weekend. (NYT)

• Elon Musk is a big critic of illegal immigration, but once said his past immigration status was a “gray area.” (CNN)

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