A compute tax is a REALLY dumb idea

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People are freaking out about AI. That’s never a good starting point for sensible policy. So we get weird ideas.One idea is to tax computer processing capabilities, sometimes called a “compute tax.” Andrew Yang is pushing it, so you know it must be serious. John Arnold captured the general sentiment on Twitter: This Substack is reader-supported. To receive new posts and support our work, consider becoming a free or paid subscriber.As Anton Korinek told the WSJ: “Half a year ago, it was something you would hear about only in very select circles. It really has become much more mainstream in the last three months.” That piece has a lot of great quote, so I will keep comping back to it. It also has Nobel laureate Simon Johnson saying a compute tax is a “sensible policy lever to slow down automation.” Is it sensible?We agree that when you tax something, you get less of it. That would slow automation down. “Sensible” is not the word I would use, though. If you just hate AI and want less of it, then maybe Simon Johnson is right, and a compute tax is sensible. A compute tax is about as bad as a tax can be, by the standard benchmarks used in public finance. If you care about things like increasing output, total surplus, minimizing deadweight loss, those types of things, stay away from this. This newsletter explains why. In many ways, this will mirror what we’ve discussed before about tariffs, so I’m going to keep bringing them up in this piece. I know. Sorry. But, as Herbert Spencer said, “Only by varied iteration can alien conceptions be forced on reluctant minds.”What is a compute…