Senator Ted Cruz wants a federal moratorium on state-level AI regulation, centralizing authority in Washington. But if the federal government takes control, who controls the bureaucracy that will decide which AI products get licensed — and which get banned? 

Back in 2023, OpenAI CEO Sam Altman warned the US Senate that artificial intelligence posed risks on par with nuclear weapons. In hindsight, those warnings sound less like public service and more like strategic fearmongering — a bid to scare lawmakers into protecting OpenAI’s market position through regulation and multibillion-dollar subsidies for his Stargate infrastructure project.

Today, Altman sounds a different note: “I believe the next decade will be about abundant intelligence and abundant energy,” he told Politico. “We need to give adult users a lot of freedom to use AI in the way that they want.” But noticeably absent is any call to give AI developers the freedom to compete with OpenAI.

If wealth is knowledge and growth is learning, then AI promises a revolution in both — accelerating discovery and lowering the cost of insight. It can put eight billion people on exponential learning curves. But will heavy-handed regulation actually accelerate this transformation — or suffocate it?

Perhaps the greater benefit comes not from centralized control, but more competition — among AI companies and among governments themselves. Let nations and states compete to foster innovation.

What makes your local McDonald’s serve you better? It’s the Burger King across the street, not a government inspector with a clipboard. Competition drives better service, lower prices, and more innovation. Regulation protects incumbents, empowers bureaucrats, and often serves political interests more than the public. If you want better choices, more value, and faster progress — bet on open competition, not central control.

Remember, it wasn’t regulation that drove down the cost of AI models from $100 million to just $30. It was competition. And it happened in less than 60 days. That’s the power of open markets. That’s how progress happens.

Flags of Convenience for AI Innovation

Flags of convenience refer to the practice of registering a merchant ship in a country other than that of the ship’s owner, usually to enjoy more favorable regulations, taxes, and labor laws. Four countries — Panama, Liberia, the Marshall Islands, and Hong Kong — account for over half of the world’s maritime freight capacity today.

In the 1950s, the US registered 50 percent of global capacity. US registration has dropped almost 99 percent, to just 0.57 percent today. Could the same pattern repeat if the US government attempts to license AI?

“Capital goes where it is welcome,” noted the great banker Walter Wriston, “and stays where it is well treated.” By capital, Wriston meant both the capital in your wallet and the capital in your head.

Where Is AI Capital Welcome and Well-Treated Today?

While the US, the EU, and China build expansive bureaucracies to regulate and tax AI innovation, a new set of countries is emerging as “flags of convenience” for AI startups — offering low taxes, business-friendly environments, and innovation-focused policies.

Singapore stands out as the most advanced option, combining low corporate taxes, strong legal protections, world-class infrastructure, and active government support through its National AI Strategy. With top universities, generous R&D grants, and seamless access to Asian markets, it’s an ideal launchpad for globally ambitious AI companies.

Estonia offers a lean, digital-first alternative within the European Union. Known for its zero-percent tax on reinvested profits, fully online incorporation, and GDPR-compliant data policies, Estonia is perfect for small, privacy-conscious AI teams. Its tech-savvy population and transparent government create a strong foundation for early-stage innovation.

The United Arab Emirates provides a gateway to the Middle East with zero- to nine-percent corporate taxes, fast-track company formation in free zones, and a national strategy focused on AI and smart cities. With strong infrastructure and no income or capital gains tax, it’s well-suited for AI startups in logistics, finance, or government tech.

El Salvador, while less mature in its AI ecosystem, offers the boldest tax incentives — zero percent on income, capital gains, and import taxes for tech companies. With a pro-crypto stance and low cost of operations, it’s especially attractive to early-stage or decentralized startups seeking freedom from regulatory overhead.

Together, these four countries are positioning themselves as global safe harbors for AI innovation, providing startups with the flexibility, incentives, and strategic advantages to grow in an increasingly restrictive global environment.

As the AI revolution accelerates, the real question isn’t whether we need some rules — it’s who gets to make and impose them, and whether those rules will help innovation thrive or tie it down. The history of economic progress shows us that technological breakthroughs don’t flourish under monopolies or ministries or central planning — they flourish in open systems where people are free to build, experiment, and compete. That’s why a new wave of countries is stepping up as “flags of convenience” for AI, offering low taxes, simple rules, and room to grow. 

The US has always led by encouraging bold ideas and letting people build. We can keep that lead in AI, but only if we stay open, value competition, and trust in the power of free individuals. If the US tries to control AI through heavy-handed licensing and regulation, we won’t stop the future. We’ll just watch it happen somewhere else. 

Inflation ticked up last month, the Bureau of Labor Statistics reported. The Consumer Price Index (CPI) rose 0.3 percent last month and 2.7 percent over the past year. Core inflation, which excludes volatile food and energy prices, rose 0.2 percent last month and 2.9 percent over the past year.

After several months of disinflation, a possible resurgence seems worrying. But look a little closer and we can see June’s data is about microeconomic trends, not macroeconomic ones. “The index for shelter rose 0.2 percent in June and was the primary factor in the all items monthly increase,” BLS notes. Remember, the shelter index is one-third of the CPI by weight. Hence faster-than-average shelter price growth disproportionately affects the overall index. 

Last month’s “inflation” hike is really a housing price spike in disguise. This reflects supply and demand conditions in shelter markets, not aggregate demand. And remember, since the shelter index tends to lag actual shelter prices, it likely overestimates how fast those prices are currently growing.

Averaged over the past three months (April, May, and June), the implied annual inflation rate is about 2.4 percent. This is a better figure than the annualized one-month rate. Since the most recent data is disproportionately affected by shelter prices, smoothing out the data likely gives us a clearer picture of actual inflationary trends, which we can use to assess the stance of monetary policy.

The Federal Reserve’s target for the federal funds rate is 4.25-4.50 percent. That corresponds to a real rate target range of 1.85 to 2.10 percent. In comparison, the New York Fed’s estimate for the natural rate of interest was between 0.78 percent and 1.37 percent in 2025:Q1. The Richmond Fed’s median estimate was 1.76 percent during the same period. Real market rates are higher than the natural rate estimates, suggesting tight money.

As for the money supply, M2 is up 4.48 percent from a year ago. Broader measures of the money supply, which include additional assets and weight those assets by liquidity, are up between 3.93 and 4.01 percent from a year ago. Our rule-of-thumb estimate for money demand (real GDP growth plus population growth) is 1.99 percent plus 1.0 percent, yielding 2.99 percent. (The data for real GDP growth for 2025:Q1 was recently revised downward.) It looks like the money supply is growing faster than money demand, which indicates loose money.

As with last month, the problem is the unusually low GDP figure (an accounting quirk due to imports) from 2025:Q1. Data for 2025:Q2, which will be released late this month, will likely show that output rebounded. The Atlanta Fed’s GDPNow tracker predicts 2.6 percent annual growth next quarter; the annualized figure from the Wall Street Journal’s forecasts is 2.4 percent. 

Using these GDP estimates yields faster money demand growth: 3.4 to 3.6 percent next quarter if the GDP projections are correct. The money supply growth figures still outpace this, but it’s significantly closer to neutral.

Interest rate data suggest monetary policy is loose and monetary data suggest monetary policy is (slightly) tight. This presents a dilemma for the Federal Open Market Committee (FOMC), which next meets July 29-30. Markets currently assign a very low probability to a target rate cut this month. Regardless, policymakers should seriously consider a 25-basis-point (0.25 percent) cut. 

The data suggest monetary policy is tighter than it should be. We may needlessly lose output and employment if policymakers don’t begin cautious easing. A one-month jump in inflation, especially compared to recent months-long trends, ought not deter the FOMC. Neither should concerns about the supposed inflationary effects of tariffs, which are overblown. 

The Fed got behind the curve when it was time to tighten. But that doesn’t mean they should make the opposite mistake now. If we wait for the “perfect” signal from the data to ease policy, it will already be too late.

AIER’s Everyday Price Index (EPI) rose to 295.8 in June 2025, an increase of 0.51 percent. June was the first month since February, in which the EPI rose more on a percentage basis than our same-month CPI proxy, ending a streak of three months when EPI increases were lower. 

Of the 24 components making up the EPI, fifteen rose in price, seven declined, and two were unchanged from the previous month. The largest price increases were seen in housing fuels and utilities, fees for lessons and instruction, and housekeeping supplies. The most pronounced declines occurred in intracity transportation, nonprescription drugs, and recreational reading materials. 

The sharp increase in the AIER Everyday Price Index in June 2025, its largest since February and the seventh largest since January 2024, probably reflects rising costs in tariff-sensitive consumer goods. Nine of its 24 constituent categories are highly exposed to tariffs on imports from Mexico and China, including housekeeping supplies, tobacco products, personal care products, pet products, alcoholic beverages at home, nonprescription drugs, audio media, recreational reading materials, and food at home. An additional three categories — food away from home, prescription drugs, and motor fuel — are moderately exposed to tariff-driven price pressures.

AIER Everyday Price Index vs. US Consumer Price Index (NSA, 1987 = 100)

On July 15, 2025, the US Bureau of Labor Statistics (BLS) released its June 2025 Consumer Price Index (CPI) data. On a monthly basis, the headline CPI rose 0.3 percent, which was in line with forecasts. Core CPI rose 0.2 percent versus an expected 0.3 percent.

The increase in the monthly headline number was largely driven by shelter costs, which advanced 0.2 percent. Within shelter, owners’ equivalent rent rose 0.3 percent, rent increased 0.2 percent, and lodging away from home declined 2.9 percent. Core CPI, which excludes food and energy, rose 0.2 percent in June following a 0.1 percent gain in May. 

Food prices continued their steady climb, rising 0.3 percent in June. Food at home also increased 0.3 percent, though gains were uneven across categories: nonalcoholic beverages jumped 1.4 percent (with coffee up 2.2 percent), fruits and vegetables rose 0.9 percent (citrus fruits up 2.3 percent), and “other food at home” edged up 0.2 percent. Elsewhere, cereals and bakery products declined 0.2 percent as meats, poultry, fish, and eggs fell 0.1 percent (a large portion of which was due to a 7.4 percent drop in egg prices). Dairy products slid 0.3 percent. Food away from home rose 0.4 percent, led by an 0.5 percent increase in full-service meals and a 0.2 percent rise in limited-service meals. 

The energy index increased 0.9 percent following a 1.0 percent decline in May, with gasoline prices up 1.0 percent, electricity rising 1.0 percent, and natural gas increasing 0.5 percent.

In core, household furnishings rose by 1.0 percent, as did medical care (up 0.5 percent), recreation (up 0.4 percent), apparel (up 0.4 percent), and personal care (up 0.3 percent). The medical care increase was supported by gains in hospital services and prescription drugs (each up 0.4 percent) and physician services (up 0.2 percent). Offsetting some of those gains were declines in used cars and trucks (down 0.7 percent), new vehicles (down 0.3 percent), and airline fares (down 0.1 percent).

June 2025 US CPI headline and core month-over-month (2015 – present)

For the 12 months ending in June 2025, the headline Consumer Price Index rose 2.7 percent, higher than the forecast increase of 2.6 percent. The year-over-year increase in core CPI met expectations of a 2.9 percent rise.

June 2025 US CPI headline and core year-over-year (2015 – present)

From June 2024 to June 2025, food prices rose broadly. The food at home index increased 2.4 percent and food away from home by 3.8 percent. Within food at home, meats, poultry, fish, and eggs surged 5.6 percent, driven largely by a 27.3 percent jump in egg prices alone. Nonalcoholic beverages rose 4.4 percent, while cereals and bakery products and dairy each rose 0.9 percent, fruits and vegetables 0.7 percent, and other food at home by 1.3 percent. The index for full-service meals climbed 4.0 percent as limited-service meals rose 3.5 percent. 

The energy index declined 0.8 percent over the year, as gasoline prices dropped 8.3 percent and fuel oil fell 4.7 percent, though electricity rose 5.8 percent and natural gas leapt 14.2 percent. Within the core inflation index, over the past 12 months shelter prices increased by 3.8 percent. Notable gains were also seen in motor vehicle insurance (up 6.1 percent), household furnishings and operations (up 3.3 percent), medical care (up 2.8 percent), and recreation (up 2.1 percent). 

While headline inflation was pushed higher by gasoline and shelter, the uptick in core prices was largely prompted by tariff-sensitive goods — appliances, furniture, toys, and apparel — suggesting early signs of import cost pass-through. Declines in new and used car prices helped offset some of those pressures. Services inflation, particularly outside housing, remained firm, and medical care posted a notable gain. Housing costs, a major inflation driver in recent years, are cooling. 

Some companies, like Walmart and Nike, have begun modest price increases in response to tariffs, while others are delaying moves until trade negotiations play out. The inflation picture is now shaped by growing uncertainty surrounding President Trump’s sweeping tariffs, which include across-the-board 10 percent import duties, 50 percent levies on steel and aluminum, and threats of both a 50 percent tariff on copper and 30 percent on EU goods starting August 1. Though June price data showed only scattered evidence of broad-based tariff inflation, underlying price strength in core goods — excluding cars — was the sharpest monthly increase since late 2021. 

Fed Chair Jerome Powell has signaled caution, saying he wants to see how the economy digests the tariffs before adjusting rates, and policymakers appear divided: while inflation remains modest by post-pandemic standards, the risk of sticky price increases from prolonged trade frictions is keeping the Fed sidelined for now. Trump continues to demand rate cuts, publicly criticizing Powell while asserting that inflation is already under control. Yet with real average hourly earnings growth decelerating to just 1.0 percent annually and retail sales data due later this week, the Fed is likely to hold steady at its July meeting, with markets increasingly looking to September for a possible pivot. A cut may be in the cards if both inflation cooperates and tariff escalation is avoided.