In 1983, an economist named Bruce Yandle wrote a short essay that ruined regulation for anyone who read it.

Yandle had worked inside the federal regulatory machine. He kept noticing the same strange bedfellows. Every Sunday liquor ban in the South had two sets of backers.

The Baptists genuinely wanted the ban to save souls. They gave the law its moral glow.

The bootleggers genuinely wanted to kill their legal competition. For 1 day every week, they had the market all to themselves.

The Baptists preached. The bootleggers profited. Of course, the politicians wanted to please both of them.

Yandle named the pattern Baptists and Bootleggers. I must warn you, though: once you use this lens to see the world, you’ll notice it everywhere, like a commercial jingle you can’t get out of your head.

This week, none other than the Wall Street Journal put it front and center.

Wall Street’s Mouthpiece Does Its Job

The Journal ran a piece titled "U.S. and China Agree AI Needs Guardrails. Their Ideas Are Very Different."

The framing was something else. It goes like this: America wants guardrails to protect humanity from runaway machines. China wants guardrails to protect the Communist Party from its own people.

Good DC, Bad Beijing.

I had to read it twice.

Yup, even the second time it read like, “America is trying to save humanity. The CCP only wants to save itself.”

Seriously. Do me a favor.

A newspaper that covers The Swamp and its Wall Street handlers for a living should know better. Both capitals are doing the same thing. They're protecting the coalitions that keep them in power.

One of them is more honest about it, and it ain’t America.

Beijing says its guardrails exist to keep the Party in control. Crude, but true.

DC says its guardrails exist for the good of mankind. That’s true, if you define “mankind” as the “kind men” who are donating pallet loads of cash to Super PACs, live within driving distance of San Francisco, and begging for regulation to mask their woeful malinvestments.

Follow the Guardrails

What are American guardrails anyway?

The first guardrail is export controls that ban China from buying advanced chips. Allegedly, that’s a national security issue. But really, it’s because if Chinese open source AI systems had American chips, the game would already be over.

Another set of guardrails is licensing and evaluation standards that only the biggest labs can afford. Outstanding innovation should build business moats, not the regulators protecting the home team.

Of course, the incumbents cheer the loudest.

Let us remember Milton Friedman for a moment:

One of the reasons why I am in favor of less government is because when you have more government, industrialists take it over, and the two together form a coalition against the ordinary worker and the ordinary consumer.

Indeed they have, Uncle Miltie. Indeed they have.

The big American AI labs restrict access in China, lobby DC to keep the chip bans, and publish essays warning that the race is dangerous and must be slowed.

Who’s Who?

Here's where Yandle comes in. The safety people may be sincere. Many of the researchers warning about AI risk believe every word. They're the Baptists. Their sincerity is what makes them valuable. (I vehemently disagree with them, for reasons I’ll write about in a future Rude.)

Standing right behind them, nodding along with their furrowed eyebrows, are the bootleggers. The trillion-dollar incumbents who understand that every new rule raises the cost of entry to the industry, and they're the only ones who can pay it.

Regulation is a fixed, exorbitant cost. (Just ask anyone who tries to build a new bank.) Fixed costs crush small startups that can’t make a profit, while blessing the large behemoths, who can easily cover what, to them, is a relatively small cost. That cost is certainly worth it to keep out more innovative, nimble companies.

Instead of fighting guardrails, the giants’ lobbyists are helping Congress draft them.

Politicians complete this unholy trinity. They pose as people working to save humanity from Skynet while their donors get a legal monopoly.

The Donald says whichever nation leads on AI “wins.” Treasury Secretary Bessent says America needs more open models to counter China.

Politicians are doing what they always do: keeping their coalition paid and loyal. In Beijing, that coalition is the Party. In The Swamp, it's the donor class and the military-industrial complex. Of course, neither one of those answers to your grandchildren.

The Mirror Nobody Wants to Hold Up

If you line up both proposals in English, without their flags attached, they look remarkably similar.

China wants state officials deciding which models run and who gets compute. America wants federal agencies deciding which models are safe and who gets chips.

China wants to protect its champions from foreign competition. America wants to protect its champions from Chinese competition.

China accuses America of seeking an AI monopoly. America accuses China of stealing to break that monopoly. Stealing… you know, like Sam Altman, who stole the entire internet.

You can’t make this stuff up.

Two governments. One playbook. The only difference is enforcement. Beijing commands its tech sector. DC has to negotiate with its tech sector, which is why the sector writes so many of the rules itself.

Of course, The State loves this because every intervention creates a distortion. Then the market gets blamed for every distortion. As always, the "fix" is another intervention.

The sun never sets on this AI safety stuff!

Wrap Up

First, regulation protects industry (and the government’s tax base), not consumers. When DC builds guardrails, the megacap chipmakers and labs get a moat built by The State.

Second, that very intervention breeds clustered malinvestment. A trillion dollars’ worth of AI capex, tacitly blessed by The State, is exactly the kind of synchronized bet that ends with a big butcher's bill, if not an outright market crash.

Third, keep this lens handy. Every time you read the word “safety” in a policy story, ask three questions.

Who’s the Baptist?

Who’s the bootlegger?

Who’s writing the legislation?

If you can't find a bootlegger, keep looking. He's there.

The Journal wants you to believe this is a morality play: America, the shepherd, and China, the wolf.

But really, it’s two wolves fighting over who gets to eat you.