Why the Federal Government Shouldn’t Take Equity Stakes in AI Companies

OpenAI (the maker of ChatGPT), the first large language model to leap from the trenches and into the market, is now in the vanguard of a quite different sort of innovation. Earlier in July, it was reported that Sam Altman (the company’s CEO) has lobbied the Trump administration to acquire a 5 percent equity stake. Although inactive to date, President Trump seems to approve of the idea: “It almost becomes a partnership with the American public,” he said, adding that “the American people can benefit from the success of AI, and by that, they’re going to like it better.” Whether the public’s anxieties over artificial intelligence (AI), evidenced by the technology’s dismal polling numbers, would best be assuaged by wedding it to a federal government increasingly divested of the public trust is a question for politicos to ponder. The answer to the question of whether the soft, incrementalist socialism of Altman and Trump would benefit anyone besides the two parties to the proposed deal is less obscure.

Should Altman succeed, he will have achieved something nearing the ultimate end of regulatory capture: corporate immortality. OpenAI has performed well to date, but time comes for all, businesses and human beings alike. The specter of bankruptcy, perhaps more so than the desire of gain, disciplines players in the market. If, however, the federal government owns a part of the company, the latter’s failure would amount to a failure of the government itself.

A mere psychological attachment to a company designated a “national champion” exerts considerable force in policy making: Intel, long-ailing chip maker, received this designation and enjoyed the accompanying subsidization—many rounds of subsidization, in fact. Its poor performance continued unabated, nonetheless. Continued struggles then brought intensified intervention. In 2025, the federal government took hold of roughly 10 percent of Intel, the largest portion held by any single shareholder. Intel will carry on, safe from market forces.

All this was done for a firm that, until last year, was fully private. The psychological, if not economic, imperative to coddle an OpenAI owned partially by the U.S. government would be far more intensely felt. A firm owned in part by the federal government is a favorite child to be coddled, given gifts, and protected from all the other children on the playground.

The government gains new means by which to direct the operations of an erstwhile truly private actor while that actor reinvents itself as a contortionist to ensure its operations continue to please its handlers in the government. Market signals, the messengers of genuine competition and genuine value, will go unheeded.

The changes wrought in the psychology of market actors—investors in and clients of the industry—would be of similar scale. A state-chosen “winner” will, merely by virtue of its place, have an attraction unattainable by others. Intel again provides a demonstration.

As the Taxpayers Protection Alliance noted in January:

A…report from The Wall Street Journal (WSJ) makes clear that Trump’s “assistance,” like Biden’s, has failed to transform Intel into a winner. Initially, “[i]nvestors assumed new orders would flow to the troubled chip maker and bid up the stock 120% in just five months,” WSJ relates, and “customer demand for Intel’s products did explode.” As the article details, the company remains adrift as it seeks to right years of miscalculations and missteps.  “After months of cutting capacity on its older production lines, the company was unprepared for a surge of orders for processors to put in AI data centers. Intel’s stock has crashed 17%, wiping out more than $46 billion in market value, since executives revealed the flub on the company’s fourth-quarter earnings.”

So great was the wave of Intel’s unearned—though not unpaid-for—success that the company could hardly keep its head above water.

Trump has proven himself an ambitious investor, eager to expand the government’s portfolio, having taken on equity in roughly a score of companies. His interests are cutting-edge, his holdings including semiconductor manufacturing, rare earth mineral operations, quantum computing, and soon, perhaps, AI.

The premises of this administration cannot be disputed: American companies in these sectors must flourish if the American economy is to flourish in an increasingly digitalized century and if the United States is to maintain supremacy over its geopolitical rivals, most notably China. It is the administration’s conclusion—that these objectives are best pursued via soft socialism—that dissolve when examined, as if scrutiny were the strongest of acids.

Best for the White House to return to point of departure, review the logic of its argument and the relevant economic facts, and cease federal efforts to put a stop to free competition. The very sectors the government has entered as an equity holder are the ones most likely in the coming decades to prove most essential to the safety and prosperity of the nation.