“You don’t have to believe that the market produces perfect outcomes to understand that government can rarely outperform private enterprise. Political decisions aren’t driven by any market signals, profit motive, or consumer preferences. These decisions are inherently political, suffer from a serious knowledge problem and are mostly untied to any accountability regimes when they fail. Government often proves to be biased against large, successful companies that provide new technology that legislators often don’t understand well but consumers love. This is why government so often fails, and this policy is no exception.”
“For nearly 90 years, the Export-Import Bank of the United States has subsidized foreign purchases of goods produced by politically connected American businesses. Now it will start loaning money to U.S. companies that do little or no business overseas.
In April, the Ex-Im Bank’s board of directors voted unanimously to launch a new “Make More in America” initiative aimed at subsidizing American manufacturers instead of their foreign customers. Rather than unwinding and abolishing the Ex-Im Bank, as some fiscal conservatives have been trying to do for years, this new program is likely to further entrench the bank’s role in federal industrial policy.
“This is worse than mission creep,” says Sen. Pat Toomey (R–Pa.), the top Republican on the Senate Banking Committee and a longtime skeptic of the Ex-Im Bank. “There is no reason that taxpayers should have to back domestic financing when we live in a highly developed market economy in which promising businesses have access to capital on competitive terms.”
Toomey submitted a series of questions to Ex-Im Bank President Reta Jo Lewis about the new program. The answers he received are telling.
In response to Toomey’s request for evidence that a new domestic loan program is needed, Lewis wrote that “it is difficult” to identify a financing shortage, noting that “U.S. capital markets are deep and liquid.” Where there are “gaps,” she said, they exist among “non-investment grade or unrated borrowers.”
Applicants for the new loans, Lewis said, “will need to demonstrate that the required financing is not otherwise available from the private sector.” In other words, these loans will go to projects that private capital markets have deemed too risky to finance.
The Ex-Im Bank’s low-interest loans to overseas buyers of American goods have long benefited companies like Boeing, which can undercut foreign competition with the U.S. government’s help. But there is little evidence that the Ex-Im Bank has actually boosted American exports.
From 2014 to 2018, the bank was effectively shut down when conservatives in Congress temporarily suspended its lending authority. American exports nevertheless grew from $2.3 trillion to a then-record $2.5 trillion during that period.
Former President Donald Trump signed a bill reauthorizing the bank in 2018. President Joe Biden now plans to expand its mandate. Having failed to prove its worth in the global marketplace, the Ex-Im Bank will waste taxpayer money here at home.”
“”Data on overall traffic trends supports the notion that the average flier has not been negatively affected by consolidation,” the Eno Center for Transportation, a research nonprofit, found in 2017. “As the industry has consolidated and grown throughout the decades, the number of seats that are available for passenger use—available seat miles—has increased multiple times over. By some measures, the cost of domestic air travel has remained level since 2006, adjusting for inflation.”
However, there is some evidence that certain mergers have led to price increases. As a 2016 data analysis by travel writer JT Genter found, “On average, airfares between former Delta and Northwest hubs increased substantially—much more than the national average—demonstrating that the Delta-Northwest merger wasn’t good for hub-based flyers.” Genter continued, “However, airfares between United and Continental hubs have seen much more modest increases over the last five years, and the fares have actually decreased on average over the last four years.”
Current evidence, though not uniformly supportive of all mergers, points toward them being generally good for consumers. Larger airlines tend to mean more flights at similar or lower prices—especially when traveling through hubs. Even when evidence points to some mergers resulting in price hikes for consumers, Warren and Padilla’s assertions that airline consolidation “routinely heaps inconvenience and abuse on consumers” are exaggerated.”
“The current legislation has swelled to a total cost of more than $400 billion. The core of the bill is $76 billion in direct funding for domestic semiconductor manufacturing through a variety of grants and tax credits. The rest of the money, beyond doubling the budget of the notoriously silly spenders at the National Science Foundation, is predictably a billion here and a billion there for vaguely named programs with even more ambiguous purposes. For example, as the Wall Street Journal editorial board pointed out, “The Commerce Department gets $11 billion, most of which it intends to plow into creating 20 new ‘regional technology hubs,’ which will somehow expand ‘U.S. innovation capacity.'””
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“Proponents of the legislation would have you believe that the U.S. is overly reliant on foreign, unreliable suppliers of semiconductors, particularly those under threat from China. Semiconductors are unbelievably important components in practically countless goods relied on every day, but that’s no excuse to ignore the fact that the domestic semiconductor industry is, per a 2020 report by the Semiconductor Industry Association, “on solid footing.” U.S.-based semiconductor firms hold nearly half of the global market share, and 44 percent of that production already occurs in the U.S. Moreover, these figures don’t even capture firms based in allied countries such as South Korea and Taiwan that are currently spending billions of dollars to open semiconductor manufacturing facilities in the U.S.—without the need for funding.”
“Industrial policy is making a comeback. For those of you under the age of 50, this is just another term for corporate welfare—a lovely name for the unlovely practice of a government granting subsidies, protective tariffs, and other privileges to politically influential industries or companies. It’s often done in the name of some lofty goal such as strengthening national security or ensuring that America is a leader in the “industries of the future.” But the outcome is always the same: wasteful, unfair, unsuccessful, and unjustified. Oh, and it invariably grows the budget deficit.
The latest form of industrial policy is Congress’s CHIPS Act of 2022, a bill meant to subsidize the semiconductor industry by channeling taxpayer money to build up domestic production capacity and combat feared Chinese computer-chip supremacy.
This chapter began with the disruption caused by lockdowns to global supply chains. Unsurprisingly, that led to a series of semiconductor shortages aggravated by a surge in demand for automobiles. Automakers wrongly assumed that the original drop in demand would persist, canceled orders for semiconductors, and then could not keep up with the buying public.
Now, Congress is responding to this temporary chip shortage with $52 billion in subsidies and $24 billion in tax credits mostly directed at semiconductor industry beggars.
Never mind that chip firms have already expanded production without subsidies. In fact, two years into negotiating this bill, it’s obvious that it has little to do with any alleged structural deficiencies in the semiconductor market. For instance, the initial chip subsidy proposal had a $16 billion price tag. Since then, the industry has announced its own investments totaling over $800 billion, with $80 billion committed for near-term investment in U.S.-based fabrication facilities. Yet somehow, the bill more than tripled in price to target a problem that’s already being solved.
What about the argument that China is subsidizing its chip producers and thus threatening our technological leadership? Yes, China subsidizes its chip industry, but this doesn’t guarantee their subsidies will work. If U.S. politicians could for a moment stop treating every Chinese action as a threat, they would see that the Chinese semiconductor industry is both quantitatively and qualitatively weak. In fact, many of the companies subsidized would go under without the government’s help. That’s hardly the sign of a vibrant industry. These subsidies are more like life support than super-vitamins.”
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“” Any resulting new operations would still face deep-rooted issues hindering American manufacturing. Large-scale environmental assessments will be required, but over the years, the costs and delays have become excessive. Recent trends promoting or requiring unionized workers for federal contracts, combined with the current labor shortage, will hinder chipmakers’ ability to find talent and could exacerbate the cost of domestic production. ”
In other words, if you believe that moving most of our chip production onshore is important for national security reasons, you should labor for regulatory reforms rather than subsidies.”
“It is not difficult to design a good national parental leave program that provides time off and a bit of cash to all new parents based on their prior income. It is as simple as slightly increasing the Social Security payroll tax and then instructing the Social Security Administration (SSA) to provide all new parents with a few months of cash benefits equal to a high percentage of their usual weekly earnings or a decent minimum benefit.”
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“With the exception of the Cassidy-Sinema proposal, all of the parental leave bills in the current Congress use work history requirements to exclude a large minority of new parents from benefit eligibility.”
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“In addition to failing at income replacement, the Cassidy-Sinema proposal also makes no sense as an administrative matter, which perhaps explains why it is the only plan that has no accompanying bill text. Child Tax Credit eligibility is redetermined every year based on the income of the household that the child resides in. Families with very low or high incomes are not eligible for the CTC and so it is unclear how they would pay back the benefit they received. Children often move between households from year to year, whether due to divorce, family instability or otherwise. In these scenarios, the person who receives parental leave benefits under the plan is not the same person who is eligible for the subsequent years of CTC benefits, which also makes it hard to understand how paying back the benefit would actually work.
Like the Cassidy-Sinema plan, the Rubio-Romney New Parents Act also relies on parents paying back the benefits they received in order to finance the program. But in the New Parents Act, this is accomplished by docking parents’ Social Security checks when they retire.
Making people poorer in retirement in proportion to the number of children they have is strange, especially if you believe, as bill sponsor Marco Rubio does, that parents are already “double-charged for federal senior entitlement programs” because they both pay into them directly and undergo huge personal costs to raise up the next generation of workers that keep the programs afloat for parents and non-parents alike.
But even more bizarre than trimming Social Security checks to finance the program is the provision of the New Parents Act that requires the SSA to recover the leave benefits paid to parents who die before retirement by going after the deceased parents’ estate. Requiring surviving spouses and orphaned kids to pay a deceased parent’s leave benefits back to the government is as cruel as it is unnecessary.”
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“What’s remarkable about how bad all of these proposals are is that their problems are so easy to fix. In some policy areas, badly designed programs are the result of difficult decision-making and navigating powerful interests and entrenched constituencies. With parental leave, the policymakers are essentially starting from scratch. There is no good reason why an ideal leave program — i.e. one that is publicly-administered, inclusive of all new parents, provides scaled income-replacement, has a decent minimum benefit, and does not need to be paid back — could not be implemented.
Yes, it would mean raising taxes, but only by a tiny amount: Washington, D.C.’s paid leave program, which includes both parental leave and medical leave, is funded by a 0.26 percent employer payroll tax, more than a standalone parental leave program would cost. That’s all it takes to create simple, popular programs.
Lawmakers in both parties seem hellbent on much worse approaches, but it’s not too late to get it right. Doing so would deliver not only much-needed help to the public but likely a major political win to whichever party can figure it out.”
“Since the early 20th century, the US has been a world leader in innovation and technical progress. In recent decades, however, some experts have worried that the country’s performance on these fronts has been slowing, even stalling.
There are many possible explanations for this phenomenon, but one has seemed especially salient in recent years: an immigration system that discourages, and often turns away, the most highly skilled and talented foreign workers.
Historically, immigrants have played a vital role in American innovation. As Jeremy Neufeld, an immigration policy fellow with the Institute for Progress, a new innovation-focused think tank, remarked to me, “It’s always been the case that immigrants have been a secret ingredient in US dynamism.” Robert Krol, a professor of economics with California State University Northridge, describes it this way: “The bottom line is that when you look at the impact of immigrants — whether you think about starting businesses or innovating patents — they have a large, significant impact.”
Multiple analyses of historical immigration patterns show that more migrants to a region correlates with a higher rate of innovation and related economic growth. By contrast, when immigration is more restricted, companies — especially tech companies and those that conduct innovative R&D work — are less successful, and growth in jobs and wages slows. Studies have also shown that immigrants tend to be entrepreneurial: Based on survey data between 2008 and 2012, 25 percent of companies across the US were founded by first-generation immigrants. Other research shows that immigrants are more likely than native-born US citizens to register patents.
As Neufeld points out, the Covid-19 pandemic might have gone much worse if immigration had always been as restrictive as it is now. A number of co-founders and critical researchers with Moderna are immigrants, as is Katalin Karikó, a pioneer of mRNA research — who, if she had tried to immigrate after the 1990 H-1B reforms to the skilled guest worker program, might not have been able to come to the US at all.
Those H-1B guest visas are at the center of the issue today, some experts say. Designed in 1990 to bring in skilled professionals to meet labor market shortages, visas through the H-1B guest workers program are sponsored by employers, who submit petitions to bring in particular foreign professionals appropriately qualified for specific, highly skilled roles. Guest workers generally need at least a bachelor’s degree in a relevant field.
According to the United States Citizenship and Immigration Services (USCIS), there are about 580,000 foreign workers currently on H-1B visas, a small percentage of the US workforce and immigrant population. But they are disproportionately concentrated in STEM, particularly computer-related occupations, often in fields where cutting-edge technologies are being developed.
Unfortunately, the H-1B process is falling increasingly out of date and badly failing to serve its original purpose of turning on the talent tap for top innovative companies. Congress sets an annual cap on how many H-1B visa holders can come in, and that cap is now far below what the labor market demands. The crush of applications once the window opens for a given year on March 1 is so intense that, in every year since 2014, USCIS has resorted to a lottery system instead of a first-come, first-serve process. That means that year in and year out, hundreds of thousands of high-skilled workers from abroad try to come to the US and ultimately fail, so that both the prospective employee and the company hoping to hire them end up losing out on their preferred option.”
“In 1981, the US was in the midst of a second brutal stint of double-digit inflation in less than a decade. Gas prices were through the roof; mortgage rates were sky-high, keeping many middle-class people from being able to buy homes. The job market was weak, too, with unemployment above 7 percent. The nation was in full crisis.
The crisis would end, and most economists give credit for ending it to Paul Volcker, the chair of the Federal Reserve. Volcker got inflation under control through the economic equivalent of chemotherapy: He engineered two massive, but brief, recessions, to slash spending and force inflation down. By the end of the 1980s, inflation was ebbing and the economy was booming.
The 2022 inflation is not as bad as the inflation of 1978-1982 — but it’s the worst inflation the US has experienced in decades. The Federal Reserve is, accordingly, raising interest rates aggressively, as Volcker did. It’s not trying to engineer a recession, but its actions could cause one as an unintended consequence. And if inflation continues to be a major problem, demands for an even more aggressive Volcker-style response will grow.
A rerun of the Volcker shock or something like it is a real possibility, if not a likelihood. Which makes understanding what the first one entailed”