economics – Page 90 – Lone Candle

America’s Semiconductor Industry Doesn’t Need $52 Billion in New Subsidies To Stay Ahead of China

Posted on July 3, 2021 by Lone Candle

“Rather than countering a perceived threat from China, lawmakers risk bogging down one of the most innovative and successful parts of the American economy with an industrial policy that will force chipmakers to care more about what makes Washington happy than what is best for their own businesses.”

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“Companies that, by the way, admit they don’t need the cash to be competitive. Intel, one of the world’s biggest chipmaking companies, is in the process of building a $20 billion fabrication facility in Arizona. In March, CEO Pat Gelsinger said the project “would not depend on a penny of government support or state support.” (Though he immediately followed that comment by saying that “of course…we want incentives” and it appears that Congress is prepared to dutifully provide them.)”

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“According to the Semiconductor Industry Association, a trade group, American-based firms control 47 percent of the global share of the semiconductor industry—a far cry from congressional concerns about the U.S. losing its competitive edge.”

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“The trick that lawmakers are trying to pull here is to focus on where semiconductors are made. But this doesn’t really matter. It’s true that a smaller share is manufactured in the U.S. today than 30 years ago, but that’s the result of natural shifts in the market, not evidence of a collapse in American technological prowess.
Indeed, American companies are still at the forefront of semiconductor development—earlier this month, American-based IBM announced a breakthrough in the development of the world’s first two-nanometer chip.”

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“It takes a long time to make semiconductors—up to 26 weeks, in some cases—and production is still ramping up again in the wake of last year’s disruptive pandemic. This isn’t a nationalist issue in which some evil foreigners are cutting off America’s share of semiconductors, but a market-based issue that will be resolved as chipmakers increase production capacity to catch up to increasing demand.
But what about China? Yes, the Chinese government is investing heavily in semiconductor-making technology, but it remains far behind America in terms of technological know-how. A recent Nikkei report shows that China mostly manufactures nothing smaller than 14-nanometer chips, which are several generations behind the most advanced chips being made elsewhere—remember, IBM just announced plans for a two-nanometer chip. Closing that gap will be difficult now that America has banned the sale of semiconductor-manufacturing equipment to China (and enforced that ban even when the sale involved other countries).

If there is one major worry for the global supply chain of semiconductors, it is the island of Taiwan. The majority of the world’s semiconductors are made in Taiwan, which is home to the Taiwan Semiconductor Manufacturing Company, by far the world’s largest chipmaker. There are obviously many complicated geopolitical issues involving Taiwan that America and the world’s semiconductor industry will have to navigate in the coming years—but it is downright foolish to believe that $52 billion in subsidies will make a meaningful impact in that complex situation, or in a global market that was worth $425 billion last year alone.”

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“All it will do is shovel $52 billion of taxpayer money (some of it probably borrowed from China, ironically enough) to successful businesses flush with cash.”

There’s Nothing Modern About MMT

Posted on July 1, 2021 by Lone Candle

“A popular myth about early American fiat money claims that various colonial and state governments created hyperinflationary disasters after they experimented with currency finance. But while New England and the Carolinas occasionally made a mess of things before the Revolutionary War, most colonies had a lot of success in issuing their own currency.”

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“Early American currency finance was kept in check by several political feedback mechanisms.
First was local democratic control. Because of much smaller populations, legislatures were easier to discipline.

Second was jurisdictional competition. If a legislature let currency finance get out of hand in one place, a jurisdiction whose government had its books in order was never too far away.

Third was economic independence. Because of agriculture’s prevalence, subsistence farming and barter with neighbors provided an outside option, especially in rural areas.

Fourth was that currency finance responded to specific needs. Relatively small and targeted governments could employ fiat money as a financing mechanism more safely.

None of these conditions exist anymore. MMT advocates think their system can work on a national scale, but they’re wrong. It’s much harder for citizens to discipline the fiscal authority today, whether by “voting with their feet” or “taking to the hills.” And because MMT would transform the fiscal-monetary landscape of the entire country, it is anything but “timely, targeted, and temporary.”

Furthermore, even assuming taxes can keep inflation low, does anybody trust today’s feckless politicians to enact unpopular levies? Without the supporting economic mechanisms, MMT is exactly what its detractors claim: a sure way to turn a functioning economy into a financial basket case.”

Is Inflation Back for Good?

Posted on June 24, 2021 by Lone Candle

“On June 10, the Bureau of Labor Statistics (BLS) reported that the Consumer Price Index (CPI) “increased 0.6 percent in May on a seasonally adjusted basis after rising 0.8 percent in April,” bringing the year-over-year price increase on all items to 5.0 percent.

“This was the largest 12-month increase since a 5.4-percent increase for the period ending August 2008,” the BLS noted. And when you take out food and energy, the resulting yearly rise of 3.8 percent was “the largest 12-month increase since the period ending June 1992.””

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“Two main schools of thought contend among those who believe that massive sustained price inflation is either inevitable, or already here: Milton Friedman’s monetarism, and the more bubble-focused analysis associated with the Austrian school of economics.

Friedman’s theory, which was widely accepted in the economics and finance professions decades ago but has been waning since asserts that “inflation is always and everywhere a monetary phenomenon.” The correlations were indeed observable in the 1960s and 1970s, but the theoretical prediction of increased money supply leading to economy-wide price inflation has been failing to come true for many years now.

Why might that connection between money supply and price be slipping? Theories include the Federal Reserve paying banks interest to just sit on uncirculating money. Another is that the “velocity” of money—the rate at which one dollar is used to purchase goods and services in a given time period—has fallen by nearly half since the beginning of the century.

But America has seen a lot more money lately, with the overall supply of the M1 monetary measure more than quadrupling in just the past 15 months. We have also in COVID times seen government injections of cash into the hands of business and citizens into the trillions, with the Federal Reserve committed to buying as much government debt as the government wants to feed into its spending machine.”

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“Austrians, like monetarists, also see a necessary logical connection between increased money supply and higher prices (adjusted for the amount of goods and services available for the money to buy). But they don’t automatically assume that more money will mechanistically translate into economy wide CPI inflation. Rather, inflation might mostly be expressed in specific sectors, such as stocks, crypto, housing, collectibles, and any other available means to get out of dollars and into something with more perceived promise of holding value.

But those specialized areas where dollars flood into can all too often prove to be bubbles of “malinvestment” which, once popped, can produce economic wreckage and damaging policy reaction, the Austrians warn.”

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“Modern Monetary Theory, the hot modern excuse for the government to spend whatever it wants to spend, posits that as long as any resources of labor or capital in the economy are not currently being used productively, then more money in whatever amount presents no inflationary threat. MMTers will tell you that their hypothesis comports to the reality of the past few decades better than the monetarist insistence that more money equals more (inflationary) problems.

So what’s the MMT and/or governing-Democratic explanation for the recent surge in CPI and sectoral inflation? It’s all about unleashed demand as lockdowns fade and bank accounts swell with federal stimulus bucks, with manufacturers temporarily bidding up prices to make sure they are ready for the pent-up, post-COVID buying spree. After the recovery shakes out, the argument goes, prices will stop noticeably rising.”

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“The White House Council of Economic Advisers (CEA) argued in April that the CPI spike seems scary only because of the “base effect” of rising from very low inflation in the pandemic-scarred year 2020. Fed Governor Lael Brainard assured us last month that we just need to be “patient through the transitory surge.” (Inflation hawks are quick to retort that this is what the Federal Reserve folk insisted back in the 1970s, before our nation’s last big inflationary spree, when for three years, 1979–81, CPI was rising over 10 percent per year.)

The Fed swears it will start tapering off its seemingly endless run of buying Treasury and mortgage-backed securities if the central bank’s inflation target of 2 percent looks poised to be breached long-term. Temporary surges worry the bankers less.

And even if CPI inflation continues to increase like it has this spring, the central bankers are confident they can rein it back in. As Brainard wrote: “If, in the future, inflation rises immoderately or persistently above target, and there is evidence that longer-term inflation expectations are moving above our longer-run goal, I would not hesitate to act and believe we have the tools to carefully guide inflation down to target.””