Lone Candle
Champion of Truth
“Even if these subsidies were to create a manufacturing boom, it probably wouldn’t lead to an employment boom because most manufacturing output today is produced by robots.”
https://reason.com/2024/04/04/politicians-are-showering-manufacturing-companies-with-crony-subsidies-for-job-creation-it-wont-work/
“Rubio doesn’t even get through the first paragraph of the piece before making a significant error. “Today,” he writes, Congress no longer views industrial policy with the same skepticism that it once did, but “what replaces unfettered free trade remains hotly debated.”
Unfettered free trade? That’s hardly an accurate description of the current status quo in the United States—a fact that Rubio surely knows, since Florida’s sugar and fruit industries are the beneficiaries of some of the most aggressive protectionist policies on the books. Even before former President Donald Trump ramped up the use of tariffs, America had more protectionist policies than other large, developed economies: A 2015 report from Credit Suisse called the United States the world’s most protectionist developed nation.
Rubio’s inability to describe the current status quo matters. It’s a failure of the ideological Turing Test, and it reveals that he misunderstands the economic policies he’s trying to shift—or that he is deliberately misinforming readers about them. Either way, this ought to call the rest of his claims into question.
Unfortunately, that’s far from the only mistake in the piece.”
https://reason.com/2024/04/04/marco-rubio-is-wrong-about-industrial-policy/
“The largest semiconductor manufacturer on the planet agreed to open factories in the U.S. instead of abroad. The company wants the government to pick up the tab for the difference in cost, even as it postpones production.”
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“In a January 2023 earnings call, TSMC Chief Financial Officer Wendell Huang said that while he couldn’t give an exact number for the financial discrepancy between building in the U.S. and Taiwan, “the major reason for the cost gap is the construction cost of building and facilities, which can be 4 to 5x greater” in the U.S.
Of course, part of that gap can be explained by factors like the difference in the cost of living—by one estimate, over twice as much in the U.S. as in Taiwan. But in November 2022, a month before Biden announced the project, TSMC wrote in a public response to questions from the Commerce Department that it doesn’t “see access to capital as a significant barrier to growth in the US”—rather, specific factors making the project more expensive included “federal regulatory requirements that increase project scope and cost.”
Rather than forking over billions of dollars to a single company, the Biden administration should take steps to ease regulatory burdens on expanding companies. Similarly, plenty of firms could benefit from a greater number of high-skilled workers, like those proficient in science, technology, engineering, and mathematics (STEM) fields. And yet foreign nationals who graduate in STEM fields from American universities face near-impossible challenges to stay in the country and most end up going elsewhere. Congress could help that situation by raising the number of green cards that can be issued annually.
With TSMC’s delay, Biden and Congress have an opportunity. TSMC admits that its issues are bureaucratic, not financial, so there’s no need to shovel more money at a wealthy company. Instead, lawmakers should get rid of cumbersome regulations and create a more welcoming environment for both businesses and workers.”
“Government favoritism in the form of subsidies, tariffs, and other interventions allocates resources (labor and capital) differently than the way resources are allocated by consumers spending their own money. Ordinarily, businesses—spending their investors’ money—compete for these consumer dollars. Industrial policy rests on the assumption that such market outcomes don’t adequately support higher causes such as national security. If that’s true, it’s all the justification industrial policy needs. Nothing needs to be said about jobs.”
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“As Noah Smith reminded his readers in a recent blog post, “Most of the actual production work will be done by robots, because we are a rich country with very high labor costs and lots of abundant capital and technology. Automated manufacturing is what we specialize in, not labor-intensive manufacturing.””
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“Be wary of those who push industrial policy as a means of job creation. It’s a short-sighted approach that distracts us from the more important question, which is whether hindering the market allocation of resources is truly justified for national security or other valid reasons.”
“The EU capitals point out that 40 percent of all pharmaceutical ingredients globally are sourced from China, and that production for many of these products is concentrated in just a handful of manufacturing sites. “As a result, Europe (and the world) depend on a few manufacturers for a large bulk of their medicines supply,” notes the paper.”
“At its heart, industrial policy strives to solve a “classic Keynesian political problem,” says economic historian Yakov Feygin, director of the Berggruen Institute’s Future of Capitalism program: The only way to grow the economy is ultimately through productivity-enhancing investment — but there are enormous upfront costs to building new plants or buying new equipment, especially at the technological bleeding edge, while returns are years in the future if they ever come at all.
If only capitalists get to decide when to invest, they may — rightfully — decide that the unpredictability of future demand and credit conditions make it difficult to justify expanding capacity in crucial sectors even in the face of soaring prices. They fear the “bullwhip effect,” where investors may put up cash for new plants or equipment to respond to higher prices, only for those prices to fall before new production can actually come online.”
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“The government, for better or worse, has the unique ability to stabilize the investment cycle and goad risk-averse private capital into making desperately needed, but enormously costly, long-term investments.”
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“Biden’s economic team is betting on something Hamilton knew: Long-term investment in the real economy is essential, but private investors might not provide it. That’s where government can — and should — step in.”