Gambling with CHIPS
Is the US losing in chip manufacturing to China? For months, the press has been full of videos and editorials hand-wringing over what is described as the lack of US competitiveness in the computer chip industry. Under-investment, we are told, is causing us to lose our competitive edge against China in this area. Recent disruptions in the supply chain of everything from fertilizer to baby formula has generated ever louder calls for government ‘technology investment’, which is another way of saying that Congress wants to spend our tax dollars on projects.
The prospect of billions of dollars handed out in the form of grants to private chip companies has these profitable companies salivating over the prospect of free money. The bill, the CHIPS and Science Act, provides $76 billion in direct funding via tax credits and out right grants, and that’s just for starters. Who gets this funding? Most voters probably assume that American companies like Intel will be the main recipients of these funds. But foreign firms that manufacture in the US are getting in line for this windfall. Samsung already manufactures chips in the US, and had previously announced massive investments because the need is there, and they make money selling chips. The prospects of free funding had them change their story to one of expanding production only if the free money begins to pour. Like Intel, Samsung had already announced US factory investments – this bill will help fund facilities previously announced.
How bad is the American computer chip business, anyway? This report, from the Semiconductor Industry Association points out that the US controls almost 50% of the world’s chip production, most of that already manufactured here. The reports of appliances and automobile shipments being stalled due to microprocessor shortages relates to basic, low-end chips, few of which are made in the US. The CHIPS and Science Act is meant to support high-end, cutting-edge processors that go into sophisticated gear like computers. Do we really need these high-end chips? Unfortunately, the industry and economists are predicting that the large numbers of new high-end chips will result in a glut of the products that Congress is preparing to fund. New chip fabrication plants take so long to build that by the time the factories are ready, we may not need the output.
All this for an already profitable industry with grants and other funding streams outlined in an enormous package. The original version of this bill was nearly 3,000 pages long! If you would like to read the ‘trimmed’ version, it’s just over 1,000 pages. Obviously, almost no member of Congress actually read this thing. They have an army of staffers who tear the bill apart before the vote. But the average voter cannot devote the time to wade through 1,000+ pages of legalese.
And how exactly does a bill put forth with $52 billion in spending grow into this $400 billion behemoth? Sadly, it happens all the time. This bill has gone through many versions, with members of Congress negotiating over their favorite carve-outs. The final version is an eye-watering $403 billion dollars, all for one industry. One industry that is not in financial crisis.
The Congressional Budget Office points out that this bill, HR 4346, is not paid for and would add to the already huge budget deficit. One element, an investment tax credit of about $24 billion is only projected at half the estimated actual cost. This would put the ‘$54 billion’ portion of the program well over the $100 billion level. Additionally, there is a provision to spend up to $200 billion for ‘research and development’. This includes $81 billion for the National Science Foundation and much more across other agencies according to the Wall Street Journal. As most of us know, these estimates are almost always far too conservative. Here is a recap of the bill.
The financial benefits of having the government subsidize private business that already make billions in the chip industry is certainly debatable. But the darker side of this bill is the fact that the total spend is far higher and contains much more government expense than just funding chip production. Even Bernie Sanders, who has almost never seen a government expense he didn’t like, opposes this bill as a bribe to private companies.
HR 4346 is described as a limited-life funding bill. This generally means that Congress is unwilling to recognize that limited-time bills generate a scenario I call ‘The Walking Debt’ – it can kill us, but we can never stop it. It just keeps getting back up and coming after our wallets.
It is possible that many voters might approve of a program that puts their tax dollars towards a technological industry. They might approve it even in light of our soaring inflation and growing deficits (which are intricately related). But the public would likely balk at spending twice that amount on expenses that are not fully explained. For example, the bill contains over $1 billion in “Wireless Supply Chain Innovation”, Tax Credits, and a very loose description of Research and Innovation.
Here we have a perfect example of a typical house resolution with many problems:
o It costs far more than originally described.
o The bill contains more line items than denoted in the bill description.
o The size of the bill is absurdly huge.
o The investment is one that belongs in the private sector.
o Congress is choosing, or rather is authorizing bureaucrats to choose their own business winners and losers.
o Legal language and length make the bill difficult for most of us to understand properly.
o The bill creates yet another government entity, the ‘Directorate of Technology and Innovation’.
This bill is prime example of why I helped to establish the Reform Congress movement. We are dedicated to a Congress that proposes laws in simple language, without pork-barrel add-ons, with an audited expense estimate presented in a fully funded, transparent package that voters can understand.
Why don’t we see such proposals from our representatives? It’s simple; they do not want voters to see what they are up to. Instead, they want to promote personal agendas that cannot be second guessed by voters who will prefer inconvenient policies like fiscally responsible spending. These voters might even suggest that businesses in high-margin areas like chip-making should fund their own growth. If Congress wants to help businesses, they can start by lowering the taxes on all companies that put a large portion of their profits into Research and Development.
Why do we need yet another government agency? The name, ‘Directorate of Technology and Innovation’ must surely be copyrighted already by Stalin. This ‘directorate’ is supposed to overhaul (read: “make bigger”) the National Science Foundation. The result is something called “The Endless Frontier”. Endless is an apt description to a bill that starts at the $280- billion level and can only go on and up, endlessly.
Now that this legislation has been signed into law, we have government blatantly using our tax dollars to try to choose winners and losers in the tech industry. Will the voting public benefit from this giant expense? Time will tell. But fortunately for some Congressional families, they were able to buy millions in chipmaker’s stocks in advance of the final vote. This will no doubt help them weather the looming recession. (Have I mentioned the Reform Congress discussion about limiting Congressional stock trading…?)