by David Stockman on ContraCorner.com:
As the article’s author, Fed fanboy, Jon Hilsenrath, opined,
With two bills advanced through Congress in recent weeks, the Biden administration has grown the federal government’s imprint on major sectors of the U.S. economy—including semiconductors, energy and health—and further buried the idea once widely held in Washington that private markets should be left alone, without government involvement.
Once upon a time, this kind of sweeping shift to statist economics was called “industrial policy” and it was what we fought against mightily during the Reagan era. The latter was based on the primitive idea that government intervention through a variety of tools could nudge capital, labor and entrepreneurial energy into socially preferred sectors of the economy that would otherwise end up shortchanged on the free market.
In replacement of Adam Smith’s invisible hand, Washington’s muscular arms would deploy tax credits, tax rebates, loans, loan guarantees, regulations, tariffs, spending programs and other tools to nudge a market-driven economy that Hilsenrath claims has proven far more turbulent and uneven than it was expected to become a quarter-century ago.
Alas, the purported cause of this private sector turmoil and nonperformance is exactly what you would expect from financial journalism’s leading Fed Fanboy:
Three economic crises in the past quarter-century shook views about leaving markets alone—the bursting of a technology bubble in 2000, a housing crisis in 2007 and the Covid-19 shock in 2020.
Now, isn’t that a crock!
All three of those disruptions were the result of blatant state interventions, not internal defects of the free market. The dotcom bubble and crash and the 2008 housing/credit disaster were fostered by the Fed from the get-go, while the Covid-Lockdown shock was a wholly unnecessary over-reaction by Washington’s self-appointed Virus Patrol.
All three disruptions to normal, market-based economic growth, of course, gave rise to sweeping expansion of the Federal budget, as well as Washington’s regulatory apparatus.
In the later case, for example, the number of new “economically significant” regulations, defined as having a $100 billion or higher impact, rose from 20 per year during the Reagan era to 45 per year under Bush the Elder, Clinton and Bush the Younger, and then to 62 per year under Obama and 63 per year, under the debt and regulatory King, Donald Trump.
The only thing that saves the Donald from owning the crown for regulatory madness is that in their short tenure to date, the puppeteers behind Joe Biden have averaged 63 new economically significantly regs per year.
As to the direct spending share of GDP, the data leaves little room for doubt. Owing to the long drive to shrink the Federal government between 1981 and the year 2000, the Federal spending share of GDP was actually reduced from 24% under Jimmy Carter to a modern low of 18.6% in 2000.
After that, however, it was off to the races, as depicted by the ascending red line in the chart below. The latter peaked, of course, at 28% of GDP under the Big Spending regime of Donald Trump.
The latter foolishly signed bills authorizing $4 trillion of Covid Stimmies and advocated for another $2 trillion during the November 2020 election, which Joe Biden quickly enacted into law—culminating a two-year federal spending bacchanalia that still clocked in at 25% in 2021.
Federal Outlays As % Of GDP, 1980-2021
Normally, now would be the time for the so-called emergency Covid spending of 2020-2021 to roll off, thereby permitting the Federal spending share of GDP to shrink toward more historical levels.
But not this time. Not under the regime of Joe Biden and his statist Dem majority. During the last two weeks, in fact, he has signed into law a $300 billion bailout and subsidy package for the chip industry and a nearly $500 health and climate change spending boondoggle on top.
As usual, this massive additions to the Federal budget have been deceptively relabeled as pro-growth “investments” rather than spending. But there shouldn’t be any confusion about the impact of subsidizing the ObamaCare premiums of $100,000 per year families or paying Intel to build chip foundries in the US when the latter is drowning in free cash flow and could readily fund its own investments.
As Republican former CBO Director, Douglas Holtz-Eakin, reminded,
We are going to have bad growth. He said the national drift away from unfettered markets has affected both political parties, including his own.
He got that right. There has been no more self-righteous chest-thumping “conservative” on Fox News lately than the the GOP governor of Texas, Greg Abbott. But more than two years ago he showed his true convictions about economic liberty and constitutional processes when he ordered sweeping lockdowns of Texas services and other industries in obedience to the commands of Dr. Fauci. It was only when he suddenly had a red hot grass roots political revolt on his hands that he backed off.
But that conversion didn’t last long. Like the rest of the GOP’s neocon anti-China posse Abbott signed up for the $280 billion CHIPS and Science Act of 2022 as part of a sweeping “bipartisan” embrace of tariffs and industrial policies designed to allegedly blunt China’s drive for technological leadership.
As the Fed fanboy observed, for some Republicans, the economic threat of China warranted veering away from old, small-government orthodoxies.
“I call on Congress to pass this legislation without further delay,” Texas’s Republican Gov. Greg Abbott said before passage last month, “so that Texas and the United States can continue to lead in the semiconductor arena while decreasing our dependence on foreign production and ensuring our national security.”
Needless to say, the rest of the neocon besotted GOP is just as bad—especially the Ohio delegation led by former budget director and Senator, Rob Portman. The latter flat-out invited Intel CEO Pat Gelsinger to blackmail the US Congress by threatening to cancel a $20-billion foundry project in Ohio absent the enactment of the massive chips subsidy bill.
Needless to say, the politically slimy Gelsinger didn’t hesitate to pull out all the stops in good corporate welfarist fashion:
- Intel CEO Pat Gelsinger warned the company will delay its $20 billion chip site in Ohio if Congress fails to pass a bill with $52 billion for domestic semiconductor manufacturing.
- There are real‑time consequences if this doesn’t pass,” Gelsinger said. “I know I will make a decision to delay our project in Ohio if it doesn’t pass.
- Intel previously delayed its groundbreaking ceremony and has warned that the speed and size of the plans are dependent on government funding.
- Gelsinger said Tuesday he has asked General Motors CEO Mary Barra to pressure McConnell on the issue.
- Every Kentucky car distributor needs to be calling McConnell’s office today, right, to emphasize that this cannot be a partisan football,” Gelsinger said.
Now here’s the point: Firstly, Intel and the rest of the semiconductor industry have more than enough cash flow to build their own plants; and secondly, there is nothing wrong with sourcing chips from low-cost foreign producers—unless you are bound and determined to “weaponize” international commerce in behalf of wrong-headed foreign policy interventions.
As to the former, during the past eight years, Intel generated $198 billion of cash flow from operations, but saw fit to reinvest only $105 billion in CapEx. The balance and then some went to $61 billion of stock buybacks and $41 billion of dividends.
That is to say, Intel’s executives and Board apparently felt they could earn higher returns by investing its fulsome cash flow on Wall Street rather than in foundries and chip plants.
So why in the world does the US Congress—-and especially the alleged free enterprise-loving GOP—insist on over-riding the wisdom of the free market?
Very simply, they fail to understand that free enterprise at home and peaceful commerce with all nations abroad are the opposite sides of the same coin. You can’t have the former without the latter.
When it comes to the essence of the matter, in fact, the neocon’s embrace of autarky is really about as stupid as it comes. In the worst imaginable case, suppose that the chip capital of the world, Taiwan, suddenly saw the light and made its peace with Beijing in the form of some kind of affiliation agreement that brought Taiwan back into the fold of Great China.
Is there any plausible reason to believe that Beijing—-which is struggling with a collapsing Ponzi scheme as is— and is therefore desperate to keep the Chinese people in a modicum of prosperity, would embargo chip sales to the US and the massive financial flows they represent?
No, there isn’t. The neocon case against China is yet another version of war-mongering 101, and it’s turning the GOP into a lousy bunch of corporate welfare queens.
Meanwhile, as Republicans have embraced tariffs and an hostile foreign policy against China, Democrats are embracing the use of the tax code to advance their own economic agenda. The new health and climate law, for example, includes $161 billion worth of credits for private-sector investment in non-carbon electricity sources such as solar and wind, $36 billion in credits for electric cars, and $37 billion in credits for manufacturing plants that run on green energy sources.
As the Wall Street Journal further noted,
Economists call such credits “tax expenditures,” in that they are employed the way federal spending is used to shape economic activity.
These breaks were worth $729.5 billion in 1996, adjusted for inflation, according to the Government Accountability Office. Last year, they surpassed $1.4 trillion, and the number of individual breaks had grown from 121 to 165.
“The Biden and Trump era is one of a government that wants to play a much bigger role in what is produced, where it is produced, how it is produced and with what labor it is produced,” said Jason Furman, former chair of the White House Council of Economic Advisers under Barack Obama.
The sectors that have spent the most are those most heavily touched by government policies, $10.8 billion between 1998 and June 2022 by the healthcare industry; $10.2 billion by finance; $8.4 billion by communications and electronics; and $6.9 billion by the energy sector.
During that time, overall annual lobbying spending increased from—
- 1999: $1.44 billion;
- 2005: $2.43 billion;
- 2010: $3.50 billion;
- 2015: $3.22 billion;
- 2021:$3.77 billion;
- 2022E: $4.02 billion.
To his credit, Hilsenrath does note a new book that lays bare this entire stinking mess. In a work entitled, “The Great Reversal: How America Gave Up on Free Markets,” New York University economist Thomas Philippon said lobbying and campaign finance were at the root of important U.S. economic problems.
They led to regulations that protected big corporations, impeded the growth of startup companies, reduced consumer choice and raised prices, he concluded.
“In the twenty years following my arrival in the U.S. in 1999, most domestic U.S. markets lost their competitive edge,” said Mr. Phiippon.
Still, the Fed’s Fanboy has a rationalization:
The government bailed out airlines, car makers, banks and millions of small businesses with loans and emergency funding and increased oversight of banks. In the case of Covid, the Trump administration also funded a pharmaceutical industry race to develop new vaccines.
Without those interventions, the crises might have been worse; they also placed the government in the foreground of U.S. economic affairs.
Well, if that’s what the almighty Wall Street Journal thinks, its no wonder the GOP has given up the ghost on economic liberty and free market prosperity. Unfortunately, friends of the latter have become few and far between.