Should taxpayers subsidize America’s computer chip industry?

Judd Legum over at Popular.Info has a new article up about legislation in Congress to give a great deal of money to America’s domestic computer chip industry.

Millions of children are living in poverty, the planet is warming, and inflation is reaching new heights. Now, a bipartisan coalition in Congress has come together — to push for $76 billion in subsidies to the highly-profitable domestic computer chip industry.

Yesterday, the Senate voted to advance the CHIPS Act by a 64-34 vote. Those voting in favor included 49 Democrats and 15 Republicans. Senator Bernie Sanders (I-VT) and 33 Republicans were opposed.

The bill includes a combination of grants and tax credits for chip manufacturers designed to encourage domestic production. The money would subsidize the creation of new plants, known as fabs, and the retooling of existing facilities. The corporations expected to benefit the most are Intel, Texas Instruments, Micron Technology, Global Foundries, and Samsung.

The legislation is intended to address a very real problem that emerged during the pandemic — an acute shortage of chips. That shortage drove up costs for goods that rely on chips, such as cars, and impeded economic growth.

But even the most adamant supporters of the CHIPS Act concede that the legislation would not help address the current shortage. Fabs take multiple years to construct. Meanwhile, the shortage is already easing and some analysts are predicting that supply will outstrip demand “in the second half of 2022 or 2023.”

Another rationale for the legislation is that about 90% of the production of the most advanced chips are concentrated in Taiwan. This, according to some, is a national security threat because Taiwan could someday be invaded by China. If that occured, the United States could lose access to the most advanced chips.

But potential instability in Taiwan isn’t just a national security problem. It is also an economic risk that chip manufacturers have to address. The United States is a large consumer market that chip manufacturers need to reach. Manufacturing within the United States is attractive because it provides a consistent way to supply a large market irrespective of political instability in Taiwan or any other region. So while other countries are providing subsidies to chip manufacturers, that doesn’t mean that the industry will abandon manufacturing in the United States.

Legum goes on to note:

Intel, the loudest proponent of the CHIPS Act, has the resources to invest in new plants. In 2021, Intel collected $20 billion in profits. Its CEO, Pat Gelsinger, received a compensation package worth $176 million. Since the start of the pandemic, it has spent $16.6 billion on stock buybacks — a strategy that rewards stockholders by boosting share prices.

I dunno. Our government gives subsidies for a lot worse. (Fossil fuel corporations, I’m looking at you.)

If chip shortages can jack up the prices of so many other things, and if there really are national security concerns about our historical chip suppliers, I think a jump-start to get our domestic supply up to speed doesn’t seem like the worst thing to do with taxpayer money.

Although I’d monitor the shit out of Intel once they got the money, and add tons of legal strings to the funds for every recipient. I don’t trust Intel any more than I trust China to do what’s best for America.

You can read the rest of Legum’s article here.

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