Very good piece and I think it goes well with the 'mass transit should aim to maximize ridership' argument. I've often thought one of the reasons our brick and mortar state and civil infrastructure struggles compared to other developed countries isn't just about taxes/willingness to pay for it. It's that our politics seems to ensure that a public service or subsidy is never just about its first order purpose. Like unionized jobs and diversity and environmental justice (whatever that is) are all well and good but at the end of the day the purpose of trash service is to collect the trash and put it in a landfill.
Progressives seem to be making a habit of trying to backdoor their policy preferences. This is an example, climate change via COVID relief was another. It seems a very dangerous tactic, which could discredit government action altogether and to some degree even the rule of law.
The more I keep hearing about additional strings being attached to CHIPS Act funding, the more convinced I become that this will ultimately be seen as a failed policy. The critics will be proven right in their argument that the US government is an inefficient and ineffective capital allocator.
The US already has massive structural disadvantages in chip manufacturing. I’ve repeatedly seen this Dec 2022 WSJ article about TSMC’s struggles to create an Arizona plant [1] cited as proof that we’ve largely lost the capacity to build and operate these facilities.
> High costs, lack of trained personnel and unexpected construction snags are among the issues cited by Taiwan Semiconductor Manufacturing Co. as it rushes to get the north Phoenix factory ready to start production in December 2023.
> TSMC executives have said it isn’t easy to recreate in America the manufacturing ecosystem they have built over decades in Taiwan, drawing on local engineering talent and a network of suppliers including many in East Asia. Mr. Chang said the cost of making chips in Arizona may be at least 50% higher than in Taiwan.
> [TSMC in letter to the Commerce Department listed six problems that have emerged], including federal regulatory requirements, “unexpected work developments” during construction and additional site preparation, all of which it said raised costs.
So further increasing the cost and regulatory burden on deploying CHIPS funds only further exacerbates our structural deficits in chips manufacturing. If anything we should’ve gone the opposite direction in removing regulatory hurdles. Eg, exempted them from NEPA review and immigration quotas. Rather than chaining them to overly-expensive domestically sourced materials, equipment, and labor, the firms should be incentivized to make economically rational decisions regardless of the source (excluding China dependencies).
Hence, I worry that in 10 years we’ll all look back on the CHIPS Act as accomplishing little at a high expense, and thereby proof that the US government shouldn’t take an active role in industrial interventions.
Biden is a big sloppy coalition-friendly guy running a big sloppy coalition of a party. It's part of why he's the right man for the job right now.
So when a whole queue of allies comes through the Oval Office saying, "we want to do this and this, plus this and this, along with this and this, etc.," he's going to smile and say, "go get 'em!". He likes to play Santa, and passing the IRA gave him a very deep sack.
So, you may be right on the merits, but asking him to prioritize is going to go against his grain. Asking him to throw unions to the wolves, or kids or women-owned businesses, is asking him to stop being Joey from Scranton.
You're probably better off addressing this appeal to his consiglieri, like Zients, or Brainard, or Raimondo. Maybe if you name-check them in your piece it'll get on their desks.
Matt, seeing the actual functioning of progressive government: "I found this all a bit surprising." Really?
Some of us find none of this surprising. When someone tells you what they believe, you should believe them. Just read through the first-day actions and the rationale provided by the Biden Administration[1]. Biden did not campaign as a pragmatic, neoliberal centrist and he hasn't governed as one either. I still remember Matt being "surprised" at how Biden moved LEFT after securing the nomination. I guess hope springs eternal for some.
The only part of the government not yet taken over by the wackos is the part that worked effectively to avoid a coordinated bank run. Nice job by Janet Yellen, the Fed, et al. If the Bernie / Warren wing of the part gets control of the financial side of the party, then God help us all.
An angle of this that's underrated is public investment and proactive shaping of our national *digital infrastructure*- not just doing stuff with an obvious hardware connection, like broadband, but finding a way to support ongoing, world-leading digitization of banking, healthcare, education, etc. Sustained American economic vitality and equitable prosperity depends on having strong digital foundations in all the sectors that matter. We certainly can't tackle moonshot issues like breakthroughs in fighting cancer or creating a "self-driving wallet" that democratizes smart financial management without the world's best digital infrastructure. This is why we do things like pour money into promoting adoption of electronic health records and the health internet. Sure, the market can do it; but for many issues, there's too high a social cost to waiting, or there are market failures. The US also has a dangerous level of path dependence / stickiness in outdated "good enough not to be a burning platform but objectively weak by 2023 standards" technology stacks underpinning a wide variety of critical national domains such as banking and payments —in part ironically because we were so prosperous early relative to other nations. This has long allowed other countries to leapfrog our digital infrastructure and continue to lap us regularly in notable cases like instant/real time payments or digital identity. We can't stay the center of breakthroughs and ensure breakthroughs target the most urgent social priorities without a much harder look at "digital industrial policy" across policy domains.
I don't have an original take here. This is all just a predictably text book example of what happens when the state creates barriers to productivity in the name of funneling backdoor subsidies to favored labor constituents. Stuff doesn't get produced to the detriment of everyone not getting the hand out. There's literally no legitimacy to this type of market interference.
The only rationale at all for allowing this kind of bill is the national security one that happens to go, "If we are making these vital defense components in country then we don't have to worry about the CCP bombing Taiwan back to the stone age.", But if that's the point, the point is to make the chips, everything else is graft.
One thousand workers died building the Erie Canal. That seems tragic until you remember that, in 1819, the median European worker was undernourished. The European grain abundance which the Erie canal inaugurated saved far more than a thousand lives. Of course, it’s natural to want both safe canal construction and European grain abundance. If a 3% increase in construction costs could have saved 500 workers, that would probably have been worth it. The problem with visionary projects is you never know exactly where the cost tipping point is at which the whole project collapses. The California Pacific very nearly went bankrupt building the transcontinental railroad, a smallish increase in costs might very well have delayed the transcontinental railroad a decade. Recently, California’s high speed rail project really did collapse under the weight of costs. I strongly suspect many tunneling projects could be built much more cheaply at the cost of a couple dozen lives, eg the second avenue subway line and a new tunnel under the Hudson.
The good news is many young men want to take physical risks to build wealth and status. A healthy society finds productive, pro-social outlets for that impulse. Let the boys build!
Having a high brow piece about industrial policy is great. But I can’t get over my shock of the revelation in the first paragraph: it’s the official policy of the federal government to mandate that companies work only with people of a certain sex and skin color ?! How on earth is that constitutional? Who suggested this and how were they not laughed out of the room (or better yet , fired)? Why is racism so mainstream now that MY can mention this incidentally as a matter of fact and not even have this be a central point in his piece?
So this gets at some of my core dubiousness of Matt's technocratic neoliberal shill positioning. Specifically the technocracy.
I think it's fairly easy to say, in the abstract, "The government should encourage this thing," here semiconductor manufacturing investment, and have that look like a pretty attractive idea compared to just, "We should keep our hands off and let markets do their work."
But when you have the government getting heavily involved in the details of specifics of the economy, you steadily increase your reliance on the government making good decisions and having a functional bureaucracy. Not just *now*, when the policy is made, but for years to come. Perhaps forever, or at least until the next time you have a big clearing-of-the-tables of government policy. Does anyone want to look me straight in the eye and say that they have a great deal of confidence in the government's ability to make tons of good decisions at the detail level?
I feel like if you look at industrial policy success stories with the long view, this seems like a key weakness. Japan is my primary example: they created a manufacturing industry based on heavy government involvement with their manufacturing, but after a decade or so of success, they seemed pretty unable to react well to the rise of cheaper manufacturing regimes, the technological shift to information-age systems, and indeed they more recently dropped the ball on electric vehicles. I don't know as much about Korea, and China seems like it's too soon to say whether their recent troubles presage a real collapse in the success of their industrial policy or not.
With all three of those countries, you can plausibly say, "Hey, look, yes there are places where they grew hidebound and bureaucratic, but they made such big strides from here to there that it was clearly worth it." But the US isn't 1950s Japan or 1980s Korea or China (nor are we 1880s USA). We're bigger and messier and much, much richer. It seems like that's a situation where it'll be hard to ram through some clear-eyed good decisions, pick up the wins, and get a big improvement in our economy and living standards, and more likely to emphasize the downsides of yet more rulemaking and some random bureaucrat somewhere making bad decisions that then redound throughout the economy.
Putting aside some of the abstraction here, how do the uninitiated think you create high paying blue collar work, primarily for men? Well, through explicit wage floors (Davis Bacon) and union consultations (project labor agreements). When people valorize a certain type of opportunity for solid blue collar work this is actually what they mean even if they don’t know it.
What I do know - and is abundantly evident - is Joe Biden does think this is important and thus has been the lodestar of all elements of his public policy from ARP to the present (and throughout his long and publicity researchable career). He in fact doesn’t believe that just getting money out the door is the sole criterion which is why his staff, from the most liberal to the supposedly most “neoliberal shill turn” types, reflect this at every turn.
When people bray endlessly about how working in the “trades” is good or that being an electrician is a “great” job for non college grads, they mean the rules that joe Biden is following here.
The rest is the requirements on ceo pay and childcare, I think are not great ideas and actually don’t reflect 50 years of Joe Bidens career. But structuring the employment market of the provision of public money is a hallmark of joe Bidens work that is admirable even if it appears technically inelegant to a very online policy class.
In all honesty what would it take to make progressives prioritize?
I’ve often said some version of this take that descriptively I’m very progressive. I think the Omni crisis is sort of a correct take and the prescriptive steps they have for it are all a lot of word salad because there’s no command and control to it all but a kind of weird hive mind of academics and activists.
If the CHIPS act (and all the other stuff) has so many strings attached that nobody uses them: then we spent months on bills which accomplished nothing. In business there's a saying that you can have: a low price, great service, or fast delivery. Pick two because you're never going to get three. While the same isn't EXACTLY true here: Biden is trying to foster unions, please the Progressive activists who think the sky is falling on everything, everywhere all the time, and make America compete with China. I'd tell the President: pick two (and I know who loses out in my calculus).
Very good piece and I think it goes well with the 'mass transit should aim to maximize ridership' argument. I've often thought one of the reasons our brick and mortar state and civil infrastructure struggles compared to other developed countries isn't just about taxes/willingness to pay for it. It's that our politics seems to ensure that a public service or subsidy is never just about its first order purpose. Like unionized jobs and diversity and environmental justice (whatever that is) are all well and good but at the end of the day the purpose of trash service is to collect the trash and put it in a landfill.
Progressives seem to be making a habit of trying to backdoor their policy preferences. This is an example, climate change via COVID relief was another. It seems a very dangerous tactic, which could discredit government action altogether and to some degree even the rule of law.
The more I keep hearing about additional strings being attached to CHIPS Act funding, the more convinced I become that this will ultimately be seen as a failed policy. The critics will be proven right in their argument that the US government is an inefficient and ineffective capital allocator.
The US already has massive structural disadvantages in chip manufacturing. I’ve repeatedly seen this Dec 2022 WSJ article about TSMC’s struggles to create an Arizona plant [1] cited as proof that we’ve largely lost the capacity to build and operate these facilities.
> High costs, lack of trained personnel and unexpected construction snags are among the issues cited by Taiwan Semiconductor Manufacturing Co. as it rushes to get the north Phoenix factory ready to start production in December 2023.
> TSMC executives have said it isn’t easy to recreate in America the manufacturing ecosystem they have built over decades in Taiwan, drawing on local engineering talent and a network of suppliers including many in East Asia. Mr. Chang said the cost of making chips in Arizona may be at least 50% higher than in Taiwan.
> [TSMC in letter to the Commerce Department listed six problems that have emerged], including federal regulatory requirements, “unexpected work developments” during construction and additional site preparation, all of which it said raised costs.
So further increasing the cost and regulatory burden on deploying CHIPS funds only further exacerbates our structural deficits in chips manufacturing. If anything we should’ve gone the opposite direction in removing regulatory hurdles. Eg, exempted them from NEPA review and immigration quotas. Rather than chaining them to overly-expensive domestically sourced materials, equipment, and labor, the firms should be incentivized to make economically rational decisions regardless of the source (excluding China dependencies).
Hence, I worry that in 10 years we’ll all look back on the CHIPS Act as accomplishing little at a high expense, and thereby proof that the US government shouldn’t take an active role in industrial interventions.
[1] https://www.wsj.com/articles/tsmcs-arizona-chip-plant-awaiting-biden-visit-faces-birthing-pains-11670236129
Biden is a big sloppy coalition-friendly guy running a big sloppy coalition of a party. It's part of why he's the right man for the job right now.
So when a whole queue of allies comes through the Oval Office saying, "we want to do this and this, plus this and this, along with this and this, etc.," he's going to smile and say, "go get 'em!". He likes to play Santa, and passing the IRA gave him a very deep sack.
So, you may be right on the merits, but asking him to prioritize is going to go against his grain. Asking him to throw unions to the wolves, or kids or women-owned businesses, is asking him to stop being Joey from Scranton.
You're probably better off addressing this appeal to his consiglieri, like Zients, or Brainard, or Raimondo. Maybe if you name-check them in your piece it'll get on their desks.
Matt, seeing the actual functioning of progressive government: "I found this all a bit surprising." Really?
Some of us find none of this surprising. When someone tells you what they believe, you should believe them. Just read through the first-day actions and the rationale provided by the Biden Administration[1]. Biden did not campaign as a pragmatic, neoliberal centrist and he hasn't governed as one either. I still remember Matt being "surprised" at how Biden moved LEFT after securing the nomination. I guess hope springs eternal for some.
The only part of the government not yet taken over by the wackos is the part that worked effectively to avoid a coordinated bank run. Nice job by Janet Yellen, the Fed, et al. If the Bernie / Warren wing of the part gets control of the financial side of the party, then God help us all.
[1]. https://www.whitehouse.gov/briefing-room/statements-releases/2021/01/20/fact-sheet-president-elect-bidens-day-one-executive-actions-deliver-relief-for-families-across-america-amid-converging-crises/
An angle of this that's underrated is public investment and proactive shaping of our national *digital infrastructure*- not just doing stuff with an obvious hardware connection, like broadband, but finding a way to support ongoing, world-leading digitization of banking, healthcare, education, etc. Sustained American economic vitality and equitable prosperity depends on having strong digital foundations in all the sectors that matter. We certainly can't tackle moonshot issues like breakthroughs in fighting cancer or creating a "self-driving wallet" that democratizes smart financial management without the world's best digital infrastructure. This is why we do things like pour money into promoting adoption of electronic health records and the health internet. Sure, the market can do it; but for many issues, there's too high a social cost to waiting, or there are market failures. The US also has a dangerous level of path dependence / stickiness in outdated "good enough not to be a burning platform but objectively weak by 2023 standards" technology stacks underpinning a wide variety of critical national domains such as banking and payments —in part ironically because we were so prosperous early relative to other nations. This has long allowed other countries to leapfrog our digital infrastructure and continue to lap us regularly in notable cases like instant/real time payments or digital identity. We can't stay the center of breakthroughs and ensure breakthroughs target the most urgent social priorities without a much harder look at "digital industrial policy" across policy domains.
Progressives: Detach health care from employment!
Progressives: Attach child care to employment!
I don't have an original take here. This is all just a predictably text book example of what happens when the state creates barriers to productivity in the name of funneling backdoor subsidies to favored labor constituents. Stuff doesn't get produced to the detriment of everyone not getting the hand out. There's literally no legitimacy to this type of market interference.
The only rationale at all for allowing this kind of bill is the national security one that happens to go, "If we are making these vital defense components in country then we don't have to worry about the CCP bombing Taiwan back to the stone age.", But if that's the point, the point is to make the chips, everything else is graft.
One thousand workers died building the Erie Canal. That seems tragic until you remember that, in 1819, the median European worker was undernourished. The European grain abundance which the Erie canal inaugurated saved far more than a thousand lives. Of course, it’s natural to want both safe canal construction and European grain abundance. If a 3% increase in construction costs could have saved 500 workers, that would probably have been worth it. The problem with visionary projects is you never know exactly where the cost tipping point is at which the whole project collapses. The California Pacific very nearly went bankrupt building the transcontinental railroad, a smallish increase in costs might very well have delayed the transcontinental railroad a decade. Recently, California’s high speed rail project really did collapse under the weight of costs. I strongly suspect many tunneling projects could be built much more cheaply at the cost of a couple dozen lives, eg the second avenue subway line and a new tunnel under the Hudson.
The good news is many young men want to take physical risks to build wealth and status. A healthy society finds productive, pro-social outlets for that impulse. Let the boys build!
Having a high brow piece about industrial policy is great. But I can’t get over my shock of the revelation in the first paragraph: it’s the official policy of the federal government to mandate that companies work only with people of a certain sex and skin color ?! How on earth is that constitutional? Who suggested this and how were they not laughed out of the room (or better yet , fired)? Why is racism so mainstream now that MY can mention this incidentally as a matter of fact and not even have this be a central point in his piece?
Congrats on getting the new essay on my doorstep at 6a, despite the time-change.
So this gets at some of my core dubiousness of Matt's technocratic neoliberal shill positioning. Specifically the technocracy.
I think it's fairly easy to say, in the abstract, "The government should encourage this thing," here semiconductor manufacturing investment, and have that look like a pretty attractive idea compared to just, "We should keep our hands off and let markets do their work."
But when you have the government getting heavily involved in the details of specifics of the economy, you steadily increase your reliance on the government making good decisions and having a functional bureaucracy. Not just *now*, when the policy is made, but for years to come. Perhaps forever, or at least until the next time you have a big clearing-of-the-tables of government policy. Does anyone want to look me straight in the eye and say that they have a great deal of confidence in the government's ability to make tons of good decisions at the detail level?
I feel like if you look at industrial policy success stories with the long view, this seems like a key weakness. Japan is my primary example: they created a manufacturing industry based on heavy government involvement with their manufacturing, but after a decade or so of success, they seemed pretty unable to react well to the rise of cheaper manufacturing regimes, the technological shift to information-age systems, and indeed they more recently dropped the ball on electric vehicles. I don't know as much about Korea, and China seems like it's too soon to say whether their recent troubles presage a real collapse in the success of their industrial policy or not.
With all three of those countries, you can plausibly say, "Hey, look, yes there are places where they grew hidebound and bureaucratic, but they made such big strides from here to there that it was clearly worth it." But the US isn't 1950s Japan or 1980s Korea or China (nor are we 1880s USA). We're bigger and messier and much, much richer. It seems like that's a situation where it'll be hard to ram through some clear-eyed good decisions, pick up the wins, and get a big improvement in our economy and living standards, and more likely to emphasize the downsides of yet more rulemaking and some random bureaucrat somewhere making bad decisions that then redound throughout the economy.
Putting aside some of the abstraction here, how do the uninitiated think you create high paying blue collar work, primarily for men? Well, through explicit wage floors (Davis Bacon) and union consultations (project labor agreements). When people valorize a certain type of opportunity for solid blue collar work this is actually what they mean even if they don’t know it.
What I do know - and is abundantly evident - is Joe Biden does think this is important and thus has been the lodestar of all elements of his public policy from ARP to the present (and throughout his long and publicity researchable career). He in fact doesn’t believe that just getting money out the door is the sole criterion which is why his staff, from the most liberal to the supposedly most “neoliberal shill turn” types, reflect this at every turn.
When people bray endlessly about how working in the “trades” is good or that being an electrician is a “great” job for non college grads, they mean the rules that joe Biden is following here.
The rest is the requirements on ceo pay and childcare, I think are not great ideas and actually don’t reflect 50 years of Joe Bidens career. But structuring the employment market of the provision of public money is a hallmark of joe Bidens work that is admirable even if it appears technically inelegant to a very online policy class.
Maybe Joe Biden does not have a clue about the differences and nuances of these arguments
In all honesty what would it take to make progressives prioritize?
I’ve often said some version of this take that descriptively I’m very progressive. I think the Omni crisis is sort of a correct take and the prescriptive steps they have for it are all a lot of word salad because there’s no command and control to it all but a kind of weird hive mind of academics and activists.
If the CHIPS act (and all the other stuff) has so many strings attached that nobody uses them: then we spent months on bills which accomplished nothing. In business there's a saying that you can have: a low price, great service, or fast delivery. Pick two because you're never going to get three. While the same isn't EXACTLY true here: Biden is trying to foster unions, please the Progressive activists who think the sky is falling on everything, everywhere all the time, and make America compete with China. I'd tell the President: pick two (and I know who loses out in my calculus).