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Economics

Housing Prices Will Keep Getting More Expensive

As mortgage rates have risen this year, the demand for home purchases has fallen. That has spelled trouble for the home construction business. Homebuilder confidence dropped for the 10th straight month in October. The decline in builder sentiment reflects what economist Ian Shepherdson describes as “housing…in free fall. So far, most of the hit is in sales volumes, but prices are now falling too, and they have a long way to go.” The University of Michigan’s index of buying conditions for homes has fallen to the lowest level since 1982.

Meanwhile, as of this week, mortgage demand for home purchases is “down 41% from a year ago and close to a seven-year low.” 

Naturally, this has been a sizable drag on the sale of newly constructed homes. According to the Census Bureau, new single-family houses sold in the U.S. in September were down by 17 percent, year over year. They were also down by 10.9 percent from the previous month. Overall, sales of new homes are down 42 percent from the peak in August of 2020.

Nor does it look like construction of multifamily housing is likely to make up for the decline in single-family. Although it might stand to reason that a decline in demand for purchase housing could lead to more building of rental housing, that doesn’t appear to be the case. According to Housing Wire, the “historic multifamily housing construction boom is already fading.” This is partly due to the fact that rising interest rates are not limited to mortgages for home buyers, and “those same interest rates pushing would-be homebuyers to the sidelines are also hurting [muiltifamily] developers.”

It’s getting more expensive to borrow money up and down the food chain in housing, and that’s slowing down new construction of both for-purchase and for-purchase housing.

For anyone concerned about the availability and affordability of housing, this is bad news. The U.S. is currently in the midst of a housing shortage in the sense that builders aren’t building enough to keep up with population growth. And now, it appears that the short-lived boom in construction that launched in recent years will soon be over.

The combination of the boom-bust cycle, coupled with mounting government regulations driving up the cost of construction will further drive up the cost of living for ordinary Americans.

A Tale of Bust and Boom

New housing construction has always been sensitive to business cycles. Over the past 60 years, it’s not hard to find annual swings in construction growth ranging from negative twenty percent to positive twenty percent.

starts
Source: US Census Bureau.

Moreover, the negative swing on housing construction in the years surrounding the 2008 financial crises were especially severe. Construction began to head downward in 2006, with a drop of 12 percent. This was followed by three years of even bigger declines, culminating in a 38-percent drop in 2009.

New housing construction did not return to the post-1990 average again until 2020.

In other words, the end of the housing bubble in 2009 had an enormous impact on the industry and led to more than a decade of below-average home production. In spite of enormous amounts of new money creation, stimulus, and ultra-low interest rates, the home construction industry did not bounce back. As noted in National Public Radio earlier this year, the slow pace of new housing construction did not start with the current economic cycle but dates to an earlier easy-money-induced bubble:

[T]he roots of the problem go back much further — to the housing bubble collapse in 2008.

“What I call a bloodbath happened,” says [builder Emerson] Claus. It was the worst housing market crash since the Great Depression. Many homebuilders went out of business. Claus was building houses in Florida when the bottom fell out.

“A lot of my tradespeople found other work, went and got retrained for new jobs in law enforcement, all sorts of jobs,” says Claus. “So the workforce was somewhat decimated.”

A few years later, as Americans started buying more homes again, building stayed below normal. And that slump in building continued for more than a decade. Meanwhile, the largest generation, the millennials, started to settle down and buy houses.

This trend was then only made worse by the shipping and logistical bottlenecks brought on by the government-imposed covid lockdowns. These have meant a shortage of lumber, appliances, electrical equipment, and cabinetry. The National Association of Home Builders concluded in June “shortages of materials are now more widespread than at any time since NAHB began tracking the issue in the 1990s.”

The Role of Monetary “Stimulus”

Monetary inflation has fueled shortages in both labor and supplies as stimulus programs have driven demand by both businesses and consumers to new heights. Yet, since this demand is based on the appearance of newly printed money, and not on rising real wealth or productivity, we’re seeing more demand for a stagnating supply of goods and services.

The result has been less building even as population has continued to grow. The result, of course, has been a higher cost of living—just as we would expect from an inflationary boom.

The data on home starts and population backs up the anecdotal evidence. For example, if we look at annual housing starts totals the trend has been downward since 1960. Beginning in 1983, every new trough in the housing construction downcycle has been lower than the one before it.

trend

Source: US Census Bureau.

This has only been slightly mitigated by slowing population growth, and we have seen an upward trend in the number of new U.S. residents per new housing start, even as the size of the U.S. household has fallen. In other words, the number of new residents per new housing start has grown over time. From the 1960s through the 1980s, the average number of new Americans per new housing start was approximately 1.6. Since 1990, on the other hand, the average has been 2.2. Since 2008, the average has been 2.5. So, there are progressively fewer and fewer new housing starts per person.

trend

Source: US Census Bureau.

After new housing construction began to collapse in 2006, the number of new residents per new housing unit surged to nearly 5, a new high.

On the other hand, it is true that in 2020 and 2021, new housing construction reached the highest levels seen since 2007. Moreover, the gap between new residents and new housing was eliminated. This was thanks to a sizable decline in new population growth created by covid-era border closures and a fall in fertility rates. Thus, the number of new residents per housing unit then collapsed below 1 for the first time in decades.

pop

But, this trend is unlikely to continue since “after a construction boom in the second half of 2020 and 2021, the home building sector is contracting.” Population growth is also returning to more normal rates. The gap between new population and new units will already be growing again in 2023. It does not look like boom of the last 18 months will be enough to reverse the worsening situation in housing production.

What can be done to reverse the trend? Last month, we explored some ways that state and local regulation has driven up the cost of construction, thus limiting the total number of units produced. Many of these regulations will only continue to push up prices while reducing affordability for first-time buyers.

It’s also important to note the effects of repeated boom-bust cycles on total housing production. One might be tempted to assume that new rounds of monetary stimulus—say, the quantitative easing of the past decade—would easily reverse a collapse in housing construction and will bring new highs in housing production. That is not what has happened, however. Rather, relentless monetary stimulus since 2008 has not been sufficient to address the effects of malinvestment and regulatory costs over the past 20 years. Over the past six months, new housing starts have flatlined compared to 2021, and we may even see housing starts end the year down in 2022. The result is a continuation of an ongoing decline in housing production. Not even the runaway money printing of the past two years has been enough to bring home construction back to what was more normal before the housing bubble and resulting financial crisis.

This article was originally featured at the Ludwig von Mises Institute and is republished with permission.

2022 Was Another Nail in the Modern Monetary Theory Coffin

It’s been a rough year for advocates of modern monetary theory (MMT). After nearly two years with all the budget deficits and money printing MMTers could have wanted, the doctrine’s popularity seems to have faded now that we’re well passed the honeymoon phase. Twenty twenty-two has clearly demonstrated that creating a lot of new money and running massive government deficits does, in fact, come at a cost. We should let this theory die before it causes any more destruction.

MMT is a school of thought born and raised on the internet during a thirty-year period of low price inflation with constant debate over government budgets. Advocates argue that because the US government is a currency issuer, we can drop all the talk about finding money for government programs. All that is needed is the political will to fund things with newly printed money. Suddenly in early 2020, that political will appeared overnight at a scale no one could have imagined even weeks before.

The Federal Government embraced deficit spending to prop up the economy amidst imposed lockdowns and trade restrictions. Now, thirty-one months later, the national debt has increased by almost $8 trillion. At the same time, the money supply, as measured by M2, grew by $6 trillion, an increase of nearly 40 percent. Most critics of the free market would probably classify this historic level of money printing and debt as an unfortunate but necessary response to unprecedented circumstances. But not advocates of MMT. This is what they’ve been wanting all along.

According to MMT, having concerns about the national debt is antiquated and childish. In fact, they argue that the total national debt is nothing more than a record of how many dollars there are in the pockets of private citizens. A higher national debt is not a consequence of MMT; it’s the entire point. The pandemic was, in many ways, MMT’s moment.

Predictably, the historic level of monetary inflation paired with the government-imposed production slowdown has resulted in levels of consumer price inflation not seen in forty years. The rate appears to have peaked in June 2022, with prices on average 9.1 percent higher than the year prior. Producer price inflation also peaked in June at 11.3 percent. Although most MMT advocates had been dismissive of inflation, that’s not something they would have said was impossible. The problem for them is what they think needs to be done about it.

Just as MMT sees the national debt as a measurement of all the dollars the government created and put into people’s pockets, taxes are the tools for the government to take money back out of the economy if inflation gets too high. Setting aside how economically flawed this characterization is, a government following the MMT playbook will run into a political problem at this point in the cycle.

It is relatively easy to convince politicians and everyday people that the government programs they dream about can be funded by creating new money. And the true cost of this method—currency devaluation—is not felt or seen immediately. That adds to the illusion that something can be had for nothing. But taxes are the opposite. Everyone can see the line on their receipt, the amount withheld on payday, and the check they have to send to the IRS each April. The economic pain is felt without any clear, immediate benefit.

During periods of high inflation, there is a general sense amongst everyday people that the same amount of money isn’t cutting it. Sure, the initial cause may be a higher money supply, but any given person will feel like possessing more money is the key to getting by. After all, prices keep going up. They’re not going to react as well to the argument that Uncle Sam should confiscate even more of their dollars. If MMTers thought it was difficult to cultivate the political will to inflate, they clearly haven’t been thinking further down the road.

Interestingly, we’re not hearing much about raising taxes from MMT advocates these days. Or at least, their claims haven’t been amplified by Democrats and progressives as much as earlier arguments to print more money were. Just as they have done with Keynesianism for decades, politicians will grab any economic theory that justifies what they want and drop it when it prescribes something they don’t. And thank goodness for that. The last thing we need is more taxes.

This year has demonstrated that printing vast quantities of money is costly. And that the political will to even stick with MMT breaks down when the going gets tough. That should be enough to completely discredit this ridiculous theory.

This article was originally featured at the Ludwig von Mises Institute and is republished with permission.

Western Politicians Tried (and Failed) to Legislate Tides of Russian Oil

Since the beginning of the Russian invasion of Ukraine, the Western sanctions program can best be compared to an interrogator who first amputates a victim’s arm and then, brandishing the severed appendage, threatens to begin slitting its wrist and tearing out fingernails. As early as March 2022, for example, Russia’s foreign currency reserves were frozen by the United States and European Union, severely restricting the ability of the Russian state and nation to purchase manufactured goods from the west raise capital, and pay its bondholders. A week later, though, having already had its access to foreign markets severely restricted, the three largest ratings agencies in the U.S. (Fitch, Moody’s and Standard & Poors), followed up on that blow by downgrading Russia’s credit score.

The primary complication with these sanctions has been the undeniable material fact that Europeans, and in particular Germans, are strongly reliant on oil and petroleum products imported from the Russian Federation, with the Russians providing over quarter of their gas before the war. After the seizure of Russia’s foreign exchange reserves, the Russians took the drastic step of demanding that any purchases of Russian oil by countries unfriendly to Russia be made in rubles. In particular, Euros or Dollars would need to be transferred into an account managed by Gazprom, the Russian state-owned oil company. Gazprom would then use the foreign currency to buy Rubles from the Russian Central Bank, and then transfer those rubles to its own account, only after such point would the transaction be considered complete. With the Russian Central bank free to then sell off those holdings of Euros at their leisure, Russia removed NATO’s ability to pull the international equivalent of a chargeback scam.

The physical representation of the tether between Europe’s energy demand and Russia’s energy supply was the Nord Stream pipeline, its construction and operation the subject of opposition by successive U.S. administrations since the late 1990s. In July, Gazprom cut the flows of gas through the Nord Stream 1 pipeline by 20%, citing a need for maintenance that could not be effectively carried out while Russia was being sanctioned. Energy prices in Europe skyrocketed, with some firms seeing their energy bills quadruple. In late September, the Russian hostage was shot by parties unknown when the Nord Stream 1 and 2 pipelines suffered multiple ruptures underneath the Baltic sea. America blamed the Russians for destroying their own pipeline. Vladimir Putin blamed “Anglo-Saxons” for organizing the blasts as an act of sabotage, though he admitted that “it is hard to believe.” Personally, I don’t believe the Anglo-Saxons would organize everything without assistance from Normans or at least Danes.

Regardless of the unsolvable mystery of who is responsible for destroying the Russian energy infrastructure that America has long wanted out of the picture and which the Polish MEP Radek Sikorski thanked America for destroying, the Anglo-Saxons and their vassal nations have another trick up their sleeve. This time, the G7 has come together and agreed to set a price ceiling on Russian oil, taking effect December 5. Though a specific price has not yet been agreed upon, “the coalition has agreed the price cap will be a fixed price that will be reviewed regularly, rather than a discount to an index. This will increase market stability and simplify compliance to minimize the burden on market participants.”

If you’re reading this article, you almost certainly have some basic understanding of the effects of price floors (like the minimum wage) and price ceilings (like rent controls). In short, price floors cause surplus (e.g. unemployment) while price ceilings cause shortages (e.g. homelessness, though more often a sharp deterioration in housing quality). Any attempt at “price stabilization” will only cause a disequilibriation in the real goods and production factors relating to the goods in question. The idea that a fixed price cap regularly amended by bureaucrats is conducive to more stability than a price cap pegged to some form of third-party price index is so stupid as to leave one thunderstruck.

But the economic analysis assumes a sovereign willing and able to enforce such a decision on all firms. The picture goes from tragic to farcical when discussing international trade. Consider the Organization of Petroleum Exporting Countries. OPEC is an international cartel with the primary function of enforcing a price floor on oil. To do so requires, well, an organization of the petroleum exporting countries! While most western countries have laws against firms organizing cartels along this basis without government facilitation, sovereign nations can make just about any arrangements with each other that they want. In this environment, consider the chutzpah it takes to announce at the beginning of November that you’ve declared a maximum price on someone else’s oil!

It is true that pre-war, Europe was the customer for 49% of Russian oil exports. A problem is that oil is a commodity. Once refined, any unit of it is as just about as good as any other, and absent potential variations in radiometric signature, it doesn’t exactly come with a serial number that you need to file off. And it is easy to imagine a situation where Party A commits not to buy something it needs from Party B at market (or, in this case, cartel-managed) price, only for Party C to offer to buy the same good from Party B at a price less discounted than Party A’s insane demand, and then sell to Party A at market. Not only is this possible: India has been reselling millions of barrels Russian oil to Europe since May 2022.

As usual, black markets are free markets. If Europeans insist on refusing to openly purchase Russian oil at market price from Russia, it will simply find itself secretly purchasing Russian oil at market price from someone else. Or it can look forward to a cold winter.

Powell Promises More Rate Hikes

The Federal Reserve’s Federal Open Market Committee (FOMC) raised the target federal funds rate 75 basis points on Wednesday, marking the fourth 75-basis-point hike in a row since June.

The federal funds rate is now the highest it’s been since December of 2007 when the Fed was in the process of lowering the target rate as part of an effort to stimulate in the economy in the lead up to the 2008 financial crisis. The target rate still remains 1.25 percent below the peak rate of 5.25 percent reached during much of 2006 and 2007.

ffr

According to the Fed’s press release for Wednesday’s announcement, the FOMC at this time expects additional rate increases:

The Committee anticipates that ongoing increases in the target range will be appropriate in order to attain a stance of monetary policy that is sufficiently restrictive to return inflation to 2 percent over time. In determining the pace of future increases in the target range, the Committee will take into account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation, and economic and financial developments. In addition, the Committee will continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities, as described in the Plans for Reducing the Size of the Federal Reserve’s Balance Sheet that were issued in May. The Committee is strongly committed to returning inflation to its 2 percent objective.

Some observers seized upon the language about taking into “account the cumulative tightening of monetary policy, the lags with which monetary policy affects economic activity and inflation,” as evidence that the FOMC is currently looking to reduce its pace of rate increases. For example, according to Reuters, this section of the press release “signals possible smaller increases ahead.”

Moreover, during Powell’s Wednesday press conference, the Fed chairman noted that a re-assessment of the current rate of hikes “It may come as soon as the next meeting or the one after that…No decision has been made. It is likely we will have a discussion about this at the next meeting.”

Yet, Powell also emphasized repeatedly that the FOMC does not anticipate a full reversal of its current tightening stance. Throughout the press conference, Powell repeatedly used phrases like “we will stay the course” and “we still have some ways to go” and “it is very premature to talk about pausing [interest rate hikes].”

Interestingly, Powell also continued his habit—developed in recent months—of admitting that the Fed is essentially winging it when it comes to choosing the “correct” policy. For example, on the issue of how high to raise the policy rate, Powell stated “that level is very uncertain” and he suggested he remains agnostic on the issue of whether or not the policy rate needs to “to get above the [core PCE] inflation rate.” Employing language used by Powell in the past to describe the sort of inflation that the Fed would absolutely prevent, one reporter asked Powell if inflation has become “entrenched.” In response Powell stated “we don’t have a scientitic understanding of at what point inflation becomes entrenched.”

Another aspect of Powell’s comments was to defend himself from constant—and tiresomely incorrect—criticism on Wall Street that Powell has “overtightened” on policy. On this, Powell simply declared “I don’t think we’ve overtightened” and fell back yet again on strong employment data.

Yet, another reporter noted that with the yield-curve spread so small—and in some cases inverted—”why are you so confident you have not overtightened.” This, of course, was a reference to the fact that a yield-curve inversion shows the economy is on its way to recession. On this, Powell offered no direct answer except for a jumbled response about how the Fed keeps track of it all.

Powell increasingly appears to be a man increasingly coming to the realization that an economic bust is inevitable, although Powell will never admit that the Fed’s inflationary boom is what is behind the bust.

Finally, when asked about whether or not a “soft landing” was still possible, Powell claimed that it is “hard to say” and “the path [to a soft landing] has narrowed” and yet is still possible. The reason he gave for this is the fact that in spite of repeated rate hikes, “we haven’t seen inflation coming down. …that means we have to make policy more restrictive and that narrows the path to a soft landing.” As Robert Aro points out, however, the Fed has never actually defined what a “soft landing” actually is.

It is quite interesting to note the evolution of Powell’s confidence since July, and by “evolution,” I mean decline. In late 2021, after all, Powell spoke with immense confidence about how the Fed had sufficient tools to “prevent inflation from becoming entrenched.” Now he says he says the Fed lacks the information to know if inflation is entrenched. Forward guidance—remember that?—is also long gone.

Instead what we have from the Fed and FOMC are increasingly vague statements about what the Fed may or may not do, and how it will re-evaluate its decisions at some point in the future. The Fed steadfastly refuses to provide any solid objectives, measures, or definitions for what will guide its policy, and instead relies on nonspecific statements about “financial considtions” and how the future is uncertain and “patience” is required. Notably, Powell did not say at this meeting—in contrast with other recent press conferences—that he does not see a recession on the horizon.

These are the same people, of course, who now claim to be “surprised” by the appearance of 40-year highs in price inflation rates over the past year—after printing trillions of dollars—and insist no one saw it coming. These are supposed to be America’s most brilliant and insightful observers of the economy. Powell’s promises of using Fed policy tools to head off trouble have been repeatedly exposed as empty promises, and it is clear the Fed is simply improvising in hopes of somehow bringing down inflation rates without a severe recession. If this does come to pass, it’s safe to say it will not be due to any particular insight, prudence, or wisdom on the part of the Fed and its officials.

This article was originally featured at the Ludwig von Mises Institute and is republished with permission.

Biden, Our Boneheaded Chip Czar

Jubilation erupted in Washington this summer as politicians lurched towards commandeering a key swath of the American economy. Congress passed Biden-backed legislation known as the Chip Act to spend $52 billion subsidizing semiconductor production. A Washington Post headline hailed “a big month for Bidenomics” and another headline celebrated “Biden’s hot streak.”

The Chip Act’s passage sparked a volcanic eruption of economic illiteracy from the media and top politicians. Washington Post columnist E.J. Dionne proclaimed, “The chips bill means the Era of Hands-Off Government is over.” Sen. Charles Schumer (D-NY), the Senate Majority Leader, huffed, “The old laissez-faire theory is: Leave the companies alone, and they’ll do great.” Inside the Beltway, anything less than total federal domination of the economy is derided as “laissez-faire.” Schumer scoffed at the failure of laissez-faire just after Congress sharply raised taxes on corporations. Jared Bernstein, a member of the White House Council of Economic Advisers, declared, “When it comes to establishing a lasting legacy in terms of existentially necessary economic transformation, history may well put President Biden in the same sentence as FDR and LBJ.”

The exaltation occurred because “many politicians believe that Beijing’s economic planning is superior to the U.S. free-market system,” as a Wall Street Journal editorial noted. Brian Deese, Biden’s National Economic Council director, declared, “The question should move from ‘Why should we pursue an industrial strategy?’ to ‘How do we pursue one successfully?’” And since Congress passed the law, that proved that Team Biden was successful.

The Chip Act made Biden the nation’s Semiconductor Czar, and he promised that he would “personally have to sign off on the biggest grants” to companies. What could possibly go wrong?

If a picture is worth a thousand words, is a political photo opportunity worth $50 billion? Biden rushed to exploit the new law for a campaign event before the congressional mid-term elections. Last week, Biden and New York Governor Kathy Hochul held a media circus outside of Syracuse, New York to celebrate subsidies for a Micron semiconductor plant that will not even break ground until 2024. Hochul swayed the New York legislature to enact a subsidy of up to $10 billion for semiconductor producers. Micron is expected to pocket more than $5 billion—the largest corporate handout in state history. Federal subsidies will be added next year when the Chip Act starts dishing out goodies. The total subsidy per promised job exceeds $600,000 and could rise far higher.

Biden boasted that Micron’s investment in New York is “the largest investment of its kind…ever ever in history.” Because the plant will run solely on renewable energy, its production costs could be sharply higher than unsubsidized factories elsewhere in the world. Biden also boasted that the plant would be constructed solely by union members paid high wages dictated by the U.S. Labor Department. The federal and state mandates effectively guarantee that the new plant will be uncompetitive even before the first spade of dirt is overturned.

Biden bragged, “With Micron’s $100 billion investment alone, we’re going to increase America’s share of global memory chips and production by 500%.” Actually, it is unclear whether the Syracuse plant will even be built. The New York Times reported that Micron recently “reported a 20 percent drop in fourth-quarter revenue” and “slashed planned spending on factories and equipment by nearly 50 percent in the current fiscal year.” Fortune magazine noted that “demand for chips is collapsing just as Joe Biden signs bill” to boost U.S. production. The Philadelphia Semiconductor Index had declined by 35% from its high by the time the law was passed.

But Biden and Schumer, counting on the illiterates in the mainstream media, are still hailed as saviors regardless of the glut. Biden’s subsidies could help turn chip production in America into a cartel. Creating a surplus of chips could be ruinous for unsubsidized producers. The same pattern has repeated since the 1930s for federal agricultural subsidies that favored the largest farmers and helped drive small farmers out of business.

Corporate welfare has always been accompanied by blizzards of shaky statistics. Hochul claimed her handouts to Micron will generate more than 50,000 jobs in New York. But the governor’s office refused to disclose the private study from which that estimate was concocted. Politicians’ boasts about the job benefits of corporate subsidies are not covered by the Securities and Exchange Commission’s rules on fraudulent statements. A study by Reinvent Albany, a nonprofit organization, noted, “New York State spends roughly $5 billion every year subsidizing big businesses…There is overwhelming evidence that government subsidies to businesses are a very poor way to create good jobs and local economic growth.” The study noted that “the state’s oversight of the Excelsior jobs program—under which Micron will receive the tax breaks—is notoriously poor.”

Micron and other chip makers who pocket government subsidies could find themselves junior partners to political hacks and unions, who nowadays have more influence in Washington than private companies. Maybe future green legislators will require semiconductor subsidy recipients to rely solely on windmills to make chips. Commerce Secretary Gina Raimondo boasted that “there’s a lot of strings attached” in the Chip Act.

But I have to wonder: have any of these people whooping up the Chip Act ever stepped inside the headquarters of the U.S. Commerce Department? The Chip Act tacitly assumes that Commerce bureaucrats are the “best and brightest” and should rule the U.S. economy. I spent a lot of time haunting Commerce Department hallways in the late 1980s and 1990s when I was investigating U.S. trade laws. The Commerce employees I met were low-watt even by civil service standards. Many of them seemed as if they were born tired and chose to take eternal refuge on the federal payroll. Most evinced zero curiosity about anything except the date when they could retire with full pension.

Commerce bureaucrats have repeatedly ravaged high-tech industries by rotely applying formulas from harebrained laws that Congress passed. In 1986, Commerce fabricated absurd unfair trade charges against Japanese semiconductor exports. Those charges were used to browbeat Japan into signing a pact seeking to restrict world-wide semiconductor trade, a shady deal that was extended in 1991. That agreement politically impaled one of America’s most competitive industries. The Commerce Department decreed that imported semiconductor prices must rise by 200% at a time when domestic semiconductor producers could not satisfy domestic demand. That deal destroyed more than 10,000 jobs in companies using chips. In 1991, Commerce rubberstamped punitive taxes on the import of computer flat panel displays that devastated American computer makers. But as long as the trade restrictions made a few domestic companies happy, politicians reaped windfall profit campaign contributions.

Commerce employees had secure jobs regardless of how many private jobs they destroyed. When I asked those bureaucrats about the chaos their actions caused, they stared blankly as if I had asked them to reveal the surface temperature on the planet Venus.

Corporate subsidies are basically bribes to businesses that routinely spur corruption scandals. A decade ago, President Barack Obama visited New York and proclaimed, “Right now, some of the most advanced manufacturing work in America is being done right here in upstate New York. Cutting-edge businesses from all over the world are deciding to build here and hire here.” Gov. Andrew Cuomo appointed Alain Kaloyeros “to build a semiconductor corridor across upstate,” Politico noted. The promised bonanza never occurred. The program collapsed after Kaloyeros and three other officials were convicted for bid-rigging in 2018 and sent to federal prison. But that scandal vanished into the memory hole, clearing the way for a repeat Salvation Show in 2022.

Will the Chip Act spur kickbacks that result in prison sentences for some of the prime wheelers and dealers? Stay tuned.

Politicians don’t learn from mistakes committed with other people’s money. There is no reason to expect the Chip Act to be any less of a boondoggle than all the preceding boneheaded interventions. Letting politicians pick winners is the surest recipe for screwing consumers and every unsubsidized business.

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