The Chips Act is a $280 Billion Boondoggle 

Congress tees up yet another taxpayer-funded round of corporate welfare in the form of the $280 billion Chips Act.  The Chips Act repeats the federal government’s past mistakes with centralized planning and industrial policy.  Today’s politicians should learn from the failures of Carter-era energy policies.  

If you need another demonstration that the only thing shorter than a politician’s attention span is his memory the newly enacted Chips and Science Bill will provide that. 

We all love computers and consumer electronic so what’s wrong with the federal government getting into the business of developing and directing the manufacture the silicon chips that are the brains of these wonderful gadgets?  Plenty.

First, the legislation is a knee jerk reaction to the chip shortage that emerged during the COVID lockdowns.  There’s no evidence a market failure here or of a shortage going forward.  In fact, chipmakers are already making massive investments in new capacity leading to concerns of a glut rather than a chip shortage going forward. 

Second, government does a horrible job at directing technological development.  Remember Solyndra.  Or the disastrous experience with SEMATECH, the federal government’s previous attempt at directing the chipmaking business.  The government should let private markets and individuals make capital investment decisions on their own.   Democrats might be expected to back central economic planning.  But that that so many Republicans, including some self-described conservatives, backed the Chips Act shows that the Republican establishment has (i) little appreciation for how capitalism works and (ii) are consumed by “we know better than you” hubris.     

Third, while helping American companies compete in chip manufacture may be a laudable goal, chip making is a global industry.  It’s not clear what makes a company “American” these days.  For instance, Intel, which is headquartered in the United States has major development and fabrication facilities in Germany and India.  Wouldn’t Germany and India also benefit from subsidies dished out to company headquarters in Silicon Valley?  Taiwan Semiconductor Manufacturing Corporation (TSMC), the world’s largest chipmaker, is building fabrication facilities in the United States.  Would Intel qualify for federal subsidies but not TSMC even though TSMC is building facilities in the United States?  If TSMC does, why are American taxpayers subsidizing a Taiwanese company?    

The entire venture is reminiscent of the Carter-era push to develop synthetic fuel from coal.  Like the Chips Act, the federal government’s Synthetic Fuels Corporation was formed as a reaction to a temporary development—high energy prices in the 1970s from the OPEC cartel.  Congress authorized $88 billion ($335 billion in today’s dollars) in funding for the Corporation to build plants to turn coal into gas.   

Like the Chips Act, the federal government’s synthetic fuels program was a knee jerk reaction to a temporary problem.  The price of oil soon collapsed going from $39 a barrel in 1980 to $12 by 1986.  As noted above, industry analysts predict a glut of chips just next year.

The Synthetic Fuels Corporation actually built just one plant in North Dakota.  The plant went bankrupt in 1985.  Congress in a rare moment of fiscal sanity abolished the Synthetic Fuels Corporation in 1986. 

It was fortunate that the venture failed.  The process of creating gas from coal creates enormous amounts of greenhouse gases.  Unlike natural gas extracted from the ground, coal gasification also requires enormous amounts of energy to heat and extract the gas from coal.  Had Carter-era energy policies actually come to pass, U.S. CO2 emissions levels would have been far higher than they are today. 

The disastrous experience with the synthetic fuels program of the Carter-era should serve as fair warning tom the politicians of today.  However, it appears that today’s politicians (and taxpayers) are determined to not learn from the failures of the past.