Intel Corp. Invests $20B in Semiconductor Factory
But Is the Government Giving Them a Sweet Deal at the Expense of the Taxpayer?
Intel Corporation just announced that it is going to invest $20 billion in a new semiconductor manufacturing facility in the state of Ohio. This is part of an overall $100 billion long-term plan to build an 8-factory mega-complex. But, my intuition tells me that Intel is getting a sweet deal on the backs of US taxpayers. Perhaps your instincts signal the same thing to you.
The world is facing a semiconductor “shortage” as demand outpaces supply. Since early 2020, we have witnessed the coupling of a massive flood of fiat currencies by governments worldwide along with the disruption of the labor market due to Covid-hysterical policies. This has led to a price inflation and shortage crisis.
There are too many dollars chasing too few goods with too many disruptions in a too-limited supply chain. Most everything electronic these days — from video game consoles to cars — relies on semiconductors. But, this new Intel plant will take years to build, with expected output not until 2025. So, while this decision is nice in terms of the future supply potential, people won’t see any benefit in the short term, at least in terms of semiconductor supply.
The Distortion of Capitalism
Of course, it’s nice to see investment happening. When capital investment occurs in the free market, it doesn’t rob the taxpayer and therefore doesn’t hamper their consumption or investment level. This is because the investor chose to voluntarily save over time by sacrificing his own consumption. The investor didn’t take from anyone. Thus, when that saved capital is employed in the form of an investment, the standard of living for everyone rises.
But, now let’s contrast that with the all-too-common nasty relationship between big business and government, or what I call a “distortion of capitalism.” When the government subsidizes a business or an investor, those subsidies don’t just magically appear — they are taken from others. In this situation, the investor doesn’t have to sacrifice his own consumption for future investment. Au contraire, mon frère! The investor gets the benefit of the forced sacrifice imposed on the taxpayer. It is the taxpayer that has to sacrifice consumption for the benefit of the investor, thus the taxpayer’s standard of living decreases while the investor makes out. Talk about expanding the wealth gap!
Intel’s Sacrifice or Subsidy?
Now, back to Intel Corp. Something tells me that the US federal government and the state government of Ohio are both giving Intel some sort of behind-the-scenes deal. The following two tweets from The White House and Ohio Governor Mike DeWine might have something to do with my intuition signals firing. From these two announcements, it is suggested that there exists a “partnership” between Intel Corp. and the regime.
Now, it’s no secret that every politician wants the glory of crediting themselves with “creating jobs” (while ignoring the jobs they’ve taxed or regulated out of existence, of course!). They care not about creating wealth or value, just simply jobs. This reminds me of the following famous anecdote attributed to Milton Friedman:
Milton recalled traveling to an Asian country in the 1960s and visiting a worksite where a new canal was being built. He was shocked to see that, instead of modern tractors and earth movers, the workers had shovels. He asked why there were so few machines. The government bureaucrat explained: “You don’t understand. This is a jobs program.” To which Milton replied: “Oh, I thought you were trying to build a canal. If it’s jobs you want, then you should give these workers spoons, not shovels.”
Perhaps the “sweet deal” between Intel and the plastic people in the federal government is a future kickback. NPR notes that,
With his other legislative priorities stalled, President Biden is turning to a bill that would provide incentives for semiconductor plants, like the one Intel announced for Ohio on Friday.
Buried in the noise we see that White House correspondent, Franco Ordoñez, specifically states,
“Biden wants Congress to go ahead and pass the stalled legislation that would provide $52 billion to help boost U.S. production.”
Ah, there it is, folks. Federal subsidies to big corporations.
CHIPS for America
The legislation Ordoñez is referring to is the CHIPS for America Act. CHIPS was approved in early 2021 as part of the most recent version of the National Defense Authorization Act (NDAA), but it didn’t include any funding. Later in the summer, the Senate passed the Innovation and Competition Act (USICA) which included the $52 billion for CHIPS. The bill is currently held-up in the House of Representatives.
Ohio’s state officials thought that funding CHIPS was an important piece for Intel to pull the trigger on their investment, regardless of whether Intel chose Ohio or not, so they began to put pressure on the Ohio congressional delegation to fund the bill.
Public and private leaders across Ohio support the passage of the CHIPS for America Act, already approved by the U.S. Senate, to make Ohio and the nation globally competitive and accelerate growth in the Ohio project.
Intel CEO, Pat Gelsinger, has also urged the U.S. to focus its semiconductor subsidies on American companies. You don’t say!
And what about Ohio’s goodies? Well, Ohio has this quasi-public-private corporation known as JobsOhio. This corporation is said to be the brainchild of former governor Gov. John Kasich. It’s a curious operation. It’s funded by taxpayer money and the governor appoints the board members, but the governor does not have the authority to direct policy within the company. And funny thing is, JobsOhio's books are not subject to audit. Are the red flags popping up in your view yet? It sounds like a self-licking ice cream cone.
But it’s not entirely clear as of today what “goodies” the state of Ohio and JobsOhio have offered Intel. One thing we do know is that the state agreed to invest $1 billion in infrastructure improvements, including widening State Route 161, to support the factory. Ain’t that nice.
And we know the state also expanded tax credits for “megaprojects” that invest more than $1 billion. Now, don’t get me wrong. Expanding tax credits isn’t something I necessarily think is bad. In fact, this is the proper way to attract businesses. A tax credit simply means the state won’t extort as much of your money from you as they would have without the credit. If only the state of Ohio extended tax relief across the board to all Ohioans. The state obviously understands that taxes are a hamper to investment. But, my intuition tells me more grants and subsidies were part of the deal. Perhaps time will tell the details.
Anyway, Ohio’s seduction paid off. It was on Christmas day that Governor DeWine and Lt. Governor, Jon Husted, received letters from Intel CEO, Gelsinger, confirming that Ohio was the place. DeWine said he's “proud Ohio will be part of the solution to the chip shortage,” which he called “a matter of national security.”
Oh, please. DeWine knows this new factory won’t solve the immediate chip shortage. But, a politician is going to be a politician and say feel-good lines for claps, regardless if they’re true or not.
Husted opened his letter as his wife was making Christmas dinner. He basked in the glory as his wife baisted the turkey:
“This is greatest professional gift that I could ever achieve. I remember turning to my wife and saying, 'Ohio won.' This is an historical economic achievement.”
Public-Private Collaboration vs. The Free Market
“Ohio is second to none when it comes to talent, public-private collaboration, and opportunity. As a result, we are welcoming a new industry sector to our state.”
That term “public-private collaboration” is pejorative to me and should be to you as well. It is a system that distorts capitalism by enriching big business and sheltering it from the natural regulation of the free market. It encourages an ever-growing need for businessmen to curry favor with the political class. It is the political class, after all, that will determine who gets the goods at the expense of the taxpayer. This sort of system intertwines private business with government into one parasitic monster.
People of the world should reject this mode of operation.