This is a pretty axiomatic view that governments can never be as responsive or as efficient as markets. The more commonly accepted economic wisdom is that they are usually less efficient and responsive than free market forces operating under ideal conditions. There is a lot of room for market failures, inefficiencies and temporal dynamics to change the balance. The are plenty of examples of government regulatory bodies that have a nice anchoring effect on the relevant markets. The Federal Reserve Bank, for example, responds quickly to changing market conditions, looks at the data and intervenes at a speed that keeps pace with the rapidly fluctuating market it regulates.
The Federal Reserve hardly responds to market conditions. Their free and open printing of money is arguably the greatest risk to our economy. Milton Friedman has great resources on this, including a video series from the 1970s (based on clothing alone) called Free to Choose. Its on Youtube, amongst other places.
If republicans think that unemployment benefits compete with private businesses on labor, then I get to think that 0% interest money competes with labor for capital.
The fundamental problem is that the 0% lower bound combined with a deposit guarantee represents not only a minimum wage for capital. It also presents a job guarantee. A minimum wage doesn't guarantee you a job.
So yes, the Federal Reserve is not responding to market conditions at all. It's artificially holding up interest rates at zero or above. This is causing massive distortions in the economy that can only be fixed by a swiss-army knife of policies. Among one of the needed responses is "free and open printing of money". The world economy is already flirting with disinflation (a reduction in inflation). If you don't have negative interest rates you will need a whole load of "money printing" to keep the system standing in place.
The assumption that a scarce money system (i.e. guaranteed non negative interest) has a fixed velocity of money is absurd. Put interest at -5% and just watch everyone withdraw cash from their bank account. The velocity of cash would be basically be zero and the velocity of money on bank accounts would be extremely high. As the government is doing deficit spending all the money just piles up somewhere and ends up doing nothing. QE is even worse because you cannot spend centralbank reserves to buy groceries.
Ok, let's do the negative interest thing. It sounds like a big hassle right? Just think about the benefits: The first step after negative interest ratess would be to adjust the inflation target to 0% meaning perfect price stability. Actually, you wouldn't target inflation at all because the negative interest rate completely replaces the need for inflation. You would target the CPI itself meaning your goal as the government would be to maintain a CPI of 100 for all eternity. Any deviation would become inexcusable. Meanwhile today inflation is a hack to make a broken money system work.
Natural boom-and-bust cycles are a huge risk to economies as well, despite the fact that they're natural and don't have anyone for which we can point a finger at.
I don't know what you mean by "natural boom and bust cycles" but credit cycles and other financial cycles are just a property of the money system. Alternative money systems do not have this property.
The cycles only make sense because people like and want them. I.e. they love the scarcity of money. For example, in a depression the return on money is greater than the return on labor, people logically flock to money rather than labor even though real wealth is eroding as people stop working.
> The Federal Reserve Bank, for example, responds quickly to changing market conditions
The Fed was established by Congress and the Chair is appointed by the President, however the Fed is still a private institution. That independence makes it a very different organization than what most people mean by government.
It's unrealistic to expect people to hedge online comments about complex topics (like the one in question here) to the extent required to preclude "yes but" and "well akshually" type comments that complain about the lack of nuance. Yet despite these expectations being unrealistic everyone expects comments they disagree with to meet them.
We're in this mess due to our never ending quest for more "efficiency"
The government needs to recognize the fact that semiconductors are essential to national security and ensure we have the capability to produce our own.
Then what's the solution? Seems like the government is the only entity that can intervene if market forces are counter to supply chain resilience. This is partially the justification for agricultural subsidies in the US, so clearly there is precedent.
Toyota pioneered the "Toyota Way", which is now known as Lean or JIT manufacturing. JIT is famously susceptible to disruption from natural disasters. Over the short term, between disruptions, JIT tends to be more profitable than the alternatives. Over the long term, the market rewards companies that can handle disruptions. Basically, to answer your question, the market is punishing JIT MFG and rewarding resilience. Companies are watching it happen and learning from it. One indication of this is the current increase in inflation. Companies are switching from 1 month of inventory to 6-12, which is making suppliers scramble and driving up prices.
I am by no means against government intervention. Companies have short memories, and market forces will force eventually pressure a return to JIT. But now is the exact wrong time to intervene.
Time and capital investment. It's like this generation of people have never heard of production and supply disruptions, and were oblivious to such things being possible. Frankly, this doesn't matter very much, it's not a critical situation.
The auto market malfunctioning short-term due to a pandemic doesn't present a strong argument for government intervention. Tesla can't make batteries fast enough, there isn't enough supply, its restraining their auto production, the government must step in and fix the problem! It's nonsense. The government should not step in every time there is a short-term problem in a market.
Toyota won't sell as many vehicles. So what.
I know, I know, but what if people have to make due with a three year old vehicle. What if they have to suffer and endure those vehicles being made to last for five or six years. Ten years! The horror.
Toyota won't die. Time will pass, during which necessary investments and adjustments will be made. Supply will be increased. The problem will be fixed. It's as simple as some time and capital investment. The companies that maneuver the best will come out ahead, gaining an advantage on their competitors. And the world keeps on spinning.
Toyota has generated something like $90-$100 billion in operating income the past five years. They have the resources - and then some - to fix the problem. If they choose not to or can't that's their own incompetence, their competitors will eat their lunch. Never feel bad for a corporation earning $20 billion a year. If they can't get their production corrected, someone else will figure it out and reap the benefits.
It does not matter as much as is being portrayed. This is not an important problem and does not warrant the government burning its time and resources to step in and fix (assuming they can help at all). Governments have a lot of other far more important things to be focused on.
The U.S. government has decided that it's in our national security interest to remain a net exporter of crops.
If World War III broke out and all the borders shut down, America would still be able to feed herself. The U.K. wouldn't. There would be mass starvation in much of the first world, and people would say "the government should've done something."
All the diabetes is a pretty rough unintended consequence, I'll give you that, but shifting some chip fabs to our shores as a matter of national security doesn't sound like too bad of an idea.
While I agree there are definitively some downsides to ag subsidies, I think the real question is if the interventionist downsides are worse than the non-subsidized downsides. As bad as they are, I'm not sure that incentivizing unhealthy food is actual worse than famine.
Cratering agricultural prices so margins are so thin small farmers are driven out of business in favor of huge conglomerates, mind-boggling levels of food wastage on the order of billions of pounds sitting in warehouses until they rot.
I agree, those are all blowback of subsidies. But they are also side effects of food abundance. The downsides of food shortage seems much worse.
Maybe there’s an argument that we’ve moved passed the era of food scarcity when those policies were enacted and they should be modified. But I think a blanket claim that food subsidies are an inherent bad policy misses their point.
That blanket claim was never made. The made claim was that the ineptitude and mishandling of agricultural subsidies is reason to reconsider calling for government involvement in the chip shortage.
This is a bit of a confusing take if you're using ag subsidies as evidence to keep the govt out of chip manufacturing but now denying that the subsidies aren't bad.
>The nightmarish results of agricultural subsidies in the US is an excellent reason to not involve the government
This sure sounds like you think it's a claim of subsidies being bad policy.
>The made claim was that the ineptitude and mishandling of agricultural subsidies is reason to reconsider
How do you combine the view that "ag subsidies aren't bad" with "the government shouldn't be in the business of managing subsidies" when the definition of subsidy involves the government? At first take, this comes across as back-peddling to avoid dogmatic cognitive dissonance.
But I'll be generous and assume you did not mean that ag subsidies are bad in and of themselves, but the way they are handled is poor. So what do think is a more proper way to handle them? Should the focus be on different products? If so, which ones?
The point has already been made that ag subsidies are operating as intended and the downsides you refer to are downsides of abundance. I have a feeling that most people who have actually lived with food scarcity would find them preferable to the actual "nightmarish results" of too little food.
Subsidies in theory can work for some problems. My argument is that the US government is not capable of executing them in a competent manner. The collapse of family-run farms is a "downside of abundance" in the same way drowning is a downside of abundance of water.
Thanks for clarifying, although I disagree that a collapse of family run farms (while bad) is worse than scarcity of food, both at the personal and national security level. I personally wouldn’t want the government to necessarily optimize for “number of family farms” at the expense of other concerns
That's a false dichotomy. The choice isn't between food scarcity and food waste but between a normal industry and decades of enormous waste. Experts were complaining about the subsidies damaging the dairy industry all the way back in 1983 yet those same subsidies are still here forty years later. The US government is happy to smash a problem with a hammer made of other peoples' money but they have zero ability to foresee the consequences of their meddling or to stop themselves from continuing to smash long after the need is gone.
I’m not claiming a dichotomy in that family farms and food abundance cannot coexist; I’m saying you are using a metric (family farms) that is not the intended goal (national food security). So again, I’m asking what is the better alternative for implementing subsidies?
I don’t know if we’re just talking past each other, but it’s hard to make sense of your stance. If you think subsidies are a viable solution to some problems but the US govt can’t manage subsidies, are you implying the US should not use subsidies, even on the problems they would solve? If so, can you elaborate on govts that have used subsidies to solve similar problems by better implementation? When govt is, by definition, who wields subsidies these are difficult points to reconcile.
Pointing out less than perfect implementation isn’t really helpful unless you can figure out a way to improve it. Just saying “the govt is inept” isn’t helpful when they are literally the only organization who provides subsidies.
I don’t disagree with the problems you point out but they come across as flippant “see!? See how bad the govt is!?” Dogmatic axioms might make someone feel good without actually addressing the problem.
I’ll give an example. I think subsidies need to have clear metrics to measure effectiveness and sunset clauses. This would help prevent things like alpaca subsidies meant to assist in the Korean War somehow staying in place until the mid 1990s.
The point of the subsidies was national security, not “protecting the family farmer” or “minimizing food waste.” To that end, they worked.
The comment was a response to a suggestion that the solution to the chip shortage was government intervention. I don't consider giving a evidence to the contrary of an argument as pontificating.
Ok but point to the part of that comment which was evidence?
Claiming that the results of ag subsidies have been "nightmarish" with no further elaboration or citation does nothing to advance the conversation, it's simply a strongly worded opinion.
That's one way to look at it. Another is that those are side effects of having stable and affordable food prices. The solution being talked about in this thread of simply raising prices would literally starve people to death if applied to that case.
In direct opposition, Auto makers approach of minimizing inventory and producing "just-in-time" caused them to be vulnerable to supply chain or big market shifts
The article notes that Toyota avoided "just-in-time" supply for chips, and has benefited for a while from this. Their stockpile just ran out.
> New cars often include dozens of microchips but Toyota benefited from having built a larger stockpile of chips - also called semiconductors - as part of a revamp to its business continuity plan, developed in the wake of the Fukushima earthquake and tsunami a decade ago.
The trend IS NOT towards diversification. In the last 5 years since Trump's election, US multinationals were increasing their presence in China, not decreasing.
Google for example said to open "a small representative office" in Shenzhen 2 years ago, now it's a full giant RnD centre in the Ping An Tower where they shipped all of Pixel's development.
Apple had RnD offices in China for more than a decade, but they barely acknowledged their existence. Their people in the Kerry Plaza were prohibited by their contract to even show their employment for Apple in their LinkedIn profiles. Their Shenzhen RnD centre is where AirPods were developed, along with many other iPad, and iPhone sub-assemblies. Apple's VR goggles project had its start in Shenzhen as well.
Amazon had no presence whatsoever in China besides a failed Chinese Amazon.com launch. They left China, and then returned to move the whole of their Kindle, and Echo device development to Shenzhen. Now they are working on something rather cryptic there. Some suggest VR goggles of their own design.
Facebook... absolutely bizarrely opened their RnD centre in Shenzhen amid the COVID, just a floor below Google I heard.
Dell, Microsoft, Nvidia, Qualcomm, Intel — all conventional hardware makers were here since nineties, but I think they really doubled down on China recently as well too, to one up the dotcom upstarts in hardware.
Having your essential RnD office shut down, if something happens to/in China, would not be any much less ugly, and disruptive than having your access to microchips shut down.
In other words, the Silicon Valley is still going all in on China, despite 4 years of Trump, public scorn, trade war, rising costs etc.
In other words, they really gave up on any vision where they don't critically depend on China, and can run with critical assets in US only.
That sounds nice, but a singular entity within a government, entrusted with the necessary power to regulate the relevant parts of the market without too much coordination overhead with other government entities, is actually much more efficient at resolving market inefficiencies than the free market. Case in point: production of vaccines.
That's also obvious: the inefficiency in governments originates largely from coordination overhead between many competing entities with overlapping responsibilities. Self-regulating systems like markets do not eliminate that overhead, they just use other means of coordination that trade some of the complexity overhead for a time overhead - instead of having to coordinate a complex set of rules, you now have to give the system enough time to "find" its stable state. But when time is of the essence, an intelligent, singular entity without the need for coordination with anyone besides the entities to be regulated can always outcompete the self-regulating system when it comes to short-term stabilization (though not necessarily with regard to long-term stabilization, but that's not the issue here).
The US government regulated critical parts of the supply chain of raw materials and preproducts in order to ensure that US manufacturers have no sourcing problems. It then compelled the manufacturers into exclusively servicing the US purchase contracts first before fulfilling competing contracts from other global buyers with any of the finished product produced on US territory.
I'd call that quite a lot of "market management". But as everyone could see it resulted in the fastest vaccination ramp-up worldwide (excluding Israel, which was a bit faster, but is also much smaller than the US and which had its own way to get "preferred" access to vaccine produced in the EU).
This assumes an efficient global market, without interference from other state actors.
If other countries are implementing protectionist policies, like keeping semiconductors for themselves or supplying other nations first to curry favors or improved relationships, for example, it might be in another nations interest to increase fab capacity with its borders to avoid being vulnerable to those political and diplomatic factors.
DARPA funded the basic research. Then the actual Internet was largely built by for-profit private sector companies. That hybrid model seems to usually be the most effective for major new innovations.
DARPA funded most of the grant money used by research entities to create the various parts of the IP stack. That's not "basic research". Simply put, were it not for DARPA, we wouldn't have the Internet of today. We'd probably have something like it, but something a lot more closed off and walled garden-esque.
They can't even manage a trivial task like maintaining roads and bridges properly.
You could have hardly picked a worse example than the government roads system (including our thousands of dilapidated bridges), which is in absolutely horrific condition and is a humiliating example for the government. It's the opposite of a good example.
That's all due to lack of funding, one might suggest? They're not lacking for funds. They spent our money on blowing up other countries and then (occasionally) attempting to rebuild them. Vietnam, Iraq, Syria, Libya, Afghanistan, Korea and 497 other cases of meddling and foreign adventurism. There rests $10 trillion in infrastructure money. No, they have had plenty of our money to spend, and they chose to squander it.
What ever would we do if we didn't have those hyper incompetent clowns to manage our roads.
GPS is trivial. If Russia can do it, various US private corporations could easily do it just the same.
US private corporations maintaining roads implies a society like the one depictive in the Robocop movies. It's fun to see you prosing that unironically.
While a lot of industry seem obvious and worth the investment today, when they were nascent that wasn't the case. Would GPS exist if private companies had to fund the rocket and satellite research just to tell you where you are on the map? Or would the aircraft industry exist?
Most of those types of high-risk, nebulous reward (at least on short-to-near-term timescales) industries are predicated on government investment. SpaceX, as great as they are, probably wouldn't exist if they didn't have NASA as a customer.
it certainly does have hindsight bias, on both sides. The Satellite TV and Radio industries spend the money to launch.
Back in the 90s (during the age of early GPS), Motorola (iirc) tried to launch a satellite phone company too.
NASA isn't that big of a customer. DirecTV was a huge consumer of rockets. As it turns out, SpaceX doesn't sell to them because they own their own rocket company.
>The Satellite TV and Radio industries spend the money to launch.
Correct, but this is an after-the-fact understanding. They spend money to launch now because the industries are no longer nascent and being launched on platforms designed around government investment. The key to my point is that the government spends money when the industries are young and risky to develop platforms. If those platforms work out that helps the private sector have a less risky path down the road. This is why telecoms weren't rushing to develop rockets in the 1960s.
>NASA isn't that big of a customer.
This is very much the same thing. Early on, NASA was really the only SpaceX customer and NASA helped keep them from going bankrupt [1]. In addition, NASA made early launches more palatable because the government is self-insured. Government contracts help usher along young, risky companies until they could have a less risky business model that the private sector feels more comfortable with. It's very similar to aerospace development over 100 years ago with the Wright brothers and Curtis vying for Army contracts. Without those contracts, they are as much hobbyists as entrepreneurs.
The free market can do a lot when it has the basic requirements to operate, but the point is that government spending is the only solution when we end up with a chicken/egg problem as the OP pointed out.
