Why Are Some Companies/Industries Sacred?

Others Are Not

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Paul Pelosi is an amazing investor. Yesterday, he was up almost 5% in one day on his big investment into chip companies. I wish I had that touch.

Nancy Pelosi Stock Tracker @PelosiTracker_

The Pelosi's have accumulated 20,000 shares of $NVDA worth $8M+ All while a $52B CHIPS act has been stalled in Congress. Yesterday Pelosi states, "We are determined that we will pass a bill" before congress heads to August recess. $NVDA stock jumps 4% on the news.

The WSJ had an editorial on the $72B in subsidies being moved through Congress yesterday. I want to note that this is a BI-partisan bill. Republicans are on board with giving taxpayer dollars to companies that don’t need them.

The WSJ notes, The impetus for the bill was a severe pandemic chip shortage that disrupted supply chains and raised the cost of autos and many other products. But the shortage is easing as global demand and the economy slow. South Korea, the world’s top producer of memory chips, last month said its national chip stockpile has increased by more than 50% over the past year as demand for electronics ebbs.

The free market took care of the problem. Free markets always take care of problems but they might not be in a straight line. Sometimes they are messy.

Here is a longish lecture on free markets and why government ought to stay out of them.

When you look at the chip industry, it’s dominated by California firms. Hey, isn’t the Speaker of the House a California representative? Maybe she has some political ax to grind? Maybe she can wring out a few more dollars from those companies for her PAC so that she can push her agenda? Does anyone wonder about that besides the fact that her husband has been making a killing trading off of inside information that we would go to jail for if we traded off the same information?

However, it’s not just the chip industry. Remember when bondholders got shafted during the Obama Administration? Automakers were in a world of hurt and Obama bailed them out. Why? Because politically he bailed out the unions.

I think what is worse is the backward economic calculus that is adding an air of pomp and circumstance to propping up these sorts of decisions. Prof Casey Mulligan tweeted out an article about The Quants In The Room. It talks about how economists got into the policy-making business. Conveniently, the first example is Nobel-winning Economist Ken Arrow and health care policy. In 1962 he “argued that the health-care market was riddled with bad information and bargaining power asymmetries that made fair pricing extraordinarily difficult: a foundational idea that has since shaped how health-care experts think about their field.”

Is it any different today? No.

The government hasn’t solved the problems in the health care market and has actually made it worse. Additionally, since 1962 it has layered on centralized one size fits all expensive federal program after program, subsidy after subsidy, price ceiling after price ceiling, using your taxpayer dollars or by increasing the federal debt which you have to pay for too. It continues.

Why should health care be sacred?

In my drives around the country, I see a lot of yard signs in what I assume are left-wing houses that say, “Patients before Profits”. I assume those same people would give up all the profits from their labor as well.

Capitalism drives innovation and competition makes companies sharper. It’s okay to see them go out of business. It’s healthy. The government never solves the problems it takes on.

Today in Germany, people are buying wood stoves to heat their homes because the government policy and decisions on energy were so backward. It’s pretty backward when you are chopping wood to heat your place in the new millennium. This stove doesn’t look so romantic when you have to go to the work it takes to fill it.

Why not remove a lot of the existing restrictions and regulations and let the free market have at it? Because medicine and other industries are so highly politicized and are one of a million sacred cows inside the Beltway. It’s convenient because it is your health or livelihood or education or opportunity, and it is easy to scare you. When you are scared, you can be motivated.

The same goes for farm subsidies. There is no good economic reason to have them. They are relics from FDR’s New Deal when he tried to curry votes in farm country.

Just to show you how stupid they are, the peanut industry gets a government subsidy to grow peanuts. Farmers grow too many, outperforming the existing demand for peanuts. The government goes into the market and buys excess peanuts so they don’t hit the market and impact prices. Taxpayers pay twice! What a great deal.

No Georgia politicians were available for comment.

Why is the peanut industry or any industry sacred?

Of course, now with government policy so screwed up and the injection of Marxist Green New Deal ideas, we are in danger of having food shortages.

In the long run, the government has enabled corporate behemoths which exercise political power via lobbying. All this intervention limits competition and creates higher prices for you. Small businesses can’t absorb the costs of regulation, so they go under. New entrants get regulated away, or the regulatory walls are so expensive to climb they can’t get over the top. If they are successful at getting through, the regulations and restrictions get tougher until they get so big they join the party.

Economist John Cochrane talks about how to solve it all in this podcast with EconTalk. Economist Russ Roberts interviews him and challenges him. Roberts has done his own work on GDP and growth.

But, these problems are worse than you think. The unelected administrative state has weaponized the intelligence agencies to enforce their discipline upon everyone. It’s not as if the people that are in power can do anything about it, especially when they have enablers on both sides of the aisle in Congress.

If the left accomplishes their goal and institutes a social credit score and things like that, they will be able to use the government to actively discriminate against you to limit your choice.

Turn your thermostat up too high? A central planner will turn it down for you and take away two points from Griffindor.

Trump Secretary of Education Betsy DeVos speaks in this video at 21:21. Worth a listen. She is a vociferous advocate for school choice which is something we need in America.

But, the Industrial Education Complex is sacred.

An old acquaintance of mine, Alex Pollack, was on my friends Dan Proft and Amy Jacobsen’s show. He talks about how economics is not a science and it echoes a lot of what I have talked about and linked to in this blog. Economics is empirical. But, it’s not science. It’s math, often very difficult math, but not science. Science uses math but isn’t economics.

Today, what the hard left does is bastardize economics. They take solid theories like Coase Theorem and torture and twist them into knots to defend their ideas rather than use an objective hypothesis test based on the theory to see if their ideas are better than the alternatives.

That’s why we bail out sacred industries. That’s why we pay Iran billions in unmarked dollars on pallets to not do something. It’s how crony capitalism becomes an unbreakable adhesive that creates disincentives to competition and innovation. It’s how a government official can say higher taxes and more government spending is the way to cure inflation and find prosperity. It’s how shitty policy becomes entrenched into our bureaucracy and an immovable force as Besty DeVos chatted about. It’s how corruption becomes an integral part of our government.

This is what the Champagne Socialists, Marxists, and GOPe on the left don’t understand about what they now call “the MAGA Party”. For the most part, MAGA wants to blow up all the stuff limiting competition and innovation. It wants a level playing field and equal opportunity. It wants equal treatment under the law, which means even if you are “connected” you face the law.

TV talker Tucker Carlson is right. The choice is right in our face today. We can lose freedom and our republic for the seemingly safe choice of “government knows best”, or we can go back into the wild where the government doesn’t actually do that much except defend us and take care of some basic infrastructure, and it is up to us and the free market to figure out our lives.

Choose wisely. If you choose to go with big government, remember it will slough you off when it doesn’t need you. If you see yourself as a compassionate and empathetic person, choose capitalism and free markets.