An often-repeated bromide in the tape deck of Republican rhetoric is that taxpayers’ money should not subsidize businesses in the private sector. “The government shouldn’t pick winners and losers,” reads the banner from a Washington Post article lamenting the plight of small suppliers disastrously dependent on a failed manufacturer that was federally subsidized. Of course, it is certainly correct to caution that any tax-subsidized business can fail. In some cases, it’s fair to argue that state or federal subsidies can confer an unfair advantage over non-subsidized competitors. However, as with most bromides, this Republican mantra reeks of hypocrisy. The truth is that Republican lawmakers shunt taxpayers’ money into private biz all the time, and many of these partnerships turn out to be real losers.
For example, the Texas legislature took great pains years ago to exempt that state’s electrical production from national regulation by refusing to accept federal monies that would subsidize the states’ private providers. Absent federal oversight and exempt from federal standards, the state’s underbuilt and badly maintained grid failed in February, 2021, and forty Texans died. Forty citizens froze to death that February, but, hey—at least the legislature was loyal to its free-market mantra.
Except it wasn’t. In exactly the same week that Texans expired in thrall to a free-for-all energy sector, Bitcoin mines throughout the state were being subsidized with funds collected from shivering taxpayers. There was no controversy in Texas evident for taxpayer subsidy of an artificial currency, but the thing is—it takes a whooole lot of energy to mine bitcoins. Bitcoin mines stack massive computers requiring an air-conditioned environment into warehouses that suck up electricity like an addict on oxycontin. So, in February, 2021, as aging generators froze or failed state-wide, state officials clambered to urge—that’s urge, not order—a company east of Austin called Bitdeer to shut down operations so that the grid could route power from that freewheeling and freeloading enterprise to freezing families measuring their means in dollars and cents. According to the New York Times, something like 6,500 homes could be powered with electricity diverted from Bitdeer’s operation. The company agreed to shut down temporarily—but only if the State of Texas compensated Bitdeer for the projected loss of revenue. In the next four days, according to the Times, “Bitdeer would make more than $18 million for not operating, from fees ultimately paid by Texans who had endured the storm.” That’s right. The same Republican legislature that still brags about refusing federal support for an energy sector critical to the state’s economy and to the welfare of her citizens had no qualms about paying a bitcoin miner eighteen million dollars to do nothing.
I’d call that a loser.
Now, in fairness, there are any number of businesses subsidized by Democratic-led initiatives that have failed. The solar-panel manufacture featured in the Post’s article went belly up and took several small-time suppliers into financial ruin, though it is worth noting that no one died in that transaction. However, on balance, industrial policy that finds ways to mate federal and state money with businesses essential to commerce or security has an admirable record of success with policies that for decades have been supported by Republicans and Dems at the state and federal level. The common thread linking these salubrious investments is that they nearly all address critical needs related to infrastructure, energy, or national security.
The Inflation Reduction Act, for example, has provided 375 million dollars to a New York state company to recycle batteries for the retrieval of lithium. Batteries of all sorts rely on lithium and cobalt, and China has an enormous edge over the US in procurement of these essentials. The facility in New York offers domestic jobs with a product crucial to everything from laptop computers to electric vehicles. This single subsidy fills the trifecta of smart investment: Folks looking for things “Made In America” love to see a new and forward-looking company building stuff on our shores and employing American workers at excellent wages. Folks concerned about infrastructure love to see any technology that makes transportation less dependent on petroleum. And folks concerned with national security like anything that makes the US less dependent on China. A clear winner.
375 million dollars is a lot of money, but that pales beside the 39 billion dollars that the US government is now putting into domestic producers of computer chips. Passed as part of the CHIPS and Science Act, this money represents one of the largest investments by the US govt in the private sector since WWII. Companies like Intel, Samsung, and even the Taiwan-based TSMC will compete for these monies with strings attached to benefit workers and investors who will see next-generation computer chips and AI technology take root on US soil. The whole arena of semiconductor research and manufacturing is critical not only to the nation’s economic growth, but also to the nation’s security. The US at present is nearly entirely dependent on Taiwan’s TSMC for chips ubiquitous in our nation’s military hardware and China seems increasingly indifferent to the idea that the island nation’s business should remain independent. Investments that encourage manufacturing and research in any area related to semiconductors are investments that the United States can not afford not to make.
Does that mean that every subsidy of business is okay? Well, no. It’s criminal that, with bi-partisan lobbying, Big Oil in years of Big Profits receives between ten to fifty billion dollars of federal tax money every year. President Biden’s proposed federal budget kills these subsidies, but the Congress is not in full-throated support, so for as long as these subsidies stay in place, let’s call ‘em a clear and unambiguous loser for the American taxpayer.
But we don’t have to throw out the baby with the bath water. Industrial policy since WWII has partnered federal money with private business with tremendous success. The free-market mantra that took root in the 80’s was short-sighted. Private businesses and entrepreneurs at all levels in our society will, on balance, benefit hugely from the kinds of investments recently passed with votes from both sides of the aisle. From the White House website: “These incentives will secure domestic supply, create tens of thousands of good-paying, union construction jobs and thousands more high-skilled manufacturing jobs, and catalyze hundreds of billions more in private investment.” Every subsidy should be scrutinized and every dollar of tax paid money should be spent wisely. But folks who favor the subsidy of bitcoin mines have no credibility in those deliberations.