Capitalism – artdiamondblog.com

Computer Chip Industrial Policy Subsidies Are an Unfair Waste of Taxpayer Funds

An “industrial policy” occurs when the federal government attempts to pick a technology that will be important in the future, and then subsidize it. T.J. Rodgers is an insider in the computer chip industry and has written a credible op-ed analyzing two attempts at industrial policy in his industry, the Sematech consortium in 1987, and the Chips and Science Act in 2022.

He makes a compelling case that Sematech did not work and that the Chips and Science Act is not working either.

Rodgers gives us more evidence that Secretary of the Treasury and Harvard President Larry Summers was right when he wrote “the government is a crappy venture capitalist.”

If the feds’ industrial policy on computer chips has failed, why do we think its industrial policy on cancer cures will succeed? (Nixon and Biden’s cancer “moonshots” amounted to picking, and then subsidizing, what they hoped would be cancer cures.)

By the way, when Rodgers stood up against welfare to his industry, he appears to have been an exemplar of Robert Nozick’s ideal CEO: maximizing profits subject to ethical side-constraints.

(p. A15) My mother was a fifth-grade teacher in Oshkosh, Wis. She earned $25,000 a year. Why should chip companies, some of the wealthiest corporations in the world, take money from her and other ordinary citizens? Today’s massive $280 billion Chips and Science Act of 2022, the latest semiconductor welfare program, is even less justified than Sematech was.

. . .

To my knowledge, Sematech contributed nothing of note to U.S. semiconductor technology. Its Final Report in 1997 served up platitudes about “catching up with Japan” and fostering “industry cooperation.”

Decades later, the Semiconductor Industry Association—now a group of lobbyists in Washington—began “saving” the chip industry again. This time the target is China, despite the fact that its best wafer foundry is SMIC, an also-ran in the foundry business. China is less a competitive threat today than Japan was in 1987.

. . .

Today, 100 high-performance computers can be put on one chip. The companies that know how to design 100-billion-transistor chips for a critical function such as artificial intelligence are much more valuable than the companies that carve commodity chips out of silicon wafers, like those in China. While the biggest chip-manufacturing company in China is worth $54 billion, a single U.S. chip company, Nvidia, is worth $3.4 trillion—58 times as much—and it doesn’t even make its own chips. Why are we doing this again?

For the full commentary see:

T.J. Rodgers. “Semiconductor Subsidies? Tried and Failed.” The Wall Street Journal (Weds., June 4, 2025): A15.

(Note: ellipses added.)

(Note: the online version of the commentary has the date June 3, 2025, and has the same title as the print version.)

Robert Nozick discusses ethical side constraints in:

Nozick, Robert. Anarchy, State, and Utopia. New York: Basic Books, Inc., 1974.

Correll Managed Georgia-Pacific Well and Then Used Those Skills to Save a Failing Hospital

In my Openness book, I make the case for the many benefits of an economic system of innovative dynamism. One of the lesser, but still important, benefits was first identified by Joseph Schumpeter. He argued for a spillover effect of innovative dynamism. The skills, knowledge, and technologies created by innovative entrepreneurs in the for-profit sector of the economy, are also applied and imitated in the nonprofit and government sectors. So where there is innovative dynamism, not only is the market more creative and efficient, but both the nonprofit and the government sectors are more creative and efficient.

A good example may be Pete Correll who acted entrepreneurially as CEO of Georgia-Pacific to bring more stability to the business by acquiring the James River Corporation, maker of Quilted Northern, and guided the Georgia-Pacific firm through years of lawsuits over asbestos. He eventually sold Georgia-Pacific to Koch Industries, Inc. My impression is that Charles Koch then applied his market-based management system to make the Georgia-Pacific part of his business much more efficient and innovative. [Query: does Koch’s achievement undermine my claim that Pete Correll had acted entrepreneurially in his earlier management of Georgia-Pacific? Or can both Correll and Koch have been good manager/entrepreneurs, but in different ways at different times?]

But according to his obituary in the WSJ, his greatest achievement may have been in taking over a near-bankrupt Atlanta public (aka government) hospital, reorganizing it from government to nonprofit, and modernizing its management and technology.

Carrell’s obituary in the WSJ:

James R. Hagerty. “CEO Helped Save A Public Hospital.” The Wall Street Journal (Sat., June 5, 2021 [sic]): A9.

(Note: the online version of the WSJ obituary has the date June 2, 2021 [sic], and has the title “Retired CEO Saved an Atlanta Public Hospital.”)

For Charles Koch’s entrepreneurial market-based management system see:

Koch, Charles G. The Science of Success: How Market-Based Management Built the World’s Largest Private Company. Hoboken, NJ: Wiley & Sons, Inc., 2007.

My book mentioned in my initial comments is:

Diamond, Arthur M., Jr. Openness to Creative Destruction: Sustaining Innovative Dynamism. New York: Oxford University Press, 2019.

If Switzerland Is “Capitalist to Its Core,” Where Are Its Breakthrough Innovations?

If Switzerland is the premier capitalist country in the world, as Ruchir Sharma argues in the puzzling passages quoted below, what breakthrough innovations has it nurtured in the last half century? I can think of none. (Swatch may have been successful, but was it a breakthrough?) If I am right, what is Switzerland missing?

(p. 5) Capitalist to its core, Switzerland imposes lighter taxes on individuals, consumers and corporations than the Scandinavian countries do. In 2018 its top income tax rate was the lowest in Western Europe at 36 percent, well below the Scandinavian average of 52 percent. Government spending amounts to a third of gross domestic product, compared with half in Scandinavia. And Switzerland is more open to trade, with a share of global exports around double that of any Scandinavian economy.

Streamlined government and open borders have helped make this landlocked, mountainous country an unlikely incubator of globally competitive companies. To build wealth, a country needs to make rich things, and an M.I.T. ranking of nations by the complexity of the products they export places Switzerland second behind Japan, well ahead of the Scandinavian countries, whose average rank is 15.

. . .

Die-hard admirers of Scandinavian socialism overlook the change of heart in countries such as Sweden, where heavy government spending led to the financial crises of the 1990s. Sweden responded by cutting the top income tax rate from nearly 90 percent to as low as 50 percent. Public spending fell from near 70 percent of G.D.P. to 50 percent. Growth revived, as the largest Scandinavian economy started to look more like Switzerland, streamlining government and leaving business more room to grow.

For the full commentary see:

Ruchir Sharma. “The Happy, Healthy Capitalists of Switzerland.” The New York Times, SundayReview Section (Sun., November 3, 2019 [sic]): 5.

(Note: ellipsis added.)

(Note: the online version of the commentary has the date Nov. 2, 2019 [sic], and has the same title as the print version.)

Rice Prices Soar as Japan Government Pays Rice Farmers to NOT Grow Rice

The long-standing policy of Japan’s government is to pay rice famers to grow less rice in order to raise the price of rice, so that rice farmers will earn more. In February 2025 the price of rice in Japan rose by 81 percent and supermarkets limited how much rice consumers could purchase. The average earnings of rice farmers in 2022 was about $23,000 and was not high enough to stop the exodus of rice farmers from farming.

Maybe Japan does not have a comparative advantage in growing rice, possibly due to high land prices and worker wages. Maybe in a totally free world market, Japan would not and should not grow much rice, buying it instead from places where land and wages are cheaper. The Japanese government, and the rest of us too, should embrace laissez-faire.

Source of the Japan rice story is:

River Akira Davis and Hisako Ueno. “Japanese Rice Farmers Blame Shortages on ‘Misguided’ Government Rules.” The New York Times (Mon., March 31, 2025): B4.

(Note: the online version of the NYT article has the date March 30, 2025, and has the title “In Tokyo, Rice Farmers Protest ‘Misguided’ Rules Fueling Shortages.”)

Nobelist Phelps Opposes a Universal Basic Income, Since Recipients Might Miss the Fulfilment That Comes from Meaningful Work

UBI below stands for Universal Basic Income.

(p. C9) And yet Mr. Phelps, the winner of the 2006 Nobel Prize in economics and emeritus professor of political economy at Columbia University, is among the most lucid, passionate and original defenders of capitalism. (He is also the founding director of Columbia’s Center on Capitalism and Society.) He disparages European-style corporatist economies as being unsuited to dynamism or innovation. Progressives who’d claim him as their own would do well to remember that he takes a hostile view of the idea of a universal basic income.

In “My Journeys in Economic Theory,” Mr. Phelps declares that it is “disappointing that UBI”—embraced by such modish politicians as Andrew Yang and Alexandria Ocasio-Cortez—“has not received widespread opposition.” The idea, if implemented, “would entice people and their children away from meaningful work and thus from a sense of involvement in the economy—society’s central project.”

It is this last, humane observation that distinguishes Mr. Phelps from the economists’ tribe, reflecting his belief that the nobility of capitalism lies in the chance it offers for prosperity and self-discovery on a national scale. He calls this phenomenon “mass flourishing,” words that make up the title of his late-in-life magnum opus, published in 2013 when he was 80.

. . .

It is apparent in his memoirs that Mr. Phelps wishes to be remembered most for his theories of the past two decades, which focus on the workplace and creativity. He believes that economists are mistaken in their supposition that the reward for work is pay alone. As he writes in “Dynamism” (2020), in America “it is very clear that work is central to a meaningful life.” People at all rungs of the economy “possess imagination and creativity,” and the modern economy is “a vast imaginarium” in which growth comes from “creativity within the workforce.”

Mr. Phelps underscores a connection between economic growth and job satisfaction. He urges economists “not to stop at the standard theory” but to explore an “uncharted realm” of human desires and fulfillments. There’s more to life than capital, mere employment and national income. And certainly more to economics.

For the full review, see:

Tunku Varadarajan. “On the Way to the Nobel, and After.” The Wall Street Journal (Saturday, May 13, 2023): C9.

(Note: the online version of the review has the date May 12, 2023, and has the title “‘My Journeys in Economic Theory’ Review: A Creative Nobelist.”)

The book under review is:

Phelps, Edmund S. My Journeys in Economic Theory. New York: Columbia University Press, 2023.

Phelps’s magnum opus, mentioned above, is:

Phelps, Edmund S. Mass Flourishing: How Grassroots Innovation Created Jobs, Challenge, and Change. Princeton, New Jersey: Princeton University Press, 2013.

University of Chicago Press Undermines Its Own New Edition of Milton Friedman’s Capitalism and Freedom

(p. C9) I had never read “Capitalism and Freedom” and was renewed in my admiration for midcentury American reading audiences. The book, full of tightly reasoned arguments about the principles of economic freedom in various spheres of life, sold 400,000 copies in its first 18 years. The University of Chicago Press, which first published the book six decades ago, evidently would rather it stop selling. The new edition’s foreword is written by Binyamin Appelbaum, a member of the New York Times editorial board, who treats Friedman’s classic text as mildly interesting artifact. “Friedman’s claim that ‘widespread use of the market reduces the strain on the social fabric,’ ” Mr. Appelbaum assures us, “misapprehended the nature of society, which is more like a muscle than a fabric.” I await Chicago’s edition of J.K. Galbraith’s “The Affluent Society,” with a foreword by Larry Kudlow.

For the full review, see:

Barton Swaim. “Of Markets and Morals.” The Wall Street Journal (Saturday, Jan. 30, 2021 [sic]): C9.

(Note: the online version of the review has the date January 29, 2021 [sic], and has the title “Politics: Of Markets and Morals.”)

The book under review is:

Friedman, Milton. Capitalism and Freedom. Chicago: The University of Chicago Press, 2020 [1st ed. 1962].

Shark Tank Shows Capitalism as a “Bootstrap Meritocracy”

(p. 24) . . . my favorite TV show is “Shark Tank.” . . . The premise of the tank is that small-business owners get an audience with investors — the “sharks,” a crew of millionaires and billionaires that includes Mark Cuban, Daymond John and Lori Greiner, the “queen of QVC” — in the hope of provoking a bidding war for a stake in the company. Sometimes the sharks dismiss the ideas outright, and they often do so cruelly, but in a satisfying, detailed way. You start to feel as if you could write your own business plan after watching a few episodes.

. . .

(p. 25) The show dramatizes a romantic vision of our economy, depicting it as a bootstrap meritocracy.

. . .

Part of the show’s appeal is that it’s an equal-opportunity forum — you don’t have to know a Silicon Valley V.C. or even a banker to get your audience with the sharks.

. . .

I was so politically assertive as a kid because I wanted someone to respect my opinion, to value me. I wanted to be taken seriously. I think most kids feel this way, dismissed outright for being small. In the tank, no one is dismissed — the sharks start every segment with furrowed brows, ready to take notes and hear out pitches, no matter how preposterous. They begin the process with a clean slate every time. Somewhere deep down, I want all these deals to work, I want the enthusiasm that sharks feel to be genuine and I want the contestants to walk away with business plans ready to be set into motion. Even if “Shark Tank” is propaganda — the selling and marketing of the American dream — the fantasy feels real.

For the full commentary, see:

Jaime Lowe. “Letter of Recommendation: ‘Shark Tank’.” The New York Times Magazine (Sunday, October 1, 2017 [sic]): 24-25.

(Note: ellipses added.)

(Note: the online version of the commentary has the date Sept. 28, 2017 [sic], and has the same title as the print version.)

Musk Fights for Right of Individuals in Sweden to Enter into Contracts

(p. A15) Sweden is the West’s most corporatist society. Powerful interest groups, often described as “social partners,” use collective bargaining to set rents for apartments and wages earned in labor markets.

This model is being challenged by Tesla CEO Elon Musk, who is refusing to enter into collective wage agreements with Swedish trade unions. The unions have responded with strikes and blockades on Tesla operations in the country.

. . .

Liberal democracy presupposes fundamental rights and freedoms. Some of these, such as the freedoms of opinion, press and expression, are enshrined in the Swedish constitution. But the right of the individual to enter into contracts isn’t similarly guaranteed.

. . .

Liberal democracy is being threatened globally by growing populist and illiberal movements. The government in Stockholm should counteract this threat by strengthening people’s individual rights and freedoms in the Swedish constitution. If this happens, Mr. Musk will have given Sweden a great gift.

For the full commentary, see:

Lars Jonung. “Musk Fights Sweden’s Unions.” The Wall Street Journal (Wednesday, February 14, 2024): A15.

(Note: ellipses added.)

(Note: the online version of the commentary has the date February 13, 2024, and has the same title as the print version.)

The Applause at Davos for Milei’s Defense of Free Market Capitalism “Was More Than Polite”

(p. A17) There were no marches for Adam Smith or posters of Milton Friedman at Davos this year, but the applause for the combative defense of free markets by Argentina’s new libertarian President Javier Milei was more than polite. Citing the contrast between ages of stagnation and the miracle of accelerating progress in the modern era, Mr. Milei reminded his audience that “far from being the cause of our problems, free-trade capitalism as an economic system is the only instrument we have to end hunger, poverty and extreme poverty across our planet.”

His words resonated because, as one heard in panel after panel, the empirical foundations of the fashionable statist view appear to be crumbling. For now at least, the China miracle seems to be over. Beijing isn’t only suffering one economic shock after another. Its worst problems—demographic decline, a property bubble, overinvestment in manufacturing, and fear of arbitrary state actions against both foreign and domestic businesses—are the result of government planning gone wrong. As China doubles down on repression, its economic problems get worse.

Fifteen years after the financial crisis, meanwhile, tightly regulated Europe has fallen behind the U.S. Using chained 2015 dollars to minimize the effect of currency fluctuations, total European Union gross domestic product in 2008 was 81% that of the U.S. In 2022 it was 73%, hardly an argument for the European way.

For the full commentary, see:

Walter Russell Mead. “GLOBAL VIEW; Davos Turns Gently to the Right.” The Wall Street Journal (Tuesday, Jan. 23, 2024): A17.

(Note: the online version of the commentary has the date January 22, 2024, and has the same title as the print version.)

Milton Friedman Made the Case for Freedom to 15 Million Viewers

New York Times reviewer Szalai says that watching Milton Friedman’s “Free to Choose” documentary today is a surreal experience. To the contrary, I say that watching Milton Friedman’s documentary today is an exhilarating experience and watching the the evening news today is a surreal experience. (As a graduate student at the University of Chicago, I was in the audience for a couple of the episodes of Milton Friedman’s “Free to Choose” documentary.)

(p. C1) The documentary series “Free to Choose,” which aired on public television in 1980 and was hosted by the libertarian economist Milton Friedman, makes for surreal watching nowadays. Even if Ronald Reagan would go on to win the presidential election later that year, it was still a time when capitalism’s most enthusiastic supporters evidently felt the need to win the public over to a vision of free markets and minimal government. . . .

They had an enormous audience: The 15 million viewers who watched the first episode saw an avuncular Friedman (diminutive and smiling), leaning casually against a chair in a Chinatown sweatshop (noisy and crowded), surrounded by women pushing fabric through clattering sewing machines. “They are like my mother,” Friedman said, gesturing at the Asian women in the room. She had worked in a factory too, after immigrating as a 14-year-old from Austria-Hungary in the late 19th century. Friedman explained that these low-wage garment workers weren’t being exploited; they were gaining a foothold in the American land of plenty. The camera then cut to a tray of juicy steaks.

For the full review, see:

Jennifer Szalai. “Sounding an Alarm Over America’s Values.” The New York Times (Saturday, February 18, 2023): C1 & C4.

(Note: ellipsis added.)

(Note: the online version of the review was updated Feb. 17, 2023, and has the title “Is the Marriage Between Democracy and Capitalism on the Rocks?”)

The book based on Milton Friedman’s documentary is:

Friedman, Milton, and Rose D. Friedman. Free to Choose: A Personal Statement. New York: Harcourt Brace Jovanovich, Inc., 1980.

Long Waits for Italian Cabs Due to Regulations Limiting More Cabs and Ride-Sharing

(p. A4) Returning to Rome from Naples one Monday afternoon in June [2023], a train trip that takes just over an hour, Daniele Renzoni said that he and his wife waited for more than an hour and a half at Termini station for a cab under a blazing sun.

“Just image a long line of grumbling, frustrated people, complaining, cursing. Hot day, angry tourists, there’s not much else to say,” said Mr. Renzoni, who is retired. “Taxi drivers will tell you there’s too much traffic, too many requests, too much everything, but the fact is, the customer pays.”

The situation is “a disgrace to Italy,” said Furio Truzzi, president of the consumer rights group Assoutenti, one of several associations that protested the shortage.

. . .

Thanks to the taxi lobby, ride-sharing services are almost nonexistent in Italy, where Uber is the only platform in use, with many restrictions.

The government lost an opportunity for real change, said Andrea Giuricin, a transportation economist at a research center at the University of Milan Bicocca. He said the best way to meet consumer needs would be to increase the number of licenses for Italy’s chauffeur services, known as N.C.C., which work with Uber.

“It’s very difficult in Italy” because “there isn’t a culture of liberalization in general,” creating little opportunity for competition, said Professor Giuricin. Taxis “are a small but powerful lobby” that easily influences politics, “which is very weak” in Italy, he said.

Angela Stefania Bergantino, a professor of transportation economics at the University of Bari, pointed out that previous governments had tried to open up the taxi market. But they failed.

“The problem is that taxis are regulated by municipal governments, which can find themselves captive in the sense that it is difficult for City Hall to implement policies that the cab lobby doesn’t like,” she said. “These are lobbies that have effective strike tools,” like wildcat strikes or traffic blockages that can paralyze entire cities, she said.

. . .

Above all, though licenses are issued by the city, they can then be sold by the drivers, for sums that can reach 250,000 euros, or about $276,000, depending on the city — a retirement nest egg for many. With an influx of new licenses, the value of an existing license would depreciate.

City administrators fear cabbies could revolt and strike if the status quo changes. “If I decide to issue new licenses,” said Eugenio Patanè, Rome’s city councilor in charge of transportation, “I’m going to find 1,000 taxis blocking traffic in Piazza Venezia,” the downtown Rome square that taxi drivers habitually clog while protesting.