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Biden's Fake Manufacturing Boom
Is America’s "manufacturing boom" bullshit?
The other day the current President bragged on Twitter -- er, bragged on X -- about his "manufacturing boom" driven by his administration's "historic investments," meaning crony handouts.
Bloomberg subsequently ran an article on the evident puzzle that new factories are coming online at a furious pace even as manufacturing has declined for, now, 9 months running.
So what gives -- is manufacturing growing or is it withering away?
The key is that, like all government handouts, the dollars are big, but they're not "investment," they're waste. Most of the new factories are taxpayer-subsidized, especially in "green energy," including many built by foreign companies from, above all, China.
In short, as Zerohege puts it, "Biden is using billions in taxes to falsify economic numbers in the short term to get re-elected."
In truth, the manufacturing PMI, which measures the broad health of American manufacturing, has been dropping since March of 2021 -- 2 and a half years now. And it's at the lowest level since just before the 2008 crisis.
In abstract, factories themselves are neither good nor bad, the question is why you built the factory.
After all, the Soviet Union had tons of factories -- they essentially redirected all of society's resources to building more and more factories at the expense of, say, bread or meat. On factories alone they were lapping the west, even “dragons” like Taiwan.
One Soviet furniture factory famously put out product that was so flimsy and uncomfortable that they were literally worth less than the wood it took to make them.
They'd have done better closing the factory, selling the logs to Western Europe, and using the log money to import cheap chairs you could actually sit on.
So while a private sector factory is indeed a great indicator of good things to come, of sustainable jobs and in-demand goods, if the factories are crony handouts bought with taxpayer billions it means factory construction isn't measuring prosperity to come, it's measuring taxpayer raids to come.
And a lot more is coming, as Build Back Better unleashed an estimated trillion dollars in subsidies to, above all, green projects — from wind and solar to batteries and lithium. “Investments” that, going by the history of government picking winners, will gobble up that trillion to crap out tens of thousands of flamed out bankruptcies that squander the money, boost the headlines for a few months, and uproot tens of thousands of workers to now be unemployed in a brand new town.
More than the waste, these government handouts crowd out productive investment: Every Potemkin factory used up resources that could have gong to actually build something useful. The steel, materials, and workers could have gone to actual productive businesses, or they could have, say, repaired a roof instead of some homeowner paying through the nose for scarce workers and shortages of lumber.
A poster child of this distortionary crony subsidy is semiconductors. Last August, the bipartisan CHIPS act handed over $50 billion to crony semiconductor makers. As a result, chip factory construction went from $6 billion in 2021 to $16 billion and rising today, rivaling green boondoggles.
This is exactly how not to help manufacturing; the semiconductor industry is one of the most cyclical in existince, and factories take time to build. When the money was handed out we were just coming off the supply chain crisis, but already chips are in oversupply and prices are falling. Meaning by the time the money is fully spent upgrading capacity, there's a good chance that, like the Soviet chair factory, it pays better to shut down.
American semiconductor pioneer TJ Rogers, founder of Cypress, has spent decades complaining about this manipulation in semiconductors.
He’s detailed how federal subsidies spawn unsustainable competitors who use taxpayer handouts to poach his people and drive prices to money-losing levels, then flame out, leaving the poached workers jobless and the healthy parts of the industry with billion-dollar holes from dumped chips.
Instead of crony handouts, what American manufacturing needs is across-the-board deregulation, especially of endlessly multiplying green rules, micromanaged labor and diversity mandates, and relief from jackpot lawsuits that don't reflect actual damages but line the pocket of lobbyist-fortified lawyer lobbies.
Sadly, this kind of across-the-board help for manufacturers neither grabs headlines nor snags campaign donations from big business -- across-the-board benefits go to flyover country and Rust Belters who simply can’t compete in the donor game.
As a result, the economies in both US and Europe are increasingly dominated by government-sponsored cronies via "stimulus packages" that fake growth while channeling billions to politically connected industries and lobbying firms. From “Build Back Better” handing $1 trillion to green energy to Europe’s parades of “stimulus packages” that flame out while the continent deindustrializes.
Government worldwide simply cannot resist handing money to their friends. In China they pour those trillions into empty apartment buildings, in the West we’re closer to the Soviet model, pouring it into unsustainable factories that either flame out or, at best, operate at a loss forever.
The end result is an economy progressively converted to a never-ending series of tissue-fire flameouts and bankruptcies, whipsawing workers and burning any productive competitors or investors who got too close.
The best the rest of us can do is remain aware when industries are soaring for unsustainable government money and, if you do decide to play them, as a worker or as an investor, play them loose.
Or choose peace of mind and either keep your money in a broader ETF like SPY or, of course, a store of value like a house, gold or bitcoin, or building a business that doesn’t care which industries government money is flaming out this week.
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