The Dispatch Podcast - Always. Be. Shilling.

Episode Date: March 12, 2021

For the first time on The Dispatch Podcast, author of the Capitolism newsletter and neoliberal shill extraordinaire Scott Lincicome joins Sarah and Declan. On topics ranging from free-market fundamentalism to the crazy world of semiconductors, Scott brings his expertise to break it all down. As he says on today’s episode, “You know, Glengarry Glen Ross? It’s Always. Be. Shilling. … I will literally make any issue about trade and markets. It doesn’t matter what, whether it’s the chicken sandwich wars … or cheap T-shirts.” To cap it off, Scott speaks to being the reigning champion of the “Neoliberalism Shill'' tournament. Show Notes: -“Capitolism” newsletter -Scott’s Cato bio -Scott’s Twitter profile -Scott’s latest Cato paper “Manufactured Crisis” -Declan’s piece on semiconductors in TMD -Scott’s article on semiconductors -Vote your conscience in this year’s Neoliberal Shill Tournament Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome back to another special episode of the Dispatch podcast on Friday. I am joined this week by Declan Garvey. He is the editor of the Morning Dispatch, which I hope all of you are subscribing to. It is The Dispatch's incredible morning newsletter. But this week, we are joined by another newsletter author and one you have not heard from on this podcast yet. Scott Linsacombe is the author of our capitalism newsletter. And as he describes it, he's We will be your tour guide through the often impenetrable world of federal economic policy. Let's dive right in. Last week we had Orrin Cass, the founder of American Compass, a new think tank that sort of seeks to move the conservative movement into a different direction, sort of the more populist, economic populist direction. And in that, he said that one of the shibbolists he wants to take on within the old conservative movement is what he refers to as free market fundamentalism.

I know Jonah Goldberg likes to say that there is no free market fundamentalism in the conservative movement, but I will note that you have written for a publication called the free trade bulletin at Cato, which might be part of Oren's point. So I'm curious, you listen to the podcast. Where do you think that American Compass has an interesting role to play in sort of building new areas within the conservative movement? And where do you think, nope, the conservative movement can't go there? Sure. So I think that a focus on family is and a focus on workers and individuals in, you know, in that sense, kind of a bottom-up approach to policy is great. I have no problem with that. In fact, years ago, there was this little

burgeoning movement called free market populism or libertarian populism. And the idea there was that Republicans and conservatives need to refocus from kind of a corporatist, top-down approach, fully supply-side and croniest approach to economic policy, and instead look at the policies that best benefit workers and consumers and families kind of from the bottom up. And so in that sense, you know, look, I think that focus is fine. And in fact, I think some of the policies that I've seen come out of there, whether again, it's on family issues, removing some of the biases in the tax code against family formation, improving on kind of regular or improving regulatory burdens that hit families hardest or some of the regulatory burdens. I think Orrin's written on environmental

regulation, stymying in manufacturing. You know, look, all of that is cool. What, where I really, really struggle is twofold. One is, like you mentioned at the beginning, the idea that there is this pervasive libertarian free market fundamentalism in the GOP or in U.S. economic policy is laughable on its face. That's really the only way to put it. You know, I wrote a piece for my newsletter at the dispatch a while ago looking at the quote-unquote libertarian domination of economic policy over the years. And if you like charts, I highly recommend it. There's about 25 of them, I think. It actually crashed the substack delivery. I remember that. Rachel was really mad at me about, I apologized. But look, the point is that whether you're looking. Really quick listeners,

if you don't like charts, Scott is not your guy. No, no. I'm pretty, yeah, anti-chartism, I think, is a problem in society. David French. If you like to click through at the bottom of an email to say, click here to read more instead of reading the full newsletter in your inbox, capitalism is the one for you. If a picture is worth a thousand words, a chart is worth a million. And that is, you know, really, that's kind of my mantra. Anyway, so if you go and look at whether it is government spending, regulatory burdens, the growth of the actual government itself, and then even on the supposedly dogmatic libertarian issues like immigration and trade, there is just really little overall to support the idea that libertarians have been running

Washington for years. So that's the first thing that really, I think, sticks in my craw a bit, is that, look, having spent now almost 25 years doing trade and economic policy in D.C., I can tell you that we are the last people that congressional staffers want to hear from when it comes to actually fixing American trade policy and making it freer as we'd like. So I think that's, yeah, go ahead. Let me give you some Oren Cass pushback. What I think he would say is, okay, but. When someone, when you ask a random voter, what does the Republican Party stand for?

What is the conservative movement stand for? They're going to tell you, at least in that top three, if we were on family feud and having to, like, hit our buzzer, tax cuts. And in fact, the only major piece of legislation that happened during the Trump administration was tax cuts. And you go back to the Bush administration, tax cuts, the things that Republicans were running on, tax cuts. Now, we can talk about whether those tax cuts were for the wealthy or for the middle class or whatever else. But the fact that that clearly in most Americans' minds is a top three Republican issue, doesn't that kind of undermine your point that, like, no, this hasn't been a big part of Republican dogma? No, I don't really think it does because it's one point out of

a lot of points. And first of all, you know, we need to separate, I think, what libertarians are talking about from what Republicans are talking about. I mean, I think that's one of the big problems. But beyond that is that you can look at, say, top line marginal tax rates that have gone down, but then you can actually get into the weeds of corporate tax policy and see that these things are not even close to free market, whether we're talking about R&D tax credits or child tax credits or whether these are good and bad. These are not kind of Republican, or excuse me, these are not simple flat rates that are what I would say truly free market. And in fact, you know, there's a lot of studies that showed that over the

years that top tax rates don't really matter in terms of effective tax burden, that it's all of those details that really matter. And over the years, Republicans and Democrats have been really fantastic at using the arcania of tax policy to deliver favors to their preferred interest groups. Whether it is steelmakers or steel workers, it doesn't matter. Over the years, there is tons of that stuff that goes on behind the scenes. So, yeah, and I'll lose you, I'll use trade too, because I think that the American compass folks will say, ah, trade liberalization has been just overwhelming over the last 30 years, because if you look at tariff rates, they've gone down. Well, yeah, tariff rates have gone

down, but any trade expert will tell you that tariff rates are a tiny sliver of trade policy. And then when you look at other areas of trade policy, like, for example, anti-dumping measures, which will impose massive duties on certain products, or if you look at non-tariff, non-duty barriers, if you look at subsidies and regulatory trade barriers, these things have gone through the roof. And in fact, the United States ranks as one of the highest users of these non-tariff measures in the world. And so that, again, gets to where at the top line, you could say,

ah, free market fundamentalism. But for those of us who actually work in the weeds on these issues, it's just not true. And that's, I think, what really, again, it bugs. But the other issue is that, you know, there is, and this is what I wrote about just this week, there is a really strong case for having a what I would call free market default position. to say, look, market interventions by the government in the market are appropriate, but you really got to prove your case. And why do you need to prove your case? Well, because we have decades upon decades and boatloads of research showing that freer markets are better.

They are better for individual incomes. They are better for quality of life. They are better for economic growth. All of these things that are interconnected. And there's a lot of academic work showing that these are not mere correlations, that there's a lot of causation there. In other words, freer markets cause better outcomes and for all income distributions. This is not just the rich getting richer and the poor getting poorer. This is the rising tides lifting all boats, blah, blah, blah. And so again, and what I struggle with, I really struggle with is that when you read op-ed after op-ed that throws out this free market fundamentalism pejorative, they don't actually then say, well, this is why it's free market fundalism. This is why here we have a market

failure, whether it's for family policy or trade policy, whatever. And government, this policy will actually make things better. It is simply, here's a problem, and here's what I propose to solve. And oh, by the way, my critics are fundamentalists. And that's the end of the debate. As I wrote about, that's just not simply, if you have a presumption of economic liberty, as I do, and as I think we should have, you need a, there is a high burden of proof to surmount that. And while there are exceptions, I think air pollution is a great example where there are major negative externalities. It has been proven to be a problem. Government regulation is indeed necessary there. Public health, I mean, we're in the middle of a public health crisis.

I don't think you'd find a lot of libertarians really pushing back on that. But at the same time, when you get out of some of these areas, yeah, prove your case, make your point. You can't just simply point at a number, for example, the manufacturing sector's declining share of GDP and go, aha, ergo we need, industrial policy. Well, that's just not how it works. And, you know, I wrote a whole paper showing why that specific statistic doesn't work and doesn't show us much. And that, like I said, I think that's a big problem, particularly as the

exceptions to free market fundamentalism continue to multiply. I mean, it's now, it's not just trade, it's not just immigration, it's corporate governance, it's antitrust, it's family policy. The list keeps getting bigger every day. And at some point, the exceptions to those free marketers swallow the I think this is the point that you're getting that at the end there, but I think the free market fundamentalism pejorative, as you say, in some ways, is indicative of a broader problem with our politics and that everybody in the arena thinks that they're losing. And so social conservatives think that liberal progressives are running everything. Meanwhile, liberal progressives think that social conservatives control the Supreme Court and they can and all these state legislatures and things like that. I think in terms of the American Compass Orrin Cass line of thinking, you know, these accusations that libertarians have been running everything, I think the libertarians probably have the best case to make that they are losing on all the time.

And so, you know, who, from a political perspective, who do you think best represents where you want to see the Republican Party go? We asked the same question to Orrin Cass, and he had lots of answers with Josh Hawley and Marco Rubio and Tom Cotton, who is the libertarian version of that? I know we had, you know, Pat Toomey is pretty much the closest you get to an economic libertarian. He's retiring in two years. So where do you see hope kind of within modern politics?

Yeah. I mean, I think Toomey is where my mind immediately goes. You know, here's a guy, and by the way, Pat Toomey gets zero credit. Here's a guy who runs on a very free market platform. and has won in Pennsylvania, of all places. You know, here, this is the big, oh, the rust belt. We need, you know, we have to get this blue collar workers. We need Pennsylvania.

It's this linchpin state. Here's Pat Toomey winning it on a very free market message. And he's never mentioned in the discourse. Oh, look, other guys, I think that Mike Lee mostly I agree with. I think Mike Lee has a very principled approach to politics for the most part. I think another guy that I tend to think is pretty good on these issues would be Ben's ass. But look, there's no doubt that as a libertarian, I'm not going to be thrilled with really anybody, right? But I accept my place in the wilderness.

I'm unlike, Jonah, he's just kind of, he's in the remnant now. Look, I was born in the remnant. by the remnant. So, you know, sorry, to quote Bain. And so I'm never going to be really psyched. I mean, and then the folks that claim to be libertarians like Rand Paul are just a massive disappointment. And so, but I think the other thing is that I don't think libertarians would say that we're quote unquote losing. I think that, you know, the way that I would put it is that the American system is messy, and it represents a mishmash of a lot of different views and positions. A lot of them I dislike, a few of them I like. Occasionally libertarians

win on some issues. I do think that kind of free marketers or whatever have notched some victories on trade policy along with a lot of losses, and on, you know, occasionally on immigration policy as well. But I, at the same time, recognizing that mixed in with those wins are a whole lot of losses. And that that's where as serious policy folks, we want to focus. And that, again, I think it gets back to the idea that a lot of the talk on the populist right stays at 30,000 feet. Whereas when you get into the weeds of these issues, you're going to find a lot of experts just kind of furling their brow and saying, well, that's not really how it is for either for better or worse. And that is frustrated.

Let's move to the $1.9 trillion. We all just agreed to spend as tax-cares. Speaking of libertarianism. Speaking of just hardcore libertarian policy, I don't think we have time in the next several years to name all the things that you probably don't like in that bill. But where are some areas in that bill? Maybe you'd tweak them, perhaps, but that you think, given our current situation, pandemic, et cetera, where you think that stimulus could help the economy over the next few months? Sure.

I think the two areas that I have absolutely no problems with are going to be the direct public health measures, so obviously vaccines, but also COVID mitigation. So, you know, public health is a perfectly legitimate role for government. I think even almost all libertarians even would agree that there is a role for government in public health. It gets back to, again, market failures, externalities, all that kind of stuff, right? And even constitutional authorities in that.

It's all good. Also, I think that direct cash transfers to individuals. I'm a fan of cash transfers generally as a form of economic support. The only problem, of course, is that instead of helping the 10 to 12 million Americans who are truly struggling because of the pandemic, out of work, unable to get a new job, whatever it is. This just goes so far beyond it. I mean, even with the little tweaks they made, you're talking about sending not just a thousand bucks, but you're talking about sending potentially $10,000 or more dollars to families that have suffered no financial hardship. Absolutely zero

financial hardship. Didn't lose a job. They worked from home remotely. had, you know, look, they had some tough issues with schools not being an open stuff, but in general, in terms of financial hardship, didn't suffer at all. And they're going to get, you know, 10 grand in their bank account or whatever. And that really, I think, is unfortunate because it takes what is a legitimate issue and then just corrupts it and goes far beyond it. As an economist, though, do you think that those types of checks actually do have trickle effects as stimulus in the economy? Are you worried about inflation? Like, nerd out with me here in a second on like actually, you know, doing some Econ 101 on what this will do as it hits various parts

of our economy, like a little pinball machine. Yeah. And so if it had been targeted stimulus for folks who need it, I wouldn't worry about any of those issues at all. it would be a much, much smaller bill. I mean, you're talking only a few hundred billion. It's crazy how we've gotten to this point. But unfortunately, it's 1.9 trillion. And I do think that there is the potential for the economy to overheat. And what I mean is it's really important to understand, first of all, where we are in the COVID-Qaeda. quote unquote, recession and recovery. I think one of the worst talking points by Democrats and the media over the last week or so

is that, aha, Republicans voted for the CARES Act. So how could they oppose this thing, right? Well, you know, when the CARES Act was implemented, the United States was in one of the deepest recessions ever. There was absolute uncertainty about what was coming next. COVID was ravaging certain cities. Entire states were closed down, subject to stay at home orders and the rest. The economy is simply not there anymore.

Look, and it's, thank goodness, right? You know, people have saved. There's a lot of personal savings sitting on the sideline, and it's not, by the way, it's just the rich. There was an analysis, I think, by Citibank that showed that a lot of lower income and middle class folks have also saved a lot, which is, of course, what happens when you shut down the entire service industry or most of it. And that is sitting on the sidelines waiting to go. Moreover, manufacturing is just rip roaring right now because everybody is buying goods, whether it's a refrigerator for your house or lumber because you're building a tree house in your backyard. or whatever, that is all going nuts. And the blue-collar jobs in general are having a major rebound because a lot of the jobs we think of as quote-unquote blue-collar, whether it's construction or manufacturing or

warehouse jobs, one of my favorite kind of growing categories of jobs that are quite well compensated and are just exploding for obvious reasons for e-commerce and the rest. all of that is on the up. And when you combine that all together, the economy pre-2 trillion was expected to grow at around, say, 5% or so. And most, the CBO, for example, said that the quote, output gap. So that's the difference between where our GDP is and where it should be, was looking at around $400,500 billion, give or take. Well, the problem is that when you put $2 trillion into the economy, when your output gap is only $500 billion, you can see where the problems arise.

And so even if the CBO undershot, let's say that output gap is actually $800 billion or whatever, you're still doubling what's needed to get the economy back to what we think is full strength. Well, that creates pressures. It will create pressures in the labor market. It will create pressures in assets, housing in particular, because you have a lot of dollars chasing goods. And that's the other thing, by the way, our money supply, just the amount of dollars sloshing around the economy, is way, way up, unlike how it was in the Great Recession.

So when you have all these dollars chasing a limited amount of goods and services, that leads to price increase. Now, will this cause hyperinflation? No, that's dumb. Will it maybe cause inflationary pressures that start to make the Fed nervous, that get above, say, 2 and a half percent, start getting to 3 percent inflation? Well, maybe, and in fact, a lot of reasonable lefties like Larry Summers, Olivia Blanchard, former IMF chief economist, even Jason Furman, who supported the stimulus, have said, look, this is a risk. It is a risk that things get frothy. And if that happens, well, what if the Fed will be perhaps forced to act? And the Fed has said, we're not going to mind

if there's a little like two and a half percent inflation. But again, if it ticks up a little more, if things get a little scary, then the Fed will have to act, raise rates that can cause the economy to basically screech to a halt, causing another recession. But even if that doesn't happen. I would say that that's probably not your most likely scenario, even if that doesn't happen. I think there's undoubtedly a significant risk of asset bubbles. There are some crazy things in the news right now. A JPEG just the other day sold for $70 million or something crazy. A pair of virtual sneakers. Virtual sneakers just sold for like $300,000. And I mentioned housing.

Manufacturing is under massive pressure right now. Because, oh, by the way, those wonderful populist steel tariffs are in place and manufacturers can't get steel. So steel prices have skyrocketed. Yay, populism. But those types of things will create pressures. They might not create inflation, because inflation is at a climate. economy-wide phenomenon. It also relies on what's going on in global markets and developing

countries and all that kind of stuff. But could we see asset bubbles and could those bubbles pop causing ripple effects throughout the economy? Well, that strikes me as a more legitimate risk. Again, might not happen, but it's something that nobody's even talking about. And then the last thing I would note, and this is really wonky and I apologize, is there is a real risk of developing countries having significant problems with their debt. Because a lot of developing countries buy dollar-denominated debt. So the debt they have is in dollars. And they pay interest on that debt based on kind of what the dollar is doing. Well, if all of a sudden the U.S. dollars start strengthening because of all this inflationary pressure and all this frothiness

I'm talking about, suddenly those developing country debts get more serious. And you, you have a threat of having what we call an emerging market debt crisis, which, given a global economy, reverberates back to us. And so those are the types of risks that are out there, and it's amazing. Nobody seems to really care. It's all just, hey, free money. First, I would just want to say that I hope we all can agree that baseball cards are not one of those asset bubbles, and then that those are going to continue to go to the moon as they have for the past year, as someone who's dabbled a bit in that market. I have a couple boxes for if you want to root through them.

All right. I would take you up on that. From the late 80s. Oh, the junk wax era. Okay. Yeah. Declan, people are going to think we pay you in like actual peanuts if you're digging

through Scott's baseball card collection to try to make ends meet. It's not good. You know, it, uh, making ends meet is a loose, a loose term. And it's not true, folks. We pay him in frozen pizzas. Frozen mini corn dogs, if you read the dispatch in the morning newsletter. But in terms of some of this frothiness that you talked about, we obviously just pumped $2 trillion into the economy.

And it sounds like we're not going to be done. We're now moving towards a infrastructure package of some kind that has been promised every week's dating back to 2017. but might actually happen now that their dynamics in Congress have shifted a little bit. Some centrist Democrats have come out saying that they're interested in doing a multi-trillion dollar infrastructure package, but that this one should be paid for, that this one can't entirely be deficit financed. So what are your thoughts about how all this could be compounded by another couple trillion dollars that may or may not, you know, come with some tax increases

or things like that. How will that affect some of these macroeconomic trends? Yeah, no, to the look, and I think the other thing to note that I think I hadn't noted already is that we had already put three, four trillion of additional stimulus into the economy in the last year. So in actually less than a year. I saw some analysis. I saw some analysis say that if all the stimulus money was just direct checks, every taxpayer could have gotten over $40,000 in terms of... Yeah, it's really mind-boggling numbers we're dealing with. And, you know, I think that conservatives and libertarians, to their discredit over the last,

say, 20 years have been a little too conscious, too much of a deficit hawk, right? but we really are getting into crazy unchartered territory. And yeah, and then we're going to add another, let's say half of another $2 trillion is paid for with tax increases or whatever. Yeah, so that's even more pressure. Now, I guess the bright side is that if the 2009 stimulus package is any indication, shovel ready does not actually mean shovel ready. and so it might take a while for those funds to actually get injected to the economy.

So, yay, which by the way, I need to note. Economists on the left who have been saying, no, $2 trillion is fine, no another trillion is fine, are essentially doing that by admitting that the multiplier, so the bang for our, the amount of economic activity generated by each tax dollar spent, is they're saying, no, no, it's fine because the multiplier is really low. So it's like a point five, which means that for every dollar we're spending, we're only getting 50 cents of economic activity, which again, strikes me as a very, very bad deal, particularly as the economy was always already growing. But yeah, I mean, I think it's a, it's a real risk

that nobody seems to care. And part of that is because, again, to our sides, credit. In 2009, 2010, there were a lot of folks on the right saying a lot of crazy things about inflation. And some of that was, I think, backed up by some economics. Some of it was just hysteria. But the truth is that we've learned a lot about inflation and how I think global economics, kind of globalization, has changed the inflation picture. It really requires a lot more thinking about, you know, what other countries are doing and all that kind of good stuff. But at some point, this is going to matter. And particularly when all of the spending is not paired with reforms of any other programs, you know, the big problem with our long-term debt situation

is not stimulus checks. Those are one-off deals. The big problem is that, you know, all of our entitlements, Social Security, Medicare, Medicaid, and the rest haven't been reformed. And there's nobody even thinking of reforming them going forward. And in fact, we're just, you know, when the Democrats are putting in new entitlements. They want the new child tax credit to be fully refundable and made permanent. Well, there's another trillion dollars over 10 years. You know, they want Obamacare subsidies to be increased. We're going to keep doing this. That's, I think, the bigger threat for the debt. You know, at some point, the thing about debt problems is that they're not a problem until they are, that everything goes fine, and then suddenly

it doesn't, and then by the time it doesn't, you're screwed. There's no, like, pulling back from there. And everybody seems to think that, hey, we're the United States, we're the safe haven for currency, we're good on our debts, and nobody, and we can run these perpetually increasing debt burdens. And, I mean, you know, that strikes me as a, dumb gamble. And so, I mean, if you hear some people on the left in recent weeks as we've, as we've been passing a lot of this through Congress, they point back to, as you mentioned, these conservatives and debt hawks have been talking about inflation for 30 years and it's never come. Where is it? And we got some hard numbers on that this week. The consumer price index

rose 0.4% in February year over year. It's 1.7%. So even after $4 trillion, last year injected into the economy. It's not showing up yet. Why are they wrong? Why is this not a boy who cried wolf situation? Right. So to be clear, I don't know if they're right or wrong. I think it's just it's essential to be realistic about the risks, first of all. But second of all is the $4 trillion was injected to economy that was shut down, and not just shut down forcibly in terms of lockdowns. It was shut down in terms of uncertainty. Consumers, American families were freaked out about the future, and that causes inevitably a dampening effect on consumption and economic activity. Businesses were freaked out about whether, you know, what was coming next, right,

for COVID. And so they weren't investing or they were pulling back on certain investments. Meanwhile, there were these seismic shifts in things like remote work and urbanization and all housing and all these types of things that, again, injects more uncertainty into the market. And that, again, restrains the kind of inflationary pressures or the pressures that $4 trillion can have. Well, let's now fast forward to today, right? We're seeing, we already talked about all that savings being sitting on the sidelines, waiting to go. But the biggest thing is the vaccines, right? You know, I'm a big vaccine cheerleader.

You guys, you probably know that. If you're on Twitter for two seconds, you're aware of it or read any of my columns. But the fact is, these vaccines are miracle drugs, man. They are proving to not just kill the virus or protect you from getting sick. They're also preventing transmission in most cases, you can't give it to other people. They are also already effective against these scary variants we keep hearing about. And to the Biden administration's credit, to state government's credit, we seem to have gotten the kind of distribution bottlenecks under control. And more supply is coming online. Let's hear it for multinational pharmaceutical supply chains and big pharma. Yay. Because, you know, Pfizer, Moderna, Johnson and Johnson, now Novavax, AstraZeneca, all of these guys are cranking out vaccine. And all of that is coming online. It is getting jabbed into our arms. Hopefully, everybody get out there, get vaccinated. And that is going to really unleash a lot of these restrained economic forces I just talked about as we reopen.

As I mentioned in one of my newsletters, there's a guy who has proven to be the most accurate, quote, forecaster on economic reopening and on COVID, whether it's infections, hospitalizations, deaths, or again, herd immunity. And he says June or July, we're wide open, man. It's good to go. Regardless of President Biden's, you know, masked July 4th pronouncement, which is just silly. things should be really looking pretty great in, say, May. And so we should, I think, expect a really big kick in the pants in the economy. I mean, now the economic projections for GDP growth for this year are sitting at like 7%. I think even that might be low. I mean, I'm, you know, predictions are worth the napkin you make them on. But there's a lot of upside for the U.S. economy, and there will be a lot of upside for the global economy as vaccine distribution increases abroad, too. Not long ago, I saw someone go through a sudden loss, and it was a stark reminder of how quickly life can change and why protecting the people you love is so important.

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of families already applying through ethos, it builds trust. your family with life insurance from Ethos. Get your free quote at ethos.com slash dispatch. That's E-T-H-O-S dot com slash dispatch. Application times may vary, rates may vary. All right, I have a multiple choice question for you. When we look back at the pandemic, which of these five things will have turned out to be the most impactful on the United States? And now I'm taking off your economist hat and putting on your sort of social scientist economist hat here. Because some of these are not pure economic, but all of them will have a huge economic effect in the United States. One, debt.

Two, birth rates. Three, the decimation of the service sector and the increasing reliance on Amazon, you know, to get us everything. and Amazon-like stuff. Four, the work-from-home educational political divide. And five, public school closures. Hmm. Wait, what was the second one again? Sorry.

I'll go through it quickly. I should have written these down. Now you're from. Debt, service sector, birth rates, political divide, schools. it's it's either birth rate or political divide because I I think the others are not I think the others are there's big question marks quite frankly I'm a big fan of Amazon I think that's a bit overblown there was a stat I tossed out on Twitter the other day still in the pandemic e-commerce is only 14% of all service transactions we still are buying a lot of

stuff in person. Now, a lot of that is like cars and groceries and the rest, but we're not, I mean, we're not all just Amazon siloed folks. And there's a lot of good research that shows that Amazon can actually support niche businesses and brick and morgue businesses too. So that one's out. And I mentioned debt is a tricky one that is a crapshoot. I think school closures is hard because it's really difficult to predict whether these are long-term changes to how Americans feel about public schooling and whether the harms that our kids have had by being out of school are going to be long-term. I mean, clearly, their problems now are they going to be long-term. The other ones, I think, are a bigger issue. Are we, is the decline? I mean, look, we've had a long-term

decline in birth rates. That's a problem. for all sorts of reasons. First of all, kids are awesome. I encourage everyone out there to have babies, preferably as part of a loving relationship. But that's really important, and we've seen declining birth rates in the United States for a long time. Now, some of this is just economic development.

As countries get richer, and we are very rich, contrary to the pessimistic reporting out there, you're going to have fewer babies. But there is a concern, and now it's dropped even more, and that's, will that be permanent? I don't know. I mean, I think there's a alternative argument that if the U.S. economy really does boom, if we have this kind of roaring 20s, coincidentally a century later, everybody has a lot more babies. So that, I don't know.

The work-from-home political divide is, I think, a much more enduring issue. We have a really serious split in the country between, you know, what I would call educated suburbanite or urbanite elites. And they're not elite. I mean, because, look, I live around a lot of these people. I probably am one of these people. I'm not elite in any sort of actual legitimate sense. I mean, you know, no, maybe nachos aside. But look, there is a real divide between those folks who experienced very little harm and disruption in the pandemic. And then, you know, again, kind of blue-collar, I hate to call it Trump voters, but, you know, there's just a there's just a cultural and economic divide that has been expanded.

in the era of Trumpism and by the pandemic. You know, this miraculous technology that has allowed us to all, not all, but allowed a lot of folks to work from wherever and unplug from kind of the traditional workplace is, I mean, it's awesome, but it's not shared by everyone. And I think that will have significant implications, as again will just the general trends that the, the 2020 election show. I mean, you know, I live in classic suburbia here in North Carolina.

I live around a lot of folks who 10 years ago voted Republican. These are families that are upper middle class, kind of conservative, but not super conservative. They go to church, but not every week. And, you know, but tend to vote Republican on economic issues. And I can tell you, almost uniformly, these folks from Biden votes. And again, I'm in North Carolina. I'm not. And, you know, it is Raleigh, so we're pretty libed here. But still, the same goes for some of the other places from my friends in Atlanta, some of these other kind of southern suburban areas that were traditional Republican strongholds are going to Democrats. And that divide is, I think it's a educational, cultural divide that seems to only be increasing. I think it'll

increase even more. I think it has really significant implications for our politics and our policy. None of them great. I'm obviously not a fan of where I think the Republican Party is headed, but Republican Party is transactional fan service as political parties are, and that's what the voters are wanting, and without a countervailing force in the Republican Party, kind of pushing back on some of that, it's just going to get more concentrated. So one of the options in Sarah's multiple choice there, or that was not in Sarah's multiple choice there, was something that I think was already beginning to happen even before the pandemic, but has really exacerbated in the past 12 months.

And that's the issue of supply chain and sourcing of, yes, this is something that you're going to take. For those you can't see, I scoot it up to the mic to get ready for this one. We waited until we're 45 minutes in so we don't want to scare anybody away right away. But this is something that I didn't know I would be interested in and have become incredibly interested in. and obviously something that is very near and dear to your heart. So talk a little bit about your recent column. I think you touched on this week but also last week in more depth in your capitalism newsletter. And I just wrote a piece on semiconductors.

So that's what I kind of, so why don't we use that as an example? Because my knowledge doesn't go too far beyond that. Perfect, perfect. It kind of exemplifies, I think, an issue and a split that we're seeing. between these industrial policy, more populist folks and the free marketers on this stuff. And so kind of just a brief overview and correct me if any of this is incorrect, but there is currently a semiconductor shortage kind of globally, in part because of incorrect assumptions about when certain markets would bounce back and order flow and things like that.

it has led a bipartisan group of lawmakers here in Washington to call on the government to subsidize manufacturing domestically. There's some studies out there that show I believe the United States is responsible for about 12% of semiconductor manufacturing right now. Oh, they love that stat. They love it. And then Taiwan, of all places, is kind of a behemoth in this. this space. And so as China gets more aggressive, some of these folks are worrying, what happens

if China decides to roll into Taiwan and kind of annex this semiconductor production that the entire world is reliant on? Shouldn't we have our own alternative to stand this up? And so you push back on some of that thinking. What are your biggest concerns there? Okay. So let's big picture it first. For those who haven't fallen a sleep already out there. No, and that's not to you, Declan. That's definitely a shot at myself and the subject matter. But to look, before the pandemic, it was all about China, the supply chain debate. But then the pandemic happened and our shelves got emptied. And the supply chains went haywire because that's what a global pandemic does. It affects supply and demand in ways that are so

unexpected, shutting down entire economies, causing massive changes to consumption patterns, you're inevitably going to have a bunch of supply chain problems, whether it's domestic or global. And again, people see it with their eyes. They go to their grocery stores and they get freaked out that they can't get toilet paper or the toilet paper they get. Is that really rough, thin stuff that's just awful? And that's a problem, right? And of course, politicians sensing voter anxiety, well, they got a perfect opportunity to assuage that voter anxiety, right? It's, again, transactional fan service. So there is some truth to some of the political concern about supply chains. It is undoubtedly correct that participation in the global

economy exposes the United States to shocks. We call them economic shocks, that's the term, that you kind of import them, whether it's a supply or demand shock. Your country could be totally fine, but if a major supplier country has a, let's just say, earthquake that shuts down production, well, guess what, you're on the hook. There's undoubtedly that you can import shocks. However, the two things that are unmentioned there is that domestic shocks raise their own risks. So you can't just simply resure all your production because if you have a domestic shock, let's say, for example, and I'll just use a crazy hypothetical, like a massive ice storm in Houston. I mean, who would ever think that would happen, right?

Ever. That'd be crazy. Never happen. well, that shuts down your domestic production and you're in the exact same boat. So the economics literature says pretty clearly that you want to diverse, you want supply chain diversity and flexibility.

You want to have some at home, some abroad, and the market is pretty good, not perfect, at working this stuff out. So that's kind of your, sorry, go ahead. Do you have something? No, no. I think you were yawning. That was it.

No, it was a yonning. No, not when it comes to supply chain. Look, supply chains are no Carter Baker commission, but actually this is the kind of economics I'm here for. Good, good. We can see open rates on newsletters and last week's semiconductor-focused edition. Best we've ever seen. Awesome. Awesome. Awesome. So look, there's, again, there's some truth, but it needs to be broadened out.

And certainly in the context of China and in the context of the pandemic, There are concerns about when the supply chains break down, whether China is too big, too much of a supplier. For example, you'll hear a stat that's wrong, by the way, but you hear a stat that China supplies 90% of our generic drugs. If that were true, if 90% of American generic drug consumption did come from China, yeah, that raises the exact same sole supplier risks. mention. Okay. But here's where we really need to understand a couple of things. And this, I think, goes actually back. This is a really nice dovetail to the beginning of our conversation about identifying real market failures and government solutions to them. Okay. So what our supply chain interventionists don't mention is a few things. First, is that in almost all of the

areas and all of the goods that we think about right now when it comes to supply chains. Pharmaceuticals, semiconductors, medical goods, the list goes on. We actually have a large U.S. domestic manufacturing industry. It always bugs me that we have these Pfizer vaccines getting cranked out in massive doses, but yet we still hear about pharmaceutical, a lack of pharmaceutical manufacturing. you know, that's a crisis, right? Second, immediately after the pandemic hit, multinational corporations and their poor, stressed-out logistics managers

were working to fix some of these supply chain problems and working to adapt their supply chains, whether that means to have more diverse suppliers, whether it means carrying more inventories, they were doing all of this instantly, Because, look, that happens. You think you have one business strategy and, say, a lean inventory system. You realize, you know what, that's not great.

And so we're going to change it. The other thing that is never really mentioned is that the United States government does have authority under current law to patch some of these supply chain problems, particularly in the national security context. Maybe you guys have heard the Defense Production Act, is one of the big, laws that's used to do this. And the United States government has utilized that in the past for defense-related goods. The Defense Department puts out this big report every year on its industrial capabilities and how they're using the DPA to plug things. We have other laws

that allow for this as well. You never hear about any of that, right? It's all the libertarians running Washington. And I think the last thing is that then we need to think about, well, what happened next. So, yes, there were empty store shelves in March and April, but just a few months later, the supply chain's domestic production in new investments dove into these markets because there was a clear market opportunity to do so. And those store shelves started filling up again. And the same, that's still, that's also the case in terms of pharmaceuticals. That's the case across sectors. And so today, the supply chains look a whole lot different than when our political class was first complaining about them. And yet the rhetoric and the mindset is still

stuck in April 2020, as I wrote. And that is a really frustrating thing, because to the extent that our planners have spotted a problem using, of course, 20-20 hindsight that existed a year ago, there's a very, very good chance that it doesn't exist today. For example, N95 masks. There's actually a ton of domestic production of N95 masks now, and yet it's still you hear politicians all the time talking about domestic resiliency in N95 masks. So that situation that existed then, doesn't exist today, and, oh, by the way, by the time any sort of government supply chain plan gets put into place, the situation that exists today won't exist then in, say, six months, 10 months in the future. And that type of flexibility, that type of adaptation is just

a constant, that's a fact of the market. It's a, and it's a great thing. We should not be implementing policies that would slow down that dynamism and that flexibility, whether it's through capital market interventions, supply chain restrictions, you name. So the last issue, though, is there's a complete disregard, okay, maybe not complete, but 99% for what are the implications of the interventions that are proposed? And here we have a ton of great history, both recent history and distant history, about what happens when the United States decides we're going to have an industrial policy, we're going to have supply chain interventions, by American policies, all these types of things.

And here, again, the record is pretty shoddy that when the United States government tries to, for example, force a industry that they deem critical to national security, economic resiliency, the results are quite often pretty bad. You know, one example out of many is domestic shipbuilding. You know, we have this law of the Jones Act. It's been in place 100 years. It's designed. It forces essentially any company that wants to ship goods from, say, Houston to Boston.

They have to use a ship that is made in the USA, crude by Americans, owned by Americans, and flagged in the United States. That raises the cost of shipping. And, oh, by the way, it has coincided with a. the consistent and long-term degradation of not just the shipbuilding industry, but our merchant marine, so undermining national security. So when the government gets involved in this stuff, the track record isn't really great for creating a thriving industry. And, oh, by the way, these DPA, this Defense Production Act interventions, I mentioned, have, we now have some evidence that even these have caused problems more than solutions. For example, President Trump wanted to be

the king of ventilators in March of 2020 because everybody thought ventilators were the thing we needed. Never mind that we actually have a pretty strong medical device industry here. So he forced a bunch of companies through the Defense Production Act or encouraged them through subsidies to make ventilators. Fast forward three months later, doctors realized ventilators aren't actually that great and might actually do harm. Demand for ventilators collapsed. Producers were still making ventilators. And now we have ventilators coming out of our ears. We have a a glut of ventilators. We are trying to ship ventilators to countries that don't even want the ventilators. And it's those types of distortions that are a problem. In fact, Sherrod Brown just the other

day wrote to President Biden complaining about a glut of domestic manufacturing capacity for PPE in Ohio. And of course, his solution is not to allow those companies to live or die on their own. It's that now he wants a perpetual government program to keep them live at infinitum. You know, perpetually, it's just dumb. But those are the types of distortions we don't mention. We also don't mention the quite apparent graft and cronyism that was associated with some of these Defense Production Act disbursements. Millions and millions of dollars going to politically connected industries in shipbuilding and other areas that have nothing to do with the pandemic. Democrats are investigating those right now. There's, of course, the Kodak debacle where Kodak wanted

to become a pharmaceutical company. Peter Navarro thought that was a great idea. Kodak also hired a bunch of lobbyists to get this done. They announced an $800 million loan to Kodak that has since fallen through and had a bunch of people in the pharmaceutical industry scratching their head because we actually have domestic production of pharmaceuticals. So none of that is considered. None. It's just, oh, this is a supply chain problem. Oh, we had empty shelves. Let's get government involved, right? And oh, by the way, Scott's criticism of this is free market fundamentalism. Never mind the history and economics I just gave you. It's a little frustrating, as you can tell in my voice. So that leads us to semiconductors, which I think is a fantastic example of everything we just talked about. So for example, we actually make a bunch of semiconductors in the United States. Declan threw out that wonderful stat, that 12% that number, very, very scary. What Declan did not mention is that actual production of semiconductors in the United States has doubled over the period examined. And I don't mean in terms of value, I mean in actual wafers, the actual chips. We're producing twice as much.

Declan also did not mention that 50%, give or take, so about half of all semiconductor purchases from domestic semiconductor companies. We have companies that, like Nvidia, that don't actually make semiconductors, they just design them. A lot of good jobs there, by the way, but never mind. About half of those semiconductors are still made in the United States. We have a national champion in Intel that has suffered some management problems, a couple setbacks, but is still at or near the bleeding edge of semiconductor production. capital expenditures in the United States semiconductor industry have continuously gone up. Research and development spending continuously gone up.

This is not a dying industry. It's just a growing global industry. There's growing global consumption. And, by the way, if we did have a reshort supply, a lot of that semiconductor production was in Austin and has been shut down. I think it's still shut down, exacerbating the very chip shortage. that we keep hearing about. So reshoring our supply chains

is not going to fix anything there either. And then, finally, we have a long history of trying to subsidize and protect our semiconductor industry, and you can read my paper. I'll just say, it did not go well.

It resulted in extremely high cost for certain producers, causing the offshoring of our computer industry. It led to all sorts of ridiculous things like the government of Japan, because back then, Japan was the boogeyman, today China's the boogeyman, purchasing semiconductors and dumping them in the Tokyo Bay. They didn't even want them, but they had to purchase them under this dumb agreement. We had, they had with the United States. And the creation of a consortium called Sima Tech that actually disbanded, or

sorry, it didn't disbanded, it ended up taking in foreign competitors because it was producing really nothing of value for its first several years. So again, all of this doesn't say no semiconductors aren't important. It doesn't say no. The Defense Department doesn't need a legitimate supply of domestic semiconductor production, which, oh, by the way, doesn't occur in the commercial line. It's actually a totally different line of semiconductor production. And the Defense Department and just subsidized a new facility in upstate New York to make those defense-approved chips. None of that is, it's not saying that. It's saying that we need to be really, really skeptical about claims by industry groups and politicians

that X is a national security threat that requires massive taxpayer subsidies to a domestic industry that, by all objective accounts, is still growing and doing quite fine. And then the last thing I would note, sorry, I've gone on a long time. I apologize. You can tell I've written a lot on this. I'm glad I asked the question. Is the Taiwan issue, right? So yeah, Taiwan is a very good producer of semiconductors through a company called TSM. And China is a, that the Chinese invasion threat, I would say, is a real though unlikely one. It's a threat. But two things. One is that our political leaders are not selling domestic semiconductor subsidies on the threat of an invasion of Taiwan. They're selling them on the threat of a Chinese industry and on Chinese subsidies to their own semiconductor industry. Now, never mind that the Chinese have spent $50 billion on or more on trying to grow a domestic semiconductor industry, and they failed pretty miserably.

There's still about a decade behind TSM and Intel and Samsung. So those subsidies aren't working very well. But second, geopolitical risk is a big part of domestic company supply chain management. And I don't know why the federal government feels it needs to subsidize Ford and GM and other companies own sourcing risk. These companies can, if they want, pay more for domestic-made chips. The capabilities are there. They can go to TSM and say, hey, we're willing to spend more to have a resilient domestic industry. They don't want that. Instead, what they want is the government to subsidize their geopolitical risk and perhaps socialize some of the corporate mistakes they've made in the past. And that all strikes me as a very bad use of taxpayer funds.

And with that, we have our very last question for you. Yeah. So the neoliberal project, which I believe is sponsored by the Progressive Policy Institute, has put together a bracket of 64 neoliberal shills. It's like the March Madness bracket, but it's the neoliberal shill bracket. Now, I believe that last year you won this bracket. I did. The whole thing.

You were the big, big winner. You are Duke basketball, I think. And there wasn't a regular March Madness last year. I'm Virginia. I'm Virginia basketball. You know what? I always pick Virginia and it doesn't go well. This year, however, things are looking, I don't know.

Like you've made it to the elite eight. Congratulations on that. How do you think you're going to do this year in the neoliberal shill bracket? I'm going to lose for sure. First of all, there's a strong anti-incumbent bias in, the tournament, much like how now everybody hates Virginia. I went to UVA twice, by the way. So my homerism, my fandom is legitimate. You know, nobody likes a winner. Clearly, I'm a big winner. And there's a bunch just, you know, haters going to hate, hate, hate, hate, hate. Beyond that,

some of my competitors are a bigger deal than I am. They have more Twitter followers. Janet Yellen, for example. I mean, how can I go up against Janet Yellen? And by the way, for the readers out there, one of the jokes here is that I am not really a neoliberal. The term neoliberal is so ambiguous that it really has grown to encompass a very broad range of people on the right and the left. It generally means kind of people who are free market with support for some type of social safety net. But of course, look, if a libertarian can be in the bracket, then you can see that's a very wide definition. So I'm probably not going to win. In fact, the guy I'm going against now is an absolutely, he's a great tax economist. He's also right-leaning. He's done

a really fantastic research on wealth taxes and corporate taxes. And he's, he might beat me, I might not even make to the final four, which again, it's fine. If you want to go out and vote for me. I would, of course, appreciate your votes. But, hey, vote your conscience, America. And just to be clear, you're questioning whether you fit into the category of neoliberal, but shill. You had no problem with you. No, no, not at all. Look. You know, Glenn Gary, Glenn Ross, it's always be shilling. In fact, people, one of them, for those who follow me on Twitter, you've grown accustomed to how I will literally make any issue about trade and markets. It doesn't matter what, whether it's the chicken sandwich wars, which of course, Sarah,

you know a lot about, or, you know, cheap t-shirts, I, it's, there's going to be a trade and economic angle in there because I am always shown 24-7. And with that, folks, thank you. so much for joining us this week. Scott, this was a treat, even if you're from Dallas. I'm, I'm, I, I, I, I, I, I, I, I, I, I, I, I, I, I'm, I, I, I'm, I, I'm, I'm, I'm, no, cut it, cut the feed, cut it now, look at, I won't even get into the cowboys, we're good. Oh, oh, oh, oh, and my producer also from Dallas is refusing to cut the feed.

You know, you know, before we, before we go, I know we've run long, but Houstonians's hatred for Dallas is, it's, it's sad, really. It's sad. We'll do a whole separate podcast on that. You really should. Get somebody from Austin and then we'll really go off. All right. Or those hippies from Waco.

Yeah, we can actually, we can agree on some of that. Make sure to subscribe to Capitalism. Scott Lincolome's fabulous newsletter at the Dispatch.combe. That's Capitalism with an O because he's so clever because he's from Dallas. Thanks. See y'all next week. You know what I'm going to be. With Amex Platinum, access to exclusive Amex pre-sale tickets can score you a spot trackside.

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