The term “social engineering” has two definitions. The one with which most of us are familiar refers to the worst instincts of the political class. It describes their ambition to nudge, push, or cajole institutions and their members into engaging in behaviors the architects of a better world prefer, the ultimate goal being the wholesale reconceptualization of the social contract. The second definition is legal. “Social engineering” is an act of fraud designed to trick someone into giving up their personal or financial information, often rendering the target a victim of blackmail.
All this is to say that “social engineering” does not, in fact, have two definitions. The distinctions between these two activities are limited only to their scale. As President Joe Biden’s administration appears prepared to demonstrate, Democrats are especially adept at “social engineering.”
As the New York Times reported late Monday, meeting the absolute national security imperative of incepting a domestic semiconductor industry into existence will be adulterated with the esoteric priorities that consume technocratic progressives. As all things must.
Semiconductor manufacturers seeking a slice of nearly $40 billion in new federal subsidies will need to ensure affordable child care for their workers, limit stock buybacks and share certain excess profits with the government, the Biden administration will announce on Tuesday.
First, anything that hinders the speed with which the United States can establish an indigenous semiconductor industry defeats the ostensible purpose of the CHIPS Act, which explicitly refers to the objective of expediting “short-term technology deployment within a period of no longer than 24 months.” Even if you believe that hijacking this initiative is worth it, anyone with a sense of propriety should be appalled by the Biden administration’s methods. They are those of a gangster government.
As Veronique observed, Biden’s executive fiat ensures that lawfully appropriated disbursements dedicated to an urgent national security initiative will now be devoted to developing, funding, and staffing “high quality” child-care facilities. Some conservatives have recently come around to the notion that the federal government has a role in subsidizing the costs associated with building a family (despite the underwhelming performance of pandemic-era experiments in this realm). Even if the right is now inclined to value the good intentions of bureaucrats and politicians over the results their policies produce, they should still be alarmed by the executive branch’s unilateral imposition of a barrier to access $39 billion in taxpayer-provided subsidies.
Likewise, those on the right who are attracted to the use of government muscle to level the economic playing field may look favorably on the Biden administration’s stock buybacks prohibition. The Times adds, however, that the “law already prohibits companies from directly using federal money to finance stock buybacks or pay dividends.” So, this is largely cosmetic. But the Times also maintains that stock buybacks “tend to enrich shareholders and corporate executives by increasing a company’s share price.” That is a popular misconception, but a misconception nonetheless.
As CATO’s Scott Lincicome detailed for The Dispatch, stock buybacks are just one of many tools a large firm can use to recapitalize. They’re hardly the most efficient if the objective is to “enrich shareholders and corporate executives.” Moreover, Scott writes, “money delivered to shareholders, whether through buybacks or dividends, isn’t just buried in their backyards—it’s almost always reinvested by shareholders elsewhere in the U.S. economy.” In other words, businesses tend to raise capital to make capital investments or invest elsewhere in the economy, which increases the value of goods and services and grows the economic pie. This provision is especially bizarre insofar as it conflicts with the administration’s efforts to transform the CHIPS Act into an extortion racket.
The Times report elaborates on what “certain excess profits” the firms that take advantage of these subsidies will be obliged to “share” with the federal government:
Companies applying for awards will be required to submit detailed financial projections, with the federal government entitled to share in any “upside” profits. The Commerce Department depicted that requirement as a way to encourage companies to make their projections as accurate as possible, and not exaggerate any losses to try to secure more funding.
By “upside” profits, we can assume the Biden administration refers to the increased value of an investment over time, often measured by stock prices. Joe Biden’s website indicates the degree to which his team believes the federal government should be entitled to a taste of the “profitable inventions underwritten by federal funds,” so this is no surprise. But why the administration believes this inducement would lead to more accurate projections is a mystery. The incentives for firms that partake of this poisoned chalice will likely be to show as few “upside profits” as possible.
If Congress wanted to tax the profits of the corporations that benefit from this subsidy, it would have written one into the law — a fact that Republicans, some of whom are engaged in litigation against the administration over its usurpation of congressional powers, should recognize.
None of this is likely to matter to those who resent the effects of industrial policy, which often includes advocates of industrial policy. They find it distasteful when an industry minimizes its risks by taking advantage of taxpayer subsidies while still enjoying the profits. That logic ultimately leads its proponents to wonder why something so important that it requires public subsidization is left to private enterprise at all. The answer is that the alternatives to private enterprise are woefully inefficient. If Washington is banking on the unrivaled innovative and productive capacity of America’s private sector to fill the gaps produced by the offshoring of America’s semiconductor industry, it should put as few obstacles in the way of that objective as possible.
Again, these concerns are of little consequence to those who prioritize reengineering the domestic landscape over and above quotidian concerns like providing for the national defense against an expansionist China. But with this gesture, Democrats have proven once again that they will always outbid the right when the question is which party can wield the levers of state power most efficiently in the effort to remake society in their own image.