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unidentified
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| Welcome back to Washington Journal. | ||
| We're joined now by Ryan Young, senior economist at the Competitive Enterprise Institute, to talk about U.S. direct investment in private companies. | ||
| Ryan, welcome to the program. | ||
|
unidentified
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Thanks for having me on. | |
| So just start with telling us about the Competitive Enterprise Institute and what position your organization takes on that intersection between private industry and the federal government. | ||
|
unidentified
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CEI is a think tank headquartered in Washington, although I'm out here in Chicago. | |
| We focus mainly on regulatory issues and we are against the mixing of government and the private sector as much as possible. | ||
| Well, here is the news on that. | ||
| This is CNBC. | ||
| U.S. government takes 10% stake in Intel as Trump expands control over the private sector. | ||
| Can you explain how that came about? | ||
|
unidentified
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It's part of a long process. | |
| The semiconductor industry has been subsidized by Washington for decades now. | ||
| And partially as a result of that, Intel has not been doing so well to the point where in the CHIPS Act that passed under the previous administration, Intel received several billion dollars of subsidies. | ||
| And now the Trump administration is converting that money that it gave to Intel in the form of subsidies into a 10% ownership stake. | ||
| So Intel is now a 10% government-owned business. | ||
| So I would take it that you are also against subsidizing private industry. | ||
| Is that correct, Ryan? | ||
|
unidentified
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Yes, that's accurate. | |
| Companies should be able to sink or swim on its own. | ||
| And in the case of Intel, if you think of all the talented people there, if their talents are not being put to a very good use, there's a huge opportunity cost to keeping Intel alive as a zombie company, as opposed to letting their talents and their skills be put to use where they might create more value. | ||
| Well, let's take a look at what President Trump said about this specific deal with Intel in the Oval Office yesterday. | ||
| Here he is. | ||
| Intel, I said, I'd like to ask whether or not you give the United Give, you know, because a lot of people said I invested in Intel. | ||
| I didn't invest, but I invest my heart in it and my soul because I want the country to be strong. | ||
| But I said, I'd like you to give 10% of Intel to the United States of America. | ||
| Not to me, to the United States of America. | ||
| And I said, if you have them as a partner, you have the United States as a partner, I think that would be a very good thing for Intel. | ||
| And he thought about it a little bit different. | ||
| And he said, I like that idea very much. | ||
| We have a deal. | ||
| And that's, I just made $10 billion or $11 billion for the United States of America. | ||
| And yeah, there will be other cases. | ||
| If I have that opportunity again, I would do that. | ||
| And then, you know, you do have stupid people say, oh, that's a shame. | ||
| It's not a shame. | ||
| It's called business. | ||
| So I believe he's calling you among those stupid people that are against this deal. | ||
| He said that he just he's making 10 to 11 billion for the American people. | ||
| What's your response to that? | ||
|
unidentified
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Well, Intel's stock, as of this morning, at least, is up, but I think the president makes clear a very important concept in public policy, and that is the difference between being pro-business and being pro-market. | |
| This acquisition of Intel, whether or not it profits the federal government, it's a very pro-business move. | ||
| It's a very pro-Intel move. | ||
| It's great for their stock price. | ||
| They're essentially now a too big to fail company. | ||
| It's not like the government is going to let them go out of business if NVIDIA and AMD and other companies out-compete them, which frankly they're doing, which is why Intel needed the rescue in the first place. | ||
| So that's the pro-business view, which the president takes. | ||
| I think we should consider a more pro-market view, which is not what is the fate of this or that company, but do we have an open, competitive process where innovators can succeed or fail on the merits based on the value they create for their customers? | ||
| If that's Intel, that's great. | ||
| If it's someone else, that's also great. | ||
| The point is to have an open and competitive market process where chip makers can innovate and create more value for people like you and me. | ||
| Would you say that there's any benefit to American taxpayers for owning 10% of Intel? | ||
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unidentified
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I don't think so. | |
| Because if the value goes up, don't we benefit as Americans? | ||
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unidentified
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In the short run, yes. | |
| In the long run, Intel is essentially going to become a welfare case. | ||
| They'll spend more of their resources competing in Washington and hiring lobbyists rather than making better chips and serving their customers and making computers and other electronic products better and faster. | ||
| In the long run, it's not a good policy for the market. | ||
| It's good for Intel the business, but it's bad for everyone else. | ||
| It's President Trump picking winners and losers. | ||
| If you'd like to join our conversation with Ryan Young talking about this 10% stake in Intel or other the intersection of government, the federal government, and private business, you can. | ||
| Our lines are bipartisan. | ||
| So Republicans are on 202748-8001. | ||
| Democrats are on 202-748-8000. | ||
| And Independents, 202748-8002. | ||
| You can also text us your comments at 202-748-8003. | ||
| Ryan, I want to show you what the Intel CEO, Lip Bhutan, said about this deal. | ||
| He says, as the only semiconductor company that does leading edge logic, R ⁇ D, and manufacturing in the U.S., Intel is deeply committed to ensuring the world's most advanced technologies are American-made. | ||
| President Trump's focus on U.S. chip manufacturing is driving historic investments in a vital industry that is integral to the country's economic and national security. | ||
| What do you make of that argument? | ||
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unidentified
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I don't think the national security argument stands up very well. | |
| And that's because in a global market with 192 countries, the U.S. cannot be cut off from supplies, whether it's semiconductors or rare earth minerals or steel. | ||
| In a world with more than two countries, China, for example, could not cut off the U.S. Someone can ship it through China or Vietnam or Canada or Mexico. | ||
| That's called trans-shipping. | ||
| And it's like a Wiley Coyote and Roadrunner cartoon. | ||
| Regulators can try to clamp down on that as much as they want, but you can't stop that process. | ||
| If the U.S. needs semiconductors, we will get them. | ||
| Maybe we'll make them here. | ||
| Maybe we'll buy them from somewhere else. | ||
| But frankly, America's comparative advantage in semiconductors isn't so much in those giant factories that just assemble them. | ||
| It's designing them and coming up with new ideas and new experiments for new technologies that'll change the way chips are made in the first place. | ||
| That is where the value in semiconductors is created. | ||
| And that's the type of value that's created here in America. | ||
| The manufacturing process creates a lot less value. | ||
| It's more of a menial labor type of job. | ||
| And that's why it tends to be outsourced to countries with lower labor costs, because they don't create as much value in the chain. | ||
| Aren't most semiconductors manufactured in Taiwan? | ||
| And that that's the big fear that if China were to impose a blockade or invade Taiwan, that we would be cut off from those chips, which go into pretty much everything, not just iPhones, but advanced military weapons and fighter jets, et cetera. | ||
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unidentified
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Well, that's sort of that same prohibition doesn't work argument applies. | |
| But something that worries me is that the Treasury Secretary has said that the government's investment in Intel is the beginning rather than the ending of government taking stakes in companies. | ||
| And one of the companies on that list is TSMC, which is headquartered in Taiwan. | ||
| Now, there are already tensions between China and Taiwan and the U.S. | ||
| And I could see this making those tensions worse. | ||
| The president has been trying to make trade negotiations and other deals with China for a while now. | ||
| And all of a sudden, suppose the U.S. takes a stake in TSMC, the Taiwan-based chip maker. | ||
| Beijing's not going to like that. | ||
| That will create more friction and, frankly, raise the risk of us being cut off rather than lowering it. | ||
| And while the U.S. cannot be cut off, of course, when you create frictions in middlemen, prices will go up. | ||
| You could see shortages and other bad consequences. | ||
| This is, although I don't like slippery slope arguments, I think that applies in this case. | ||
| In your analysis of this deal, Ryan, you wrote, quote, don't give yourself powers you don't want your opponents to have. | ||
| What did you mean by that? | ||
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unidentified
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That is one of the most important rules in politics and also one of the most forgotten rules in politics. | |
| Politicians from both parties tend to think very short term. | ||
| President Trump sees these cool new powers and he wants to grab them for himself. | ||
| And he's forgetting that at some point power is going to change hands. | ||
| And Democrats are likely going to use those same powers in ways that he and other Republicans do not like. | ||
| If President Trump is taking ownership stakes in the semiconductor industry, then what's to stop the next Democratic president from taking ownership stakes in health insurance companies or renewable energy companies? | ||
| Republicans are not going to like that. | ||
| And yet they're the ones who are making that possible. | ||
| You have to think a few steps ahead in politics. | ||
| Instead, they tend to think very short term. | ||
| Don't give yourself powers. | ||
| You don't want the other side to have. | ||
| Are there other companies that the Trump administration has tried to make deals with or is in the process of making similar deals? | ||
|
unidentified
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Publicly, all we know is that the Treasury Secretary, one, is open to making deals with other CHIPS Act subsidy recipients, which includes TSMC and some other chip makers. | |
| He's also mentioned that this would be part of a process of creating a sovereign wealth fund, which is basically a government-run investment fund. | ||
| A lot of countries around the world have them, especially petro states in the Arabian Gulf. | ||
| Several U.S. states have them, like Alaska, which pays an energy dividend from its sovereign wealth fund. | ||
| If the U.S. were to create one for the federal government, this would make the government not just an umpire of markets or a regulator of markets, but it would make them a participant in markets and an owner of the means of production. | ||
| This would be a major change in economic policy on a scale we haven't seen in decades. | ||
| Now, the question is the difference between ownership and control. | ||
| And the Commerce Secretary has said that the government will not have a seat on the board. | ||
| So how much control, actually, will the U.S. government, the administration, have in a company like Intel? | ||
|
unidentified
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That is a really good question. | |
| Not all control is formal. | ||
| We both know that the president loves jawbone and he loves making his opinions known, whether it's Major League Baseball and Pete Rose's Hall of Fame case or the Federal Reserve's interest rate policy or maybe Intel's management decisions. | ||
| Keep in mind that the president also has a power over a golden share in U.S. steel, which allows him to veto its management's decisions. | ||
| The Defense Department recently took a 15% ownership stake in a rare earth minerals company. | ||
| This is part of a larger pattern. | ||
| So whether there is a formal seat on the board or a formal policy giving government a say in management decisions, one way or another, the president will have his influence over the companies in which the federal government has a stake. | ||
| We will get to calls, but first, Ed in Pittsburgh, Pennsylvania texted us, how does your guest and his organization get funded? | ||
|
unidentified
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That's a good question. | |
| Most of our funders are individuals. | ||
| We also receive donations from foundations. | ||
| And then I believe, I think 15% or so of our funding is corporate. | ||
| So individuals and foundations are the bulk, a little bit of corporate support. | ||
| The balance varies from year to year. | ||
| Start with Robert in New York, Democrat. | ||
| Good morning, Robert. | ||
|
unidentified
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Good morning. | |
| By listening to this conversation, I want all C-SPAN viewers to understand one thing. | ||
| They always call Democrats communists. | ||
| This is a form of communism where a government is putting its hand on the scale of buying stocks where we are giving a preference to a company versus another company. | ||
| More importantly, we do not know if that information that Trump had secretly felt that he was going to do this or announced this, that he had not announced that earlier to his family, where his family could invest in Intel earlier, where they would benefit from the stock market rising on Intel and make a gain, like he said, | ||
| billions of dollars for the United States. | ||
| Well, guess what? | ||
| It's billions of dollars for his family as well. | ||
| This is communism. | ||
| And this is not, and this is the Republican Party, what it turned into, a communist state. | ||
| Thank you. | ||
| What do you think, Ryan Young? | ||
|
unidentified
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Yeah, I agree with a lot of that. | |
| I tend to shy away from words like communist or socialists in political discourse because they're very loaded terms. | ||
| And often neither Republicans nor Democrats use those terms correctly. | ||
| A lot of Republicans just call anything they don't like socialist. | ||
| And when a lot of Democrats, say the social democratic movement, endorses socialism, often what they mean isn't the USSR. | ||
| They mean a market economy with more regulations and a larger welfare state, kind of like the Nordic model. | ||
| In this case, I think the word socialism in its proper definition, does government own the means of production? | ||
| I think that applies. | ||
| If you ask some neutral third party who's never heard of Trump or Republicans or Democrats, does government owning the means of production meet the definition of socialism? | ||
| Yes, it does. | ||
| So yes, I think the S-word socialism that I usually avoid applies in this case. | ||
| I think our caller has an excellent point. | ||
| He also made the point about essentially insider trading and corruption, where President Trump knows he's going to announce this decision. | ||
| He knows that the stock price is going to go up, at least in the short term. | ||
| What are your thoughts on that? | ||
|
unidentified
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It certainly opens the doors to corruption. | |
| And that is something that policymakers, well, if policymakers are the ones taking that into account, that might change their opinion in a way the rest of us do not like. | ||
| But yes, that is an important part that I think is not being in the conversation enough. | ||
| I think that's an excellent point. | ||
| On the line for Republicans in Orland Park, Illinois. | ||
| Mike, you're on the air. | ||
|
unidentified
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Yeah, hi. | |
| Good morning. | ||
| Thanks for taking my call. | ||
| I just think it's time the United States gets a little bit of guaranteed income. | ||
| You know, for decades, Japan, China, they all subsidized their companies, cars, motorcycles, and they decimated the American automobile industry. | ||
| Okay. | ||
| Sounds a little far-fetched, but it's the truth. | ||
| There were lawsuits and everything over it. | ||
| I don't see a minor state with no voting power or anything in Intel can be even related anywhere to socialism or communism. | ||
| The Democrats are self-proclaimed socialists nowadays anyway. | ||
| And they don't even realize we're already living in a social. | ||
| If we weren't in a socialist country now, there would be no welfare. | ||
| Well, a little stretch. | ||
| But no, we need a little stake in something like that just to bring some income into the company to compete with all these other countries. | ||
| My tax, I pay a lot of money in taxes. | ||
| This could help relieve some of those debts to me. | ||
| All right, Mike. | ||
| Go ahead, Ryan. | ||
|
unidentified
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That's an example of what we call a, but they do it too argument. | |
| China subsidizes its companies. | ||
| We need to do that too. | ||
| Japan subsidized its automakers. | ||
| We need to do that too. | ||
| Well, what Japan did ushered in three decades in counting of stagnation. | ||
| China, leaving aside its human rights record, which we shouldn't, is in for its own problems based on debt, demographics, the fact that its state-owned enterprises are vastly underperforming its at least nominally private enterprises. | ||
| Those are problems that we don't have to have. | ||
| They're problems that we're on the way to choosing to have. | ||
| And while I have some sympathy for our caller's national debt argument, when you have a national debt of $37 trillion in counting, if you make several hundred million dollars a year in dividends from $10 billion of Intel stock, that is deep decimal stuff that isn't going to create the fundamental change in our debt system that we have. | ||
| There are better ways to solve a problem that we see similarly. | ||
| And I wonder, I mean, speaking of other countries, Ryan, if you think that there would be a reaction by other countries like South Korea, who has Samsung, a very big chip manufacturer, the EU, do you think that this would influence their decisions? | ||
|
unidentified
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Yes, I do. | |
| And that is an excellent point that also is not being brought up. | ||
| Because again, politicians tend to think very short term. | ||
| It's not just Republicans not being concerned enough that Democrats will use the same powers in ways that they do not like. | ||
| We also have to be concerned about how our allies, opponents, and trading partners are going to react to this deal. | ||
| And in fact, Samsung is one of the chip makers that received chip tax subsidies that Secretary Besant specifically mentioned as the U.S. government possibly taking a stake in. | ||
| Korea is not going to like that very much. | ||
| And Korea is a company with whom we have a free trade agreement. | ||
| There are active negotiations going on to redo parts of that. | ||
| China isn't going to take kindly to a potential investment in TSMC. | ||
| Japan has its own companies that might not take too kindly to that. | ||
| And then there's the fact that will these companies be bullied into preferentially doing business with Intel as opposed to another chip maker? | ||
| There are all these questions that people aren't thinking ahead and asking. | ||
| So I'm glad you brought that up. | ||
| Rodney from Houston is asking you this. | ||
| Are your points personal or based on national and current global threats and security? | ||
| First, what are your thoughts about U.S. national security? | ||
| Secondly, is there any benefit to the U.S. in controlling its own intellectual property? | ||
| And I know you addressed national security, but this idea of intellectual property and how does that work now with the 10% stake in Intel? | ||
|
unidentified
|
That's a good question. | |
| Like so much else about this agreement, that remains to be seen. | ||
| And to the extent that U.S.'s comparative advantage in chip making isn't so much the mass menial production, it's in the ideas and the innovations, the intellectual property. | ||
| Well, if Intel was doing a better job as a company, they wouldn't have needed these subsidies. | ||
| They wouldn't have needed this de facto bailout of 10% government ownership in the first place. | ||
| If we had a better regulatory environment, better policies, and frankly, a better trading policy with lower barriers, the caller's legitimate IP concerns would be much less of an issue. | ||
| And when you say better trading policies, elaborate on that. | ||
|
unidentified
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Lower tariffs, more trade agreements with our trading partners, re-engaging the rules-based international trading system, reviving the World Trade Organization and its dispute resolution system, in which the U.S. has an 85% win rate. | |
| Those types of policies, I think, would go a long way towards addressing a lot of the concerns that all of us have. | ||
| Here's Jack, a Republican in Washington, Pennsylvania. | ||
| Hi, Jack. | ||
|
unidentified
|
Hi. | |
| Yeah, I am against this investment in Intel. | ||
| I've seen what a lot of things have been done in the past with the bailout of Chrysler, investments in Solyndra, the bailout of GM, and how many privately owned car dealerships were put out of business because of it. | ||
| But the main thing I want to discuss is what about reversing a situation here and try to privatize the Social Security that people are getting ripped off by because it basically is a Ponzi scheme and it's going to go broke. | ||
| Something needs to be done with that. | ||
| Would you consider privatizing Social Security? | ||
| All right, Jack. | ||
| Go ahead, Ryan. | ||
|
unidentified
|
That's a bit far afield from the Intel deal, but if you're talking about ways to reduce the national debt, that's a good way to do it. | |
| About 30 countries around the world have some form of an IRA for everybody, and that is a way to make the system sustainable, which it currently is not. | ||
| So although that would be a generational project, that is something that could do a lot to not only make people's retired more secure and give them property rights in their retirement funds that they do not have under the current system. | ||
| But yeah, it would have some of the positive effects the caller would like to see, even if that is a little far afield from the Intel deal. | ||
| And the caller also mentioned the bailout of General Motors, the Solyndra deal. | ||
| Explain how that is different or the same as this Intel deal. | ||
|
unidentified
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They're part of the same process. | |
| What we're seeing is it escalating essentially. | ||
| We're moving on from bailouts or from preferential treatment all the way to outright ownership. | ||
| So it's the same idea. |