by Greg Valliere, AGF Management Ltd.
Insights and Market Perspectives
Author: Greg Valliere
February 24, 2021
WASHINGTON HAS FINALLY WOKEN UP to the major shortage of semiconductor chips, which has created a drag on the production of everything from autos to cell phones. A bipartisan group of lawmakers will meet with President Biden at the White House today to discuss emergency measures, the Washington Post reports this morning.
CHIPS ARE IN SHORT SUPPLY: U.S. production has decreased as demand has surged. Chips are crucial in computers, where use has exploded as more people work from home. And chips are an integral component of autos, cellphones, weapons, etc.
WHEN WE LAST LEASED a car, the salesman said that “it’s a sophisticated computer on wheels,” only a slight exaggeration. The shortage of chips has prompted Ford and General Motors to cut production.
THE DELEGATION MEETING AT THE WHITE HOUSE will be led by Senate Majority Chuck Schumer, who says the semiconductor shortage is “a dangerous weak spot in our economy and our national security.” Schumer has no equal when it comes to spending money, and he will urge the Biden Administration to fund more chip production and research, the Post reports.
ONLY ABOUT 12% OF GLOBAL CHIP PRODUCTION occurs in the U.S., as Taiwan dominates the industry, with mainland China furiously trying to catch up. A disturbing trend is apparent in the U.S. — an inattention to what might go wrong (see: Texas utility regulation), and an inability to catch up.
MOST ANALYSTS AGREE that the U.S. cannot catch up quickly on chip production. And in many other key sectors, such as the production of medical equipment, the U.S. far trails Beijing. It could take years before China stops “eating our lunch,” as Biden stated earlier this month.
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EARMARKS ARE BACK !! The age-old Washington practice of tucking money into legislation for projects back home — local hospitals, universities and federal courthouses, etc. — was banned after the 2011 elections. But “earmarks” are back, now allowed (except for corporations).
THE REVIVAL OF EARMARKS SEEMS FITTING, since the mood in Congress is to spend and spend because deficits no longer matter. Actually, earmarks will probably cost only a few billion dollars a year, a rounding error in today’s climate.
THE MAJOR IMPACT of allowing earmarks is that leaders in both parties can use them to keep their members in line on key legislation. If, for example, the Democrats are a vote or two short of winning enactment of a Covid relief bill, the the party’s leaders can tell those wavering members that they can insert pet spending projects into the bill.
YOU WANT TO WIN RE-ELECTION IN 2022? It might be a good idea to tell voters that you “brought home the bacon” with federal funding for a new government research facility in your district. Most Democrats (and Donald Trump) have favored the revival of earmarks — to the delight of lobbyists on K Street.
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This post was first published at the AGF Perspectives Blog.
