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The proper response to a foreign country subsidizing something is to just buy a lot of it. They're losing money on the unit economics, you can profit from it by

The proper response to a foreign country subsidizing something is to just buy a lot of it. They're losing money on the unit economics, you can profit from it by buying. We've known for decades that protectionist policies and subsidies make industries less competitive, not more. It is literally textbook stuff [1]. A typical result of protectionism is somethint like GM in the US, where they grow uncompetitive as they don't have to compete with foreign markets for domestic demand. You get similar uncompetitive dependent behavior from subsidies - just look at Intel right now. 1. https://web.pdx.edu/~ito/Krugman-Obstfeld-Melitz/8e-text-PDF/M10_KRUG3040_08_SE_C10.pdf https://web.pdx.edu/~ito/Krugman-Obstfeld-Melitz/8e-text-PDF... Note the author here is Paul Krugman, who literally won a Nobel Prize for his work on infant industry protection.

georgeburdell 2y ago
What subsidies has Intel received to date?
- dymk 2y ago
  https://www.intel.com/content/www/us/en/newsroom/news/us-chips-act-intel-direct-funding.html#gs.frcfl4 https://www.intel.com/content/www/us/en/newsroom/news/us-chi... Google Intel subsidy
  - georgeburdell 2y ago
    I wrote, what subsidies has Intel received? That press release does not indicate Intel has received any money. Furthermore, any subsidy received in 2024 would not explain why Intel has been falling behind for the past 8 years, per your assertion that subsidies encourage waste.
    - dymk 2y ago
      “Per your assertion” Where did I make that assertion?
nonethewiser 2y ago
To a degree. But it can hurt your domestic industries to a degree which may not be acceptable.
hash872 2y ago
I don't think that macroeconomics is an empirical field, so when people say 'it's textbook stuff' that doesn't impress me. I don't believe the textbook. People want to pretend that economics is like physics or chemistry, but it simply isn't true. Imagine if I said something was 'textbook sociology', would you have to then drop all objections? Reminder that in the last 30 years economists have variously told us that there's a (high) natural rate of unemployment that we couldn't change (has recently been completely debunked). That raising the minimum wage costs jobs. That bank deregulation is good. And so on. It's just not an empirical field, so I don't believe what's in the textbook. It's also open to lobbying from for-profit entities for specific viewpoints, in a way that a real science usually isn't
- lazystar 2y ago
  > I don't think that macroeconomics is an empirical field, so when people say 'it's textbook stuff' that doesn't impress me. Agreed, especially when the textbook being referenced was written by a polarizing figure like Kruggman. I wonder, how much "textbook stuff" was removed from textbooks after 2008?
  - VHRanger 2y ago
    Krugman won his nobel prize in economics for his work on international trade, and especially protectionism of infant industries: https://www.nobelprize.org/prizes/economic-sciences/2008/krugman/facts/ https://www.nobelprize.org/prizes/economic-sciences/2008/kru... His NYT column might be controversial, but his work in international trade absolutely isn't. It's like saying Chomsky is controversial to counter argue his work in linguistics. Chomsky might be a political hack, but his opinion on formal grammars is probablyt sound. > I wonder, how much "textbook stuff" was removed from textbooks after 2008? Basically nothing, to be honest? What should have changed? The banks that collapsed into a financial crisis were effectively committing fraud. The federal reserve were publishing opinions that the housing sector was at risk as early as 2005-2006. Also, it's difficult for a central bank to know the extent of the mispricing when there's active concealment of risks (eg. backroom deals with insurers and risk assessors) - you need full on auditing to spot that. The bigger problem with 2008 is that almost no one responsible went to jail.
fny 2y ago
1. Krugman admits at many points in the article you sent that protecting infant industries at times works. We're also not talking about infant industries. 2. VCs routinely use the strategy of subsidizing their startups to "disrupt" industries until they dominate a market. China does the same thing. 3. The costs of sacrificing domestic supply chains and development capacities do not fit neatly into macroeconomic models. National security issues present similar difficulties. Do arguments around comparative advantage apply to hostile adversaries that routinely break laws (i.e. ByteDance, IP theft) and provide natural resources to enemies? 4. While the US did not succeed with Intel, China has routinely subsidized industries while enforcing antitrust with far more success than the US. See the Alibaba breakup or the recently implemented antimonopoly laws as examples: https://www.gibsondunn.com/antitrust-in-china-2023-year-in-review/ https://www.gibsondunn.com/antitrust-in-china-2023-year-in-r...
- lazystar 2y ago
  > See the Alibaba breakup or the recently implemented antimonopoly laws as examples An argument could be made that any increase in competition is a side-effect, rather than the main goal, of their antimonopoly changes. Until China explains the full Jack Ma story, anything alibaba-related will be seen as political driven, rather than economic.
  - fny 2y ago
    China routinely punishes the private sector. Yes, Jack Ma had a gun to his head, but Alibaba hasn't been the only target. https://www.barrons.com/articles/chinas-anti-monopoly-crackdown-is-just-an-excuse-51639513574 https://www.barrons.com/articles/chinas-anti-monopoly-crackd...
- VHRanger 2y ago
  1. Absolutely correct, it works "sometimes", but not in the general case, and especially not in real life in the general case given how it skews the incentive structure of the firms. The point remains that in general if a foreign country is over subsidizing an industry it's a good idea -- even if you don't like them -- to just buy a ton of the stuff. 2. It remains to be proven how good of an idea the silicon valley VC model has been in the zero-interest rate environment since it changed. Uber has had all of 5 profitable quarters in 15 years. Twitter had something like 4. Many of those VC hypergrowth companies, except a dozen or so, are effectively a big game of hot potato The gap between investment and profit made is often still in the 9 or 10 figure range. I'd wait another decade or so before proclaiming it's a good strategy. Predatory pricing doesn't even work in theory - there's was effectively a chapter in an industrial organization class I took, though I'd have to find the material again. It might work in practice if there's other effects not taken into account in the theoretical model, though. 3. I would agree with you there, and I think both banning tiktok and subsidizing intel (foundries only) are ideas I agree with even though controversial. 4. I wouldn't argue that the alibaba breakup was a good example - this sort of move creates a huge chilling effect on investors and entrepreneurs in China. The breakup was much more about Xi consolidating his grasp on power than anything else to be realpolitik about it.
belorn 2y ago
There isn't any major car manufacturer (that I know of) which isn't deeply tied to the government of their country of origin, enjoying everything from massive amount of subsidies to access to military intelligence networks. Sometimes even specific laws are written explicitly to support that specific company. Like aircraft manufacturers, car manufacturers are also generally military manufacturers so the internal lines within those that distinguish between private company, government, and military get very blurry. I don't see a proper response for other countries when dealing with such entities. Most likely it going to be an equal blurry mess of trade policies, foreign policy, and military policy.

georgeburdell 2y ago

What subsidies has Intel received to date?

dymk 2y ago
https://www.intel.com/content/www/us/en/newsroom/news/us-chips-act-intel-direct-funding.html#gs.frcfl4 https://www.intel.com/content/www/us/en/newsroom/news/us-chi... Google Intel subsidy
- georgeburdell 2y ago
  I wrote, what subsidies has Intel received? That press release does not indicate Intel has received any money. Furthermore, any subsidy received in 2024 would not explain why Intel has been falling behind for the past 8 years, per your assertion that subsidies encourage waste.
  - dymk 2y ago
    “Per your assertion” Where did I make that assertion?

nonethewiser 2y ago

To a degree. But it can hurt your domestic industries to a degree which may not be acceptable.

hash872 2y ago

I don't think that macroeconomics is an empirical field, so when people say 'it's textbook stuff' that doesn't impress me. I don't believe the textbook. People want to pretend that economics is like physics or chemistry, but it simply isn't true. Imagine if I said something was 'textbook sociology', would you have to then drop all objections? Reminder that in the last 30 years economists have variously told us that there's a (high) natural rate of unemployment that we couldn't change (has recently been completely debunked). That raising the minimum wage costs jobs. That bank deregulation is good. And so on. It's just not an empirical field, so I don't believe what's in the textbook. It's also open to lobbying from for-profit entities for specific viewpoints, in a way that a real science usually isn't

lazystar 2y ago
> I don't think that macroeconomics is an empirical field, so when people say 'it's textbook stuff' that doesn't impress me. Agreed, especially when the textbook being referenced was written by a polarizing figure like Kruggman. I wonder, how much "textbook stuff" was removed from textbooks after 2008?
- VHRanger 2y ago
  Krugman won his nobel prize in economics for his work on international trade, and especially protectionism of infant industries: https://www.nobelprize.org/prizes/economic-sciences/2008/krugman/facts/ https://www.nobelprize.org/prizes/economic-sciences/2008/kru... His NYT column might be controversial, but his work in international trade absolutely isn't. It's like saying Chomsky is controversial to counter argue his work in linguistics. Chomsky might be a political hack, but his opinion on formal grammars is probablyt sound. > I wonder, how much "textbook stuff" was removed from textbooks after 2008? Basically nothing, to be honest? What should have changed? The banks that collapsed into a financial crisis were effectively committing fraud. The federal reserve were publishing opinions that the housing sector was at risk as early as 2005-2006. Also, it's difficult for a central bank to know the extent of the mispricing when there's active concealment of risks (eg. backroom deals with insurers and risk assessors) - you need full on auditing to spot that. The bigger problem with 2008 is that almost no one responsible went to jail.

fny 2y ago

1. Krugman admits at many points in the article you sent that protecting infant industries at times works. We're also not talking about infant industries. 2. VCs routinely use the strategy of subsidizing their startups to "disrupt" industries until they dominate a market. China does the same thing. 3. The costs of sacrificing domestic supply chains and development capacities do not fit neatly into macroeconomic models. National security issues present similar difficulties. Do arguments around comparative advantage apply to hostile adversaries that routinely break laws (i.e. ByteDance, IP theft) and provide natural resources to enemies? 4. While the US did not succeed with Intel, China has routinely subsidized industries while enforcing antitrust with far more success than the US. See the Alibaba breakup or the recently implemented antimonopoly laws as examples: https://www.gibsondunn.com/antitrust-in-china-2023-year-in-review/ https://www.gibsondunn.com/antitrust-in-china-2023-year-in-r...

lazystar 2y ago
> See the Alibaba breakup or the recently implemented antimonopoly laws as examples An argument could be made that any increase in competition is a side-effect, rather than the main goal, of their antimonopoly changes. Until China explains the full Jack Ma story, anything alibaba-related will be seen as political driven, rather than economic.
- fny 2y ago
  China routinely punishes the private sector. Yes, Jack Ma had a gun to his head, but Alibaba hasn't been the only target. https://www.barrons.com/articles/chinas-anti-monopoly-crackdown-is-just-an-excuse-51639513574 https://www.barrons.com/articles/chinas-anti-monopoly-crackd...
VHRanger 2y ago
1. Absolutely correct, it works "sometimes", but not in the general case, and especially not in real life in the general case given how it skews the incentive structure of the firms. The point remains that in general if a foreign country is over subsidizing an industry it's a good idea -- even if you don't like them -- to just buy a ton of the stuff. 2. It remains to be proven how good of an idea the silicon valley VC model has been in the zero-interest rate environment since it changed. Uber has had all of 5 profitable quarters in 15 years. Twitter had something like 4. Many of those VC hypergrowth companies, except a dozen or so, are effectively a big game of hot potato The gap between investment and profit made is often still in the 9 or 10 figure range. I'd wait another decade or so before proclaiming it's a good strategy. Predatory pricing doesn't even work in theory - there's was effectively a chapter in an industrial organization class I took, though I'd have to find the material again. It might work in practice if there's other effects not taken into account in the theoretical model, though. 3. I would agree with you there, and I think both banning tiktok and subsidizing intel (foundries only) are ideas I agree with even though controversial. 4. I wouldn't argue that the alibaba breakup was a good example - this sort of move creates a huge chilling effect on investors and entrepreneurs in China. The breakup was much more about Xi consolidating his grasp on power than anything else to be realpolitik about it.

belorn 2y ago

There isn't any major car manufacturer (that I know of) which isn't deeply tied to the government of their country of origin, enjoying everything from massive amount of subsidies to access to military intelligence networks. Sometimes even specific laws are written explicitly to support that specific company. Like aircraft manufacturers, car manufacturers are also generally military manufacturers so the internal lines within those that distinguish between private company, government, and military get very blurry. I don't see a proper response for other countries when dealing with such entities. Most likely it going to be an equal blurry mess of trade policies, foreign policy, and military policy.