Socialism from Republicans Is Just as Bad as Socialism from Democrats

When Zohran Mamdani won the Democratic nomination in the New York City Mayor’s race, many Republicans warned that his plan for government-run grocery stores was socialism.

Since Mamdani wasn’t threatening (at least not yet) to shut down private supermarkets, his plan would not lead to the usual consequences of socialism, such as bread lines and food rationing.

But it is a given that his plan would be a money-losing boondoggle.

So Republicans were correct to mock and criticize his vote-buying scheme.

Yet I wonder if those same Republicans will also condemn Donald Trump’s far more expensive and far more damaging plan to have the government become a dominant shareholder in Intel.

For more information on this depressing development, let’s start with the Wall Street Journal‘s editorial about Intel last week. Here are some excerpts.

 Does President Trump really believe that the same government that has so mismanaged air-traffic control can turn around the chip-making giant? …the Trump team is looking to take an equity stake in Intel in return for funding for the company promised under the 2022 Chips Act. This is how industrial policy so often works in practice. Step one: Subsidize a struggling business. Step two: When subsidies aren’t enough, nationalize it. Step three: Make sure it never fails. …The Biden Administration tried to ride to the rescue last year with up to $8.5 billion in direct grant funding and $11 billion in low-cost loans for Intel from the Chips Act. But as always with government largesse, it came with political strings attached. …Enter the Trump Administration, which may further expand the government’s role in managing Intel. …you can bet the feds wouldn’t be passive investors. …Once the government acquires a stake in Intel, the politicians will have an incentive to keep pouring on subsidies so they wouldn’t have to admit a mistake. At the same time, the Administration’s conditions for the equity investment may also make it harder for Intel to undertake needed changes to become more competitive. Politicians don’t like to preside over plant closures or employee layoffs. …This is corporate statism, and rarely does it end well. Political control hamstrings innovation and investment as managers look to their government overlords for approval.

Next, here are passages from a National Review editorial. As you might imagine, Trump’s socialism is not getting a friendly reception.

The federal government…doesn’t need to take on the difficult and nongovernmental task of turning around a struggling semiconductor company. …A government $37 trillion in debt and running a $2 trillion deficit has no business playing investment manager with even more borrowed money. And the idea that what Intel really needs to fix its long-running problems is the managerial genius of the federal government is laughable. …If the purchase of shares would come with any control over the corporation, the government would be way out of its depth. No leaders of a private company that is struggling have ever thought to themselves, “You know what we need right now? The federal government to become our largest single shareholder.” Unless, that is, they are convinced that the company is doomed and want to reduce their responsibility for the failure.

The Washington Post also has editorialized against Trump’s socialist initiative.

Congratulations, America: On Friday, President Donald Trump announced that you are about to own a 10 percent share of Intel. Sure, our former world-beating national champion is now an aging also-ran in critical markets. Sure, taxpayers will be disgorging almost $9 billion to seal the deal. But in exchange you’ll get … shares in a company that has spent recent years stumbling. …this kind of presidential dealmaking is a bad precedent: We should do things because they’re good policy, not because the government gets a cut. This particular policy also risks distorting the free-market system that has delivered better results for America, and the world, than any state-managed competitor has ever achieved. And it is unlikely to fix the deep problems with Intel, which have been decades in the making. …Throwing around public money mainly creates opportunities for corruption and political favoritism, while buying some failing firms is merely a temporary reprieve. …the United States should not try to beat China by becoming China. We should compete the way we always have: by relying on the free enterprise system that has served us so well for so long.

Last but not least, here are some passages from Eric Boehm’s Reason column.

During debate over the CHIPS and Science Act, the 2022 bill that ultimately delivered $52 billion in subsidies to chipmakers, Sen. Bernie Sanders (I–Vt.) floated the very same idea that Trump is now pursuing: that the government ought to have a stake in those companies. …Sanders…refused to vote for the bill unless the subsidies came with some serious strings attached. Among them: “Companies must agree to issue warrants or equity stakes to the federal government.” …Now the Trump administration is effectively doing what Sanders wanted—but without congressional authorization. …Commerce Secretary Howard Lutnick…promised to “get a good return for the American taxpayer.” …could have come directly from Sanders’ communications team… Turning Intel into the chipmaking equivalent of Amtrak is unlikely to be good news for American taxpayers or the company itself. Once the government has a stake in Intel, politicians will have a strong incentive to keep propping it up via whatever means necessary—and no matter the costs to consumers or other competitors that might do the job better.

Ironically, I just wrote yesterday about how cronyism and industrial policy is hurting China’s economy.

And now the United States is traveling down the same misguided path – with many supposed critics of socialism either offering support or choosing to stay silent.

Thus confirming my Ninth Theorem of Government.

I’ll close with a serious observation. Economic research has shown that business subsidies are very damaging because they prop up “zombie firms.”

This hinders the “creative destruction” that plays a critically important role in generating economic growth and future prosperity.