On the first night of the 2024 Democratic National Convention (DNC), speakers assembled to make the case for Vice President Kamala Harris to be America's next president and to provide a glimpse of what policies she might pursue. Unfortunately, it's clear that industrial policy is likely to survive and thrive in a Harris administration, despite clear examples that giving public money to private companies carries significant risk.

Some speakers took shots at former President Donald Trump, with Shawn Fain, president of the United Auto Workers (UAW), invoking the closure of a General Motors (G.M.) plant in Lordstown, Ohio. G.M. shuttered the factory in March 2019 amid slowing sales; in July 2017, Trump had told supporters in Youngstown, "Don't move. Don't sell your house," because lost factory jobs would come back.

"Trump lied, and abandoned Lordstown," intoned the announcer of a video that played before Fain took the stage. "The G.M. factory in Lordstown did close, putting thousands of people out of work, because Donald Trump doesn't care about our communities."

"In 2023, who helped bring jobs back to Lordstown, Ohio?" Fain asked during his speech. "Kamala Harris!"

But it's worth noting that G.M. closed the factory just a decade after it received $60 million from the state of Ohio to operate the facility until at least 2039. When G.M. reneged on the deal barely 10 years later, Ohio chose to let the company keep $20 million.

Then between 2019 and 2023, the factory had another occupant: Lordstown Motors, an automaker that planned to build electric pickup trucks. The brand new company purchased the factory for $20 million after borrowing $40 million from G.M. Ohio officials, having not learned a lesson from the experience with G.M., gave Lordstown Motors $24.5 million in grants and tax credits.

And yet despite all the financial assistance, Lordstown Motors entered bankruptcy in June 2023.

"Today, tens of thousands of auto jobs are returning to the United States, thanks to the policies of the Biden-Harris administration," Fain said in a UAW video released last week. "That includes jobs in Lordstown, Ohio, where auto workers at Ultium Cells are now building batteries for General Motors."

Ultium is G.M.'s electric vehicle battery cell technology. "Ultium's Lordstown plant could qualify for tax credits worth more than $1 billion a year," according to a 2023 UAW report. And in 2022, the U.S. Department of Energy announced that it would loan the company $2.5 billion to build three factories, including the one in Ohio.

Ultium is also building a $2.6-billion factory in nearby Michigan, for which that state's government agreed to give the company $666 million. And Ultium was not the only company singled out at the convention.

"Trump talked big about bringing back manufacturing jobs, but you know who actually did it? President Joe Biden and Vice President Kamala Harris," New York Gov. Kathy Hochul said, moments after Fain spoke. "Look no further than the city of Syracuse, where a company called Micron is building a $100-billion microchip factory with union labor."

In October 2022, Micron pledged to spend $20 billion by the end of the decade to build what it deemed "the largest semiconductor fabrication facility in the history of the United States," signifying "the largest private investment in New York state history." The company further noted that it "intends to invest up to $100 billion over the next 20-plus years."

But the Biden administration agreed to award that company $6.1 billion in federal handouts for its Syracuse factory and one near Boise, Idaho. New York promised another $5.5 billion in state incentives.

Of course, it's entirely likely that these deals will be every bit as lucrative as promised: Micron alone promises that its Syracuse factory will "create nearly 50,000 New York jobs, including approximately 9,000 high paying Micron jobs." But at the time of this writing, Micron has a market cap of $118 billion, suggesting that it could've made the initial $20-billion investment without state and federal taxpayers picking up so much of the tab. Similarly, even though G.M. currently has a market cap of $52 billion and it has reneged on an economic development deal in the very recent past, it still continues to benefit from public cash.

With three more nights to go, the DNC will likely feature more policy proposals for a potential Harris administration. Unfortunately, the first night indicated that industrial policy is alive and well in the Democratic Party.

The post Industrial Policy Is Alive and Well at the Democratic National Convention appeared first on Reason.com.

VinFast, a Vietnamese automaker that builds electric vehicles, announced in July that it would not begin production at its North Carolina plant for another four years. While the news is certainly a setback, the disappointment is compounded by the fact that the state is trying to bulldoze a number of private homes, and a church, to make the project happen.

In March 2022, North Carolina Gov. Roy Cooper announced that VinFast would build its first North American plant in Chatham County. The company would spend $4 billion and create 7,500 jobs, with production from the completed factory set to begin in July 2024. At its peak, the facility would be capable of producing 150,000 vehicles per year.

In exchange, North Carolina lawmakers agreed to give the company $1.25 billion in incentives, including $450 million for infrastructure, including "roadway improvements" and building out the water and sewer capacity; $400 million from the county; and a $316 million state grant paid out over 32 years, linked to the company's job creation promises. In effect, North Carolina taxpayers would be financing over 30 percent of the project.

President Joe Biden called the project "the latest example of my economic strategy at work." CNBC lauded the state's Democratic governor and Republican Legislature for "managing to put aside their very deep political divisions to boost business and the economy" when it named North Carolina America's Top State for Business.

But within two years, the deal was on shaky ground. The company announced in March 2023 that it would not be able to begin production at the factory until at least 2025 "because we need more time to complete administrative procedures," according to a company spokesperson.

Then in July 2024, in a press release about manufacturing output in the previous quarter, VinFast announced that it had "made the strategic decision to adjust the timeline for the launch of its North Carolina manufacturing facility, which is now expected to begin production in 2028," in order to "optimize its capital allocation and manage its short-term spending more effectively."

While this is disappointing news for many—company executives, shareholders, North Carolina state officials—it's worse for residents in the area.

Many of the state and county incentives are dependent upon VinFast meeting certain metrics: While the state doled out $125 million to reimburse the company for site preparation costs, it can claw back that entire amount if VinFast fails to hire at least 3,875 people—just over 50 percent of the required total. There are further clawback provisions if it doesn't hire at least 6,000 people and doesn't invest at least $2 billion into the project.

But even if the deal falls apart and the state gets its money back, some things can't be undone. As part of the deal, the North Carolina Department of Transportation (NCDOT) would conduct "roadway improvements" at the future site of the facility. As detailed in an August 2022 project overview, "private property is needed to construct the improvements proposed by the roadway project." And while the NCDOT "works to minimize impacts such as the number of homes and businesses displaced by a road project, some impacts are unavoidable."

In total, the state expected that the roadwork would "impact" five businesses, 27 homes, and Merry Oaks Baptist Church, which had stood since 1888. This meant the state was authorized to purchase the properties from the owners—or if the owners refused to sell, the state could simply take the properties through eminent domain.

Eminent domain, authorized by the Takings Clause of the Fifth Amendment, allows government entities to seize private property for public use, as long as the owner receives "just compensation." Of course, the only thing that separates this from a normal real estate transaction is that the use of eminent domain implies that the property owner did not want to sell but was forced to anyway.

While an electric car factory does not qualify as a "public use," the state is planning to bulldoze the houses, businesses, and church to make way for a new roadway interchange that will accommodate traffic to and from the site. Of course, under the U.S. Supreme Court's 2005 decision in Kelo v. New London, the state would also have been justified to seize property to give to a purely private party, with Justice John Paul Stevens writing that "there is no basis for exempting economic development from our traditionally broad understanding of public purpose."

In fact, that seems to be just what happened: In July, after VinFast announced its latest delay, the Raleigh News & Observer reported that so far the state had spent $96 million—nearly all of it on site preparation and infrastructure—and purchased four homes, with negotiations ongoing with other homeowners and two businesses. And sadly, "North Carolina has acquired two businesses and Merry Oaks Baptist Church through eminent domain, meaning negotiations fell short and the state took over the land after paying the previous owners fair market values assessed by a state-approved appraiser."

In July 2023, VinFast offered to donate up to three acres of land from its 2,000-acre parcel to Merry Oaks Baptist Church so the congregation could relocate. But a better solution would have been for VinFast to simply shoulder the burden of development in the first place, first by footing the bill for the project itself and then by obtaining land where the government did not forcibly remove any obstacles in the way.

The post VinFast Delays Production After North Carolina Seizes Property for Factory Site appeared first on Reason.com.

In May 2023, OpenAI founder Sam Altman testified before the Senate Judiciary Committee about ChatGPT. Altman demonstrated how his company's tool could massively reduce the cost of retrieving, processing, conveying, and perhaps even modifying the collective knowledge of mankind as stored in computer memories worldwide. A user with no special equipment or access can request a research report, story, poem, or visual presentation and receive in a matter of seconds a written response.

Because of ChatGPT's seemingly vast powers, Altman called for government regulation to "mitigate the risks of increasingly powerful AI systems" and recommended that U.S. or global leaders form an agency that would license AI systems and have the authority to "take that license away and ensure compliance with safety standards." Major AI players around the world quickly roared approval of Altman's "I want to be regulated" clarion call.

Welcome to the brave new world of AI and cozy crony capitalism, where industry players, interest groups, and government agents meet continuously to monitor and manage investor-owned firms.

Bootleggers and Baptists Have a 'Printing Press Moment'

ChatGPT has about 100 million weekly users worldwide, according to Altman. Some claim it had the most successful launch of a consumer product in history, and Altman anticipates far more future users. He's now seeking U.S. government approval to raise billions from United States, Middle East, and Asian investors to build a massive AI-chip manufacturing facility.

In his testimony, Altman referred to Johannes Gutenberg's printing press, which enabled the Enlightenment, revolutionized communication, and—following the dictum "knowledge is power"—destabilized political and religious regimes worldwide. Altman suggested that, once again, the world faces a "printing press moment": another time of profound change that could bring untold benefits as well as unimaginable disturbances to human well-being. A related letter signed by Altman, other AI industry executives, and scores of other leaders in the field, underlined their profound concern and said: "Mitigating the risk of extinction from AI should be a global priority alongside other societal-scale risks such as pandemics and nuclear war."

Altman's call for regulation also has a parallel in the early history of printing. Something similar to the licensing control suggested by Altman was used by Queen Elizabeth I in 16th century England. She assigned transferable printing rights to a particular printing guild member in a frustrated effort to regulate and censor printing.

Altman's moral appeal rests on the notion of preserving a nation of people or their way of life. In that way, it satisfies the "Baptist" component of the bootleggers and Baptists theory of regulation, which I developed decades ago and which explains why calls to "regulate me" may be seen as just about businesses earning extra profits.

An especially durable form of government regulation takes hold when there are at least two interest groups supporting it, but for decidedly different reasons. One supports the pending regulation for widely held moral reasons (like old-school Baptists who want to bar legal Sunday liquor sales). The other is in it for the money (like the bootleggers who see opportunity in a day without any legal competition).

Altman's "Baptist" altar call may well be altruistic—who can know?—but it shows his hand as a potential bootlegger, too. After all, a government-sheltered AI market could provide a first-mover advantage as his entity helps to determine the appropriate standards that will be applied to everyone else. It could yield a newer, cozier crony capitalism that has not previously existed in quite the same form.

Apparently, some other potential bootleggers heard the altar call too and liked the idea of being in a cozy cartel. Soon, Microsoft insisted that thoroughgoing government regulation of AI would be necessary. In another Baptist-like appeal, Microsoft President Brad Smith said:"A licensing regime is fundamentally about ensuring a certain baseline of safety, of capability. We have to prove that we can drive before we get a license. If we drive recklessly, we can lose it. You can apply those same concepts, especially to AI uses that will implicate safety."

Google felt the call as well and provided a statement recommending AI regulation on a global and cross-agency basis. Google CEO Sundar Pichai emphasized, "AI is too important not to regulate and too important not to regulate well." Another February 2024 policy statement from Google contains a litany of plans to cooperate with competitors and government agencies to advance a safe and effective generative AI environment.

How AI Will Regulate AI

In a December 2023 report on U.S. government agency activity for FY 2022, the Government Accountability Office indicated that 20 of the 23 agencies surveyed reported some 1,200 AI activities, including everything from analyzing data from cameras and radar to preparing for planetary explorations.

Bootlegger and Baptist–inspired regulatory episodes in the past typically involved in-depth studies and hearings and ended up with lasting rules. That was the case through most of the 20th century, when the Interstate Commerce Commission regulated prices, entry, and service in specific industries, and in the 1970s, when the Environmental Protection Agency was equipped with command-and-control regulations in an alleged attempt to correct market failures.

Sometimes it took years to develop regulations to address a particular environmental problem. By the time the final rules were announced and frozen in time, the situation to be resolved may have changed fundamentally.

Cheap information enabled by generative AI changes all this. By using AI, the generative AI regulatory process—pending at the level of California, the federal government, and other governments worldwide—so far favors ongoing, never-ending governance processes. These will focus on major generative AI producers but involve collaboration among industry leaders, consumer and citizen groups, scientists, and government officials all engaged in a newly blossomed cozy cronyism.Under the European Union's AI Act, an AI Office will preside over processes that continually steer and affect generative AI outcomes.

If more traditional command-and-control or public utility regulation were used, which raises its own challenges, AI producers would be allowed to operate within a set of regulatory guardrails while responding to market incentives and opportunities. They would not be required to engage in cooperative engagement with regulators, their own competitors, and other supposed stakeholders in this larger enterprise. In this AI world, bootleggers and Baptists now sit together in the open.

Specifically, this burgeoning approach to AI regulation requires the implementation of "sandboxes," where regulated parties join with regulators and advisers in exploring new algorithms and other AI products. While sandboxes have some beneficial things to offer industries in new or uncertain regulatory environments, members of the unusually collaborative AI industry are poised to learn what competitors are developing as government referees look on.

The risk, should this environment persist, is that radically new products and approaches in the arena never get a chance to be developed and benefit consumers. The incentives to discover new AI products and profit from them will be blunted by cartel-like behavior in a new bootleggers and Baptists world. Countries and firms that refuse to play by these rules would likely become the only fountainhead for major new AI developments.

The End of the AI Wild West

No matter what form of regulation holds sway, generative AI is out of the box and will not go away. Already, computer capacity requirements for processing the software are falling, and already, generative AI's applications to new information challenges are exploding. At the same time, government agents' ability to regulate is improving and the payoff to the regulated for working hand-in-hand with government and organized interest groups is growing.

Generative AI's Wild West days may be drawing to a close. This is when invention, expansion, and growth can occur unconstrained by regulation while within the bounds of local courts, judges, property rights, and common law. Novel developments will still occur, but at a slower pace. The generative AI printing press moment may expand to become an era. But just as the Gutenberg invention led initially to the regulation and even outlawing of the printing press across many major countries, new information technologies emerged anyway and effective regulation of real knowledge became impossible.

A renaissance was set in motion despite official attempts to stymie the technology. Freer presses emerged, and eventually the telegraph, telephones, typewriters, mimeograph, Xerox, fax, and the internet itself. Knowledge flows cannot be stopped. We moderns may learn again that the human spirit cannot be forever bottled up, and over the long run market competition will be allowed, if not encouraged, to move mankind closer to a more prosperous era.

America's Founders were enlightened and well aware of Europe's troublesome efforts to regulate Gutenberg's printing press. They insisted on freedom of speech and a free press. We may eventually see similar wisdom applied to generative AI control—but don't hold your breath.

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Voters in California went to the polls this week for a primary election that's the first step towards picking a permanent replacement for the late Sen. Dianne Feinstein, who died nearly six months ago.

In Washington, meanwhile, Feinstein is still wielding influence from beyond the grave. Her name is attached to 256 different earmarks included in the budget bill working its way through Congress this week. Those pork projects will cost taxpayers about $1.1 billion if the bill passes in its current form, the Washington Examiner reported Tuesday.

And that only scratches the surface. The partial budget deal—which contains six of the 12 appropriations bills that make up the discretionary portion of the annual federal budget—is overflowing with earmarks to fund lawmakers' pet projects. All told, there are more than 6,000 earmarks in the bill, costing taxpayers more than $12.7 billion, according to Sen. Mike Lee (R–Utah), who has urged Republicans to vote against the package.

Many of the earmarks in the package seem like things that would be better funded by local or state taxpayers, who at least might stand to benefit from projects like new sewer systems, new runways and other upgrades for tiny rural airports, and a plethora of highway projects. Some are truly head-scratching, like Sen. Tammy Baldwin's (D–Wis.) $1.4 million earmark for a solar energy project in Wisconsin, one of the places in America least well suited for a solar farm.

Plenty of others make no sense for the public to be funding at all. Like a $3.5 million earmark secured by Sen. Debbie Stabenow (D–Mich.) for The Parade Company, which runs Detroit's annual Thanksgiving Day parade. Or the $2.5 million earmark that will help build a new kayaking facility in Franklin, New Hampshire, curtsey of Sen. Jeanne Shaheen (D–N.H.), as well as $2.7 million line item to help build a bike park in White Sulfur Springs, West Virginia, a town with a population of less than 2,300 people.

For that amount of money, "you could buy EVERY resident a $1,200+ bike" Sen. Rick Scott (R–Fla.), who has become a vocal critic of the earmarks in the bill, posted on X (formerly Twitter). "There's no way they need this much of YOUR money for this."

The same could be said for several Republican-based earmarks too. Sen. Lindsey Graham (R–S.C.) has inserted at least eight earmarks into the bill, forcing federal taxpayers to put up more than $33 million for things most will never use, like a new trail at Coastal Carolina University and an ROTC facility at the University of South Carolina. Among the dozens of earmarks inserted by Sen. Lisa Murkowski (R–Alaska), perhaps the strangest is the $4 million grant for the "Alaska King Crab Enhancement Project."

Wait, you might be thinking, didn't Congress ban the use of earmarks when tea party-era Republicans controlled the government? Yep, they did. But like fiscal responsibility and concern about America's ballooning entitlement costs, those efforts to limit pork barrel spending are now distant memories. Democrats voted to reinstate earmarks in 2021, and Republicans soon followed suit.

To Congress' credit, earmarks are now handled more transparently than they used to be—which is why you can view the full list of earmarks included in the budget bills here.

Still, some things never change. Earmarks remain expensive, wasteful exercises in cronyism—and with the country $34 trillion in debt, Congress should not be putting taxpayers on the hook for frivolous handouts to politically connected friends.

The post The Budget Deal Is Overflowing With $12 Billion of Earmarks appeared first on Reason.com.

The White House this month announced plans for how it will direct billions of dollars in funding toward semiconductors, marking a new phase in the implementation of the CHIPS and Science Act.

The $280 billion legislation, signed into law in 2022, aims to bolster semiconductor production in the U.S. President Joe Biden's administration said Monday that it will funnel $1.5 billion to GlobalFoundries, a semiconductor manufacturing and design company, to increase its domestic output. Perhaps more significant, however, was Biden's dispatch earlier this month announcing the administration will use at least $5 billion to establish a National Semiconductor Technology Center (NSTC), which will, among other things, support "the design, prototyping, and piloting of the latest semiconductor technologies," according to the White House. 

This latest effort is part of the government's expensive and protectionist public-private partnership meant to address concerns over a reliance on foreign countries, like China, for chips.

"Semiconductors were invented in America and serve as the backbone of the modern economy," the White House said in a statement. "But today, the United States produces less than 10 percent of global supply and none of the most advanced chips."

The NSTC will supposedly also play a crucial role in expanding the semiconductor workforce to manufacture computing chips that can complement advances in artificial intelligence and related industries. Semiconductors are projected to become a $1 trillion industry by 2030, according to McKinsey & Company.

The CHIPS and Science Act has several eyebrow-raising elements, including $81 billion for the National Science Foundation—doubling the agency's budget over five years. Another $24 billion will go toward tax credits meant to subsidize and incentivize private companies to invest in semiconductors.

While the legislation was likely well-intentioned, it was doomed to have protectionist ramifications. "To defeat China, the argument goes, the U.S. must adopt the tactics of the Chinese Communist Party, at least when it comes to high-end manufacturing," Reason's Eric Boehm wrote in January 2023. But that ham-handed approach to industrial policy and corporate welfare drives up the deficit and hampers economic growth at very little benefit to the taxpayer, who are forced to fund these initiatives. 

It's likely unsurprising that many large corporations lobbied for the CHIPS and Science Act, including Meta, Microsoft, Google, Amazon, Apple, Northrop Grumman, Carrier, Trane, and General Dynamics, as well as labor unions like the American Federation of Labor and Congress of Industrial Organizations and the Communications Workers of America. "Big government means big lobbying," wrote David Boaz, a senior fellow at the Cato Institute. "When you lay out a picnic, you get ants. And today's federal budget is the biggest picnic in history."

The CHIPS and Science Act passed with bipartisan support. But its detractors were also made up of strange bedfellows. Sen. Bernie Sanders (I–Vt.) and then-Rep. Kevin McCarthy (R–Calif.) both referred to the law as "corporate welfare" and a "blank check." Sanders went as far as to call it a "bribe."

"When the government adopts an industrial policy that socializes all the risk and privatizes all the profits, that is crony capitalism," Sanders said.

He's not wrong. The law "is another episode of politicians granting favors to their friends in the semiconductor industry," Veronique de Rugy, a contributing editor at Reason and a senior research fellow at the Mercatus Center, wrote last year. Such an approach "punishes those who aren't elite or can't organize to extract favors from politicians."

Michelle Nuzzo-Kelly is an apt example. She was among the residents of Burnet Road near Syracuse, New York, who received several offers to purchase her home. But those offers didn't come from private buyers: They came from the government, as Onondaga County sought to expand a plot of land so it could attract a developer. Micron, one of the world's largest semiconductor manufacturing firms, is now set to build a facility there, thanks to lucrative taxpayer-funded subsidies from the state and federal government.

"The offers to buy Nuzzo-Kelly's home were never really just offers," Boehm wrote when covering the case in November 2022. "They were demands backed by a threat to use government power to force her to sell."

The post Biden Pours Out Another $6.5 Billion for the CHIPS Act's Costly Protectionism appeared first on Reason.com.