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One Must Really Look Beyond the Hype

The opinion piece by Nobel-laureate economist Michael Spence to which this letter is a response could have been written by a clever political-science sophomore yet to be exposed to economics. The naiveté throughout is surprising and, of course, disappointing.

Editor, Project Syndicate


Praising the CHIPS and Science Act and other statutes recently enacted by Congress, Nobel-laureate economist Michael Spence disappointingly fails to look beyond the press releases issued for these statutes by their sponsors  (“Make America Invest Again,” August 11).

Most egregiously – and as the title of his piece accurately reveals – Prof. Spence swallows the claim that investment in America is waning and can be invigorated only by government subsidies. Yet as Scott Lincicome and Alfredo Carrillo Obregon explain, investment in the U.S. in semiconductor production has in recent years been growing despite languishing federal subsidies:

[T]here has been even more chipmaking investment dedicated to the U.S. market, even as federal subsidies have languished. Construction is now underway at four major U.S. facilities and will continue with or without subsidies – something even Intel reluctantly acknowledged when it delayed the groundbreaking ceremony on its much‐​ballyhooed Ohio facility to protest congressional inaction. This is because, as numerous experts have explained over the last year, there are real economic and geopolitical reasons to invest in additional U.S. semiconductor production – no federal subsidies needed.

Also steadily increasing in America has been private-sector R&D spending more generally, despite little change in federal government support. In 2018 St. Louis Fed economists Ana Maria Santacreu and Heting Zhu documented that inflation-adjusted R&D spending by the private sector steadily rose from 1953 through 2016 even though federal R&D spending was mostly flat. As for what’s happened since 2016, I calculate that in 2019 – on the eve of covid – inflation-adjusted R&D spending (at least in the physical sciences, the life sciences, and engineering) was 38 percent higher than it was only three years earlier.*

Sponsors of major legislation increasingly excel at falsely advertising their merchandise. It’s dismaying that a Nobel-laureate economist fell for their deceit.

Donald J. Boudreaux
Professor of Economics
Martha and Nelson Getchell Chair for the Study of Free Market Capitalism at the Mercatus Center
George Mason University
Fairfax, VA 22030

* Nominal dollar figures are given here for “Expenses for Research and Development In The Physical, Engineering, and Life Sciences, All Establishments, Employer Firms.” I converted the figures for inflation using this on-line calculator.