Politicians Are Showering Manufacturing Companies With Crony Subsidies for 'Job Creation.' It Won't Work.
These handouts will flow to businesses—often big and rich—for projects they would likely have taken on anyway.
In the grand circus of politics, where elephants and donkeys alike perform under the big top, there's one act that never fails to draw a crowd: the venerable "job creation" routine. Putting people back to work, especially those without college degrees and in the manufacturing world, is in the center ring. Unfortunately, when you look behind the smoke, mirrors, and rabbits hidden in hats, you'll see that promises to rebuild America through industrial policy are just plain old corporate welfare.
Industrial policy has made an amazing comeback. In its name, President Joe Biden's administration and Congress have authorized between $1.2 and $2.1 trillion in domestic subsidies for preferred manufacturing industries in sectors such as clean energy, advanced manufacturing, construction, transportation, and broadband. The ringmaster and his assistants assure the crowd that they'll deliver tens of thousands of new, high-paying jobs for workers with no more than high school diplomas. Meanwhile, on the right, industrial policy is being discussed as a way to boost manufacturing employment for men left behind in the Rust Belt.
The job creation argument for showering businesses with billions more in subsidies might surprise those of you are aware of America's remarkably low unemployment rate. Indeed, given that handful of people will always be between jobs, a 3.9 percent rate signals that very few who want employment can't find it.
Instead, what's animating these politicians is the exodus from the labor force of mostly poorly educated males. The reasons for this workforce withdrawal are complex and beyond the usual scapegoats like trade and market forces. But this topic I will save for another column.
Instead, let's focus on the reality that industrial policy subsidies and tax breaks will flow to companies, often big and rich, for projects they would likely have taken on anyway. That means they probably won't create net new jobs. Even if these subsidies were to create a manufacturing boom, it probably wouldn't lead to an employment boom because most manufacturing output today is produced by robots.
And even if the subsidies benefit workers indirectly, the beneficiaries will be largely college educated and in higher-income groups rather than those working assembly lines. The golden era of widespread, good manufacturing jobs that so many politicians are nostalgic about is over. It's been going away for 70 years.
So, industrial policy won't create jobs for poorly educated workers, but it will supercharge cronyism. The Cato Institute's Chris Edwards notes that Biden's industrial policy is better described as a corporate welfare bonanza. The Inflation Reduction Act, he writes, "handed out $868 billion in energy subsidies, most of it to big corporations, including automakers, utilities, manufacturers, and hydrogen producers. Adam Michel finds that Biden's energy tax subsidies could top $1.8 trillion."
The CHIPs and Science Act of 2022 gave $54 billion in subsidies to a who's who of corporate and Silicon Valley elite. Ditto with the Infrastructure Investment and Jobs Act of 2021, which subsidized railroads, electric utilities, broadband companies, the electric vehicle industry, and others to the tune of $548 billion.
Unfortunately, when the government is in the business of distributing favors, corporations devote less effort to producing and more to seeking those favors. The result is "unproductive entrepreneurship," where innovators use their skills to extract government privileges instead of putting new, better, and cheaper goods and services on the market.
Finally, contrary to the anti–big business rhetoric blaring from the Biden administration, it has granted a large amount of narrow corporate tax breaks to big companies. In fact, Edwards finds that since being in power, "President Biden has increased annual average corporate tax expenditures 92 percent from $109 billion to $209 billion." He notes that tax code expenditures "have increased from $0.3 billion a year projected under Trump to $29 billion a year under Biden."
Despite the grand promises of revitalizing the American workforce and bringing prosperity to forgotten corners of the country, the reality is that industrial policy is typically a conduit carrying corporate welfare, benefiting the already powerful and wealthy as it discourages genuine innovation and market-driven economic opportunities.
As we peer behind the scenes of this circus act, it becomes clearer that sustainable employment and economic prosperity will be generated not by subsidies but by unleashing market forces, which will promote entrepreneurship and innovation. Only by moving away from the spectacle can we hope to address the challenges underlying the American workforce and pave the way for a more prosperous and inclusive future.
COPYRIGHT 2024 CREATORS.COM.
Editor's Note: As of February 29, 2024, commenting privileges on reason.com posts are limited to Reason Plus subscribers. Past commenters are grandfathered in for a temporary period. Subscribe here to preserve your ability to comment. Your Reason Plus subscription also gives you an ad-free version of reason.com, along with full access to the digital edition and archives of Reason magazine. We request that comments be civil and on-topic. We do not moderate or assume any responsibility for comments, which are owned by the readers who post them. Comments do not represent the views of reason.com or Reason Foundation. We reserve the right to delete any comment and ban commenters for any reason at any time. Comments may only be edited within 5 minutes of posting. Report abuses.
Please
to post comments
“Congress have authorized between $1.2 and $2.1 trillion in domestic subsidies for preferred manufacturing”
Well since ‘gov-guns’ doesn’t actually make sh*t I wonder where all that representative labor asset ($16,153/ea working adult) is going to come from?
The working will eat the bill entirely plus all the lazy *ss grift that will come along with it. ‘Gov-Guns’ doesn’t make sh*t and ‘armed-theft’ is a massive net-negative. These are the kinds of politician talk that will destroy (already has) the USA.
…also the kinds of politician talk that is entirely UN-Constitutional.
The tiwan semiconductor company was going to build a chip plant in Arizona, but the chips act had so much dei and union bs they opted to build in other countries
In what way are these people poorly educated? Does that mean their education has been slipshod?
That’s how fascism works. The corporations help the government subjugate the citizens, the government helps the corporations with big bucks.
Welcome to the revolution.
Isn’t this how to make American grate again?
Only for Biden and his Democratic majority.
Then of course there’s Obumercare literally monopolizing healthcare.
The reasons for this workforce withdrawal are complex and beyond the usual scapegoats
No, they’re not. We’re paying them NOT to work.
We’re subsidizing everything involved in everyday life- housing, food, energy, childcare, kids, healthcare. This means that to get the freebies, your income must stay below a threshold. To get the universal basic income (or child tax credit- bipartisan), you don’t have to have a job at all.
Let’s just print money!!
Veronique,
You really don’t have a clue, do you?
90% of these “crony subsidies” are for companies who buy into the Green Agenda or Union companies. Yesterday I saw an article that said Cleveland-Cliffs was raising it’s prices for steel due to a booming market. At the same time the Federal Government is subsidizing modifications to one of their plants to meet Biden’s energy mandates. The Company hasn’t said anything yet, but their Union, the United Auto Workers are the ones pressing the Government. There is a new Industrial Park in our area. Companies wanting to build facilities, have been turned down, while local politicians are throwing money to get so called “green” industries in there.
95% of these “subsidies” have been initiated by the Democrats. If you want the reason for those “poorly educated males” you don’t have to look any further than your Teacher’s Unions. Unions that overwhelmingly support, you guessed it, Democrats. Of course Reason can’t say anything about how bad the democrats are screwing things up, without saying Republicans are doing it too.
The U.S. is a climate -race -gender based gangland mafia state now.
Bankrupt cities, no problem. Bankrupt union transit systems, no problem.
The magic money tree givith…
https://www.reuters.com/world/us/biden-administration-awards-20-bln-clean-energy-investment-low-income-2024-04-04/
Let’s just print money!!
financially or morally bankrupt?
It can be both.
“yes” would also have been sufficient.
The huge national debt means nothing to the politicians in Congress, the Presidents of the last 15 years and their Administrations. Our money is worth less and less each year since all common sense in government is gone. The debt used to be actually within reach of being paid off but it is impossible now.
Funny how giving away all those ?free? ponies didn’t inherently motivate anyone to make more ponies.
If there is one lesson that should’ve been learned by humanity hundreds of years ago it’s that Gov-Guns doesn’t make sh*t and crime-consumption is definitely a path to absolute poverty, destruction and death.
My own experience with “Job Creation” subsidies, around 10-15 years ago: My employer, an electronics manufacturing plant in Grand Rapids, MI, responded to a surge of business by getting workers from a temporary agency. By the time we’d sorted out which ones fit in well and worked hard and got rid of the others, it was looking like that new business would last for a while. So we prepared to bring them on the company payroll directly, giving the temp agency a one-time payoff for canceling the contract where we paid the agency, and they paid considerably less to the workers. The workers would get a small pay raise, and we’d start to realize savings in a few months, although we would have to do a lot of paperwork that the agency had been taking care of.
But wait! There was a “Job Creation Tax Credit” that would save us even more. But the way it was designed, you couldn’t just hire more workers and take the credit. You had to plan far ahead, apply for this future credit for future jobs, and wait 6 months or more for approval before hiring. So we delayed cutting out the temp agency for six months – or no, it hadn’t come through yet, IIRC it was actually 10 months for the bureaucrats to pick that form out of their inbox, sign it, and send it back. Then we could finally officially put the workers on our payroll.
With my 30 years of experience in this business, I considered it a miracle that we still needed them ten months later. If I’d got a bit higher up in the corporate hierarchy, I’d probably have been sent back to the bottom for suggesting we stop trying to write 6 month and 1 year projections and outsource that job to a Romani fortune-teller. She’d be more accurate for any period longer than the quarterly report cycle at our corporate customers.