Aug.28

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Dem 47

   

GOP 53

Libertarians Are Not Happy with the First Marxist President

Scott Lincicome, the vice president of general economics and trade at the libertarian Cato Institute, has written an op-ed piece in The Washington Post about why Donald Trump forcing Intel to sell 10% of its shares is a very bad idea for the country. The U.S. government is now the largest shareholder in Intel, so the company will now have to take the political views of the current president into account when making business decisions. There are many ways for this to lead to bad decisions that hurt the company and the country. Here are a few of Lincicome's arguments:

• Lawsuits: The Dealmaker-in-Chief got a bargain. The government paid $20.47 per share while Intel's market price was $24.80. This effectively dilutes the value of current investors' equity. Someone is sure to sue, tying the company in legal knots for years. Company lawyers will have less time to sue competitors who are infringing on Intel's patents and doing other damaging things. They didn't need this.
  
  
• Hiring: Will the company be under pressure to hire top level people, both tech and executive, who are big public supporters of the president? Will it be afraid to hire public critics? Having to take potential employees' politics into consideration will not lead to hiring the best people.
  
  
• Opening Factories: Will the company be under pressure to open new factories in states favored by the president? Suppose Trump orders Intel to move its future Ohio factory to Florida because Trump made some deal with Gov. Ron DeSantis (R-FL) and getting Intel to move its factory was part of the deal. Now suppose that Intel can't fill key positions there because the best people refuse to move to a state that has effectively banned abortions. Hiring third-rate people is never good for a company.
  
  
• Closing Factories: The flip side of that coin is closing the factories that produce failing products that are losing money. If a factory making failing products is located in a state favored by the president, the president could "veto" the closing, resulting in the company losing serious money in order to keep some governor happy.
  
  
• Financial Management: Companies issue dividends and do stock splits and buybacks all the time. The president could be sorely tempted to use Intel and other companies it owns as cash cows to cover the budget deficit. Forcing them to pay out unsustainable dividends could cut their research investments and hurt the company long term.
  
  
• Agility: In high-tech industries, CEOs need to move fast and make decisions faster. If every major decision has to be approved by the president (especially one who knows exactly zero about the business the company is in) it could certainly slow down decision making, even when time is of the essence.
  
  
• Contracting Bias: When giving out contracts, the president might decide that companies that use Intel products should be favored over companies that use competing products. This could easily distort other markets. If HP and Dell realize that they can't sell any notebook computers to the government unless they have Intel Inside, they could be forced to make decisions about their products based on factors other than the quality and price of the parts they buy. Not using the best available parts could lower the quality of their products and make them more vulnerable to foreign competitors who use the best parts available.
  
  
• Bad Precedent: If this deal goes through and is not blocked by Congress or the courts, what is to stop this president and future presidents from demanding shares (at below-market prices) from companies in other industries? Suppose Trump demands stock in General Motors and orders it to stop producing electric cars (because his oil-company donors don't like electric cars). How will this affect the worldwide competitive position of General Motors when the rest of the world is going electric? And suppose the next president is a Democrat and in 2029 demands that GM quickly rev up electric car production. Then in 2033, the new Republican president tells GM to stop making electric cars and go back to gas. Can the company even survive under these conditions? Same problem in many other sectors.
  
  
• Investors: Will investors shun industries where the government plays a big (and capricious) role or could soon play a big role? Will it be harder to get venture capital in a sector where the key decisions are political rather than business-oriented? This completely skews the rest of the economy. Lessons from the Soviet Union show that an economy run by the government doesn't always work so well.
  

Lincicome isn't the only one who sees bears on the road ahead. Sen. Thom Tillis (R-NC), who is now free to say what he thinks since he's a lame duck, said of the Intel deal: "I don't care if it's a dollar or a billion-dollar stake. That starts feeling like a semi state-owned enterprise à la CCCP [USSR in Russian]. I don't believe the U.S. government should be picking winners and losers." Sen. Rand Paul (R-KY) thinks it is a terrible idea. He said: "If socialism is government owning the means of production, wouldn't the government owning part of Intel be a step toward socialism?" Former Republican senator Jeff Flake applauded Paul and called for other senators to support him.

Mike Pence is unhappy with the U.S. government having "golden shares" in Nippon Steel. He also doesn't think Nvidia (and AMD) should be selling high-tech chips to China at all, even if the government gets a 15% cut. Pence said: "State-owned enterprise is not the American way. Free enterprise is the American way." Larry Kudlow, who was National Economic Council director in Trump v1.0, is "very, very uncomfortable" with the government taking 10% of Intel.

The conservative National Review published an editorial starting with this passage: "The federal government has a hard enough time doing the things it should do: securing the border, winning wars, collecting taxes, administering the capital city. It doesn't need to take on the difficult and nongovernmental task of turning around a struggling semiconductor company." It goes on to say that undoubtedly Trump is planning to interfere with how Intel is run, otherwise why would he want the government to own part of it?

Brian Darling, a Republican strategist and former Senate aide, said he is puzzled by Trump's decision because it is a major deviation from conservative economic principles. Silly Brian. Trump is not a conservative and has no principles.

Finally, the senator who wrote the CHIPS Act, Todd Young (R-IN), said the law was never intended to let the federal government take a major stake in Intel or any other major company.

Nevertheless, Intel may not be the last company the Marxist president wants a piece of. Secretary of Commerce Howard Lutnick revealed yesterday that Trump is thinking of having the government take an equity stake in Lockheed Martin. Lutnick said: "I mean, Lockheed Martin makes 97 percent of their revenue from the U.S. government. They are basically an arm of the U.S. government." If Trump did that, if would be extremely problematic. Many defense contracts are awarded based on competitive bidding. If Lockheed Martin and Boeing both bid for the same contract, Trump would undoubtedly favor his company. After Boeing had lost two or three bids under these conditions, it might well decide it has no future in the defense industry and just abandon that part of its business. That might give Lockheed Martin a monopoly in some areas and we all know how productive and efficient monopolies are. Why bother doing research or even producing a decent product if you know you are the only supplier? (V)