[VHRanger]

The proper response to a foreign country subsidizing something is to just buy a lot of it. They're losing money on the unit economics, you can profit from it by buying.

We've known for decades that protectionist policies and subsidies make industries less competitive, not more. It is literally textbook stuff [1].

A typical result of protectionism is somethint like GM in the US, where they grow uncompetitive as they don't have to compete with foreign markets for domestic demand.

You get similar uncompetitive dependent behavior from subsidies - just look at Intel right now.

1. https://web.pdx.edu/~ito/Krugman-Obstfeld-Melitz/8e-text-PDF...

Note the author here is Paul Krugman, who literally won a Nobel Prize for his work on infant industry protection.

[fny]

1. Krugman admits at many points in the article you sent that protecting infant industries at times works. We're also not talking about infant industries.

2. VCs routinely use the strategy of subsidizing their startups to "disrupt" industries until they dominate a market. China does the same thing.

3. The costs of sacrificing domestic supply chains and development capacities do not fit neatly into macroeconomic models. National security issues present similar difficulties. Do arguments around comparative advantage apply to hostile adversaries that routinely break laws (i.e. ByteDance, IP theft) and provide natural resources to enemies?

4. While the US did not succeed with Intel, China has routinely subsidized industries while enforcing antitrust with far more success than the US. See the Alibaba breakup or the recently implemented antimonopoly laws as examples: https://www.gibsondunn.com/antitrust-in-china-2023-year-in-r...

[lazystar]

> See the Alibaba breakup or the recently implemented antimonopoly laws as examples

An argument could be made that any increase in competition is a side-effect, rather than the main goal, of their antimonopoly changes. Until China explains the full Jack Ma story, anything alibaba-related will be seen as political driven, rather than economic.

[fny]

China routinely punishes the private sector. Yes, Jack Ma had a gun to his head, but Alibaba hasn't been the only target. https://www.barrons.com/articles/chinas-anti-monopoly-crackd...

[VHRanger]

1. Absolutely correct, it works "sometimes", but not in the general case, and especially not in real life in the general case given how it skews the incentive structure of the firms.

The point remains that in general if a foreign country is over subsidizing an industry it's a good idea -- even if you don't like them -- to just buy a ton of the stuff.

2. It remains to be proven how good of an idea the silicon valley VC model has been in the zero-interest rate environment since it changed. Uber has had all of 5 profitable quarters in 15 years. Twitter had something like 4.

Many of those VC hypergrowth companies, except a dozen or so, are effectively a big game of hot potato The gap between investment and profit made is often still in the 9 or 10 figure range.

I'd wait another decade or so before proclaiming it's a good strategy. Predatory pricing doesn't even work in theory - there's was effectively a chapter in an industrial organization class I took, though I'd have to find the material again. It might work in practice if there's other effects not taken into account in the theoretical model, though.

3. I would agree with you there, and I think both banning tiktok and subsidizing intel (foundries only) are ideas I agree with even though controversial.

4. I wouldn't argue that the alibaba breakup was a good example - this sort of move creates a huge chilling effect on investors and entrepreneurs in China. The breakup was much more about Xi consolidating his grasp on power than anything else to be realpolitik about it.

[hash872]

I don't think that macroeconomics is an empirical field, so when people say 'it's textbook stuff' that doesn't impress me. I don't believe the textbook. People want to pretend that economics is like physics or chemistry, but it simply isn't true. Imagine if I said something was 'textbook sociology', would you have to then drop all objections?

Reminder that in the last 30 years economists have variously told us that there's a (high) natural rate of unemployment that we couldn't change (has recently been completely debunked). That raising the minimum wage costs jobs. That bank deregulation is good. And so on. It's just not an empirical field, so I don't believe what's in the textbook. It's also open to lobbying from for-profit entities for specific viewpoints, in a way that a real science usually isn't

[lazystar]

> I don't think that macroeconomics is an empirical field, so when people say 'it's textbook stuff' that doesn't impress me.

Agreed, especially when the textbook being referenced was written by a polarizing figure like Kruggman. I wonder, how much "textbook stuff" was removed from textbooks after 2008?

[VHRanger]

Krugman won his nobel prize in economics for his work on international trade, and especially protectionism of infant industries:

https://www.nobelprize.org/prizes/economic-sciences/2008/kru...

His NYT column might be controversial, but his work in international trade absolutely isn't.

It's like saying Chomsky is controversial to counter argue his work in linguistics. Chomsky might be a political hack, but his opinion on formal grammars is probablyt sound.

> I wonder, how much "textbook stuff" was removed from textbooks after 2008?

Basically nothing, to be honest? What should have changed?

The banks that collapsed into a financial crisis were effectively committing fraud. The federal reserve were publishing opinions that the housing sector was at risk as early as 2005-2006.

Also, it's difficult for a central bank to know the extent of the mispricing when there's active concealment of risks (eg. backroom deals with insurers and risk assessors) - you need full on auditing to spot that.

The bigger problem with 2008 is that almost no one responsible went to jail.

[VHRanger]

> I don't think that macroeconomics is an empirical field

If that's your opinion it's pretty clear your engagement with the field of macroeconomics is several degrees removed from the actual research.

Assuming you're here in good faith, I would ask you to actually browse a dozen or so of any recent, randomly picked papers in the field you claimed is "not empirical", skim them and note if it's empirical work or theoretical work.

Then come back here and seriously argue that the field is "not empirical". I'll give you a jump start, here's two good sources for recent macro papers:

NBER Macro preprints: https://www.nber.org/topics/macroeconomics?page=1&perPage=50

AEJ Macro: https://www.aeaweb.org/journals/mac/forthcoming

Of course that won't be your current view of the field if your knowledge comes from the opinion section of newspapers and HN comments. But, again, I'm assuming you want to challenge your views in good faith here.

> Reminder that in the last 30 years economists have variously told us that there's a (high) natural rate of unemployment that we couldn't change (has recently been completely debunked).

Not sure where you get that opinion from, the NAIRU published by the CBO went from a high of 6.2% in the energy crisis of the 1970s to around 4.4% today:

https://fred.stlouisfed.org/series/NROU

30 years ago the NAIRU was 5.4% and today it's 4.4%, saying it was "completely debunked" makes no sense and I'm seriously wondering which source you got this claim from.

Moreover, the concept of a natural rate of unemployment that's somewhere above 0% is uncontroversial: there's naturally a time gap when looking for a new job, even in an economy at "full employment capacity".

> That raising the minimum wage costs jobs.

Unless your economics education stopped at the first week of microeconomics 101, or comes entirely from the political discourse or reddit, this isn't something that is the position of basically any economist.

Seriously, here's the first recent (2024) highly cited research review I could find from 4 seconds of googling:

https://www.nber.org/system/files/working_papers/w32878/w328...

First, note the review is 123 pages long. There's clearly some subtility past "minimum wage bad, unemployment high!" But we can skim and jump to the conclusion. To quote:

""" While the evidence is not unanimous, a reasonable conclusion from the existing literature is that minimum wage policies have had limited direct employment effects while significantly increasing the earnings of low-wage workers—at least at certain levels and in particular economic contexts.

"""

Also, by the way, the minimum wage labor effect is studied in your labor economics class, which is micro, not macro. Which points again to the question of where you're sourcing your claims from.

[belorn]

There isn't any major car manufacturer (that I know of) which isn't deeply tied to the government of their country of origin, enjoying everything from massive amount of subsidies to access to military intelligence networks. Sometimes even specific laws are written explicitly to support that specific company. Like aircraft manufacturers, car manufacturers are also generally military manufacturers so the internal lines within those that distinguish between private company, government, and military get very blurry.

I don't see a proper response for other countries when dealing with such entities. Most likely it going to be an equal blurry mess of trade policies, foreign policy, and military policy.

[nonethewiser]

To a degree. But it can hurt your domestic industries to a degree which may not be acceptable.

[georgeburdell]

What subsidies has Intel received to date?

[dymk]

https://www.intel.com/content/www/us/en/newsroom/news/us-chi...

Google Intel subsidy

[georgeburdell]

I wrote, what subsidies has Intel received? That press release does not indicate Intel has received any money. Furthermore, any subsidy received in 2024 would not explain why Intel has been falling behind for the past 8 years, per your assertion that subsidies encourage waste.

[dymk]

“Per your assertion” Where did I make that assertion?