But industrial policy advocates will nevertheless proudly promote it. Their primary argument is based on national security. “We have to have a chip industry, so a major employer like Intel must be saved.” This is really bad economics, and it comes out of a lack of understanding of what the alternative would be. First of all, the most important misunderstanding is the idea that we would lose the capability to produce chips that Intel brings. Intel has made a fundamental mistake of trying to both design and fabricate chips, whereas their competitors have concentrated their efforts on one or the other. They did not anticipate the market need for the AI chips that their competitors did–they did not steward their capital well. The market punishes poor performance by taking control of scarce social capital out of the hands of those that poorly steward it, and is in the process of transferring that control to others that are more effective stewards. The price of Intel stock has been steadily falling for years:

Intel’s lower price offers the opportunity for others to come buy them out, and try a better solution. Even the worst outcome, Intel’s bankruptcy, simply means that transfer of the companies assets will be taken from the poor stewards, and given to better stewards. Intel’s assets, all of its chip making capacity, will still produce chips, just under a sign that says “under new management.” Some of that capacity will undoubtedly be restructured to produce output more in alignment with true consumer demand. Some might even be closed, but only if those resources in their next best alternative will more profitably serve consumers.

For the government to come in and bail the company out is to reward poor stewards, and to take resources from better stewards (via the tax and debt system) to subsidize the losers. This happens when private investors have said there is no benefit to sending good money after bad, and then they come to the government to spend money publicly that private individuals refuse to do. “But Haymond, you and the private sector are missing how important Intel is to our national security!” First, I’m probably more supportive of national security issues than my imaginary interlocutor. Nevertheless, once you understand that taking capital out of the hands of poor stewards and put it in the hands of more effective stewards, you understand that you are actually improving national security. Taking resources from the successful to subsidize the losers makes our country weaker, not stronger.

Edit Update: Yes the Trump Administration did it. Make America Weaker Again!