Congress passed legislation to prop up the US semiconductor industry last week and is now considering a new spending strategy dubbed the “ Inflation Reduction Act. ”
In the podcast, Peter Schiff talked about the Democrats’ legislative plan and concluded that the “ Inflation Reduction Act” will do the exact opposite.
Last Thursday, the House passed the Chips Act , a regulation that will subsidize the household computer chip industry simply by handing out roughly $52 billion dollars in government subsidies for the US production of semiconductors. Peter called the bill “ completely unconstitutional. ”
“ Nothing is in the US Constitution that authorized the US government to pick winners plus losers, and to decide to commit taxpayer money in particular businesses and hand over that money to industries like the personal computer chip industry. ”
Politicians call this kind of handout “ an investment. ” Peter said he doesn’t see how you can call it that.
“ There is return to the taxpayer. It’s simply a grant. The US government is certainly giving $50 billion to private companies. ”
It’s really just another example of government central planning. And it never works. Because Peter said, capital must be allocated in the private field.
“ If computer chips are usually viable, which of course they may be, and if they’re necessary, then there will be a profit associated with producing those chips. And because personal investors are incentivized simply by profits to make investments, you will have private sector investment on this industry if that is, actually what the country needs. So the government needs to stay from it. This is not an example of capitalism. This is an example of socialism. And this will fail. ”
And of course, the federal government doesn’t always have $50 billion.
“ It is going to have to borrow it. It is going to need to run larger deficits. Just how are these deficits likely to be financed? Well, they’re likely going to be borrowed by the Fed through the printing of money. Even though the Fed remains claiming it is going to shrink the balance sheet, it’s going to find yourself expanding its balance page. But even if the Fed is not going to finance the deficits, they have to be financed somehow, meaning other private sector investment is going to get crowded in order to make this government investment probable. ”
If the government is crowding out other private assets, it should be clear that this government program is not the best use for that money. The highest plus best use would be a function of the free market.
“ So , if the free market doesn’t want to do something, but politicians want to force it to take place anyway, it’s because it’s not the very best use of the capital. ”
Peter Schiff called the “ Inflation Reduction Act ” the most ironic of all. He or she also noted that there can be a law requiring “ truth in legislating. ”
“ Whenever they title a bill something, the contrary is achieved. For example , if they pass the ‘ Taxes Simplification Act, ‘ this means taxes are going to get a lot more complicated. They passed the ‘ Patriot Act. ‘ It was probably one of the most unpatriotic pieces of legislation ever exceeded. The same will hold true for your ‘ Inflation Reduction Respond. ‘ The Inflation Decrease Act will increase inflation. ”
Because the costs doesn’t do anything except spend more money.
“ The only function that the government could complete to reduce inflation would be to reduce government spending. They need to reduce government spending. That is not what this act is doing. ”
The proposed spending bill really does include tax increases on corporations and closes a few other tax “ loopholes. ” But even if the tax outdoor hikes lowered deficits – which they won’t – taxes on corporations limit supply, not really demand.
“ They result in less capital investment and reduce the supply of goods or providers available to buy. That places more upward pressure upon prices. The only way that the govt can fight inflation along with tax hikes is if all those tax hikes are targeted on the middle class. Because the tax hikes have to reduce demand, not supply. The way you reduce demand is you enhance taxes on the people who would have spent the money on customer goods and services. ”
When you tax the particular rich, it doesn’t tend to significantly alter their spending. It reduces their saving plus investing.
Peter said anybody who states the “ Inflation Reduction Act” will reduce pumpiing because it will reduce the spending budget deficit is wrong.
“ These types of tax hikes will have simply no effect on inflation other than to be able to worse because they will limit supply. ”
Peter said he isn’t advocating tax outdoor hikes on the middle class. He’d prefer the government to battle inflation by cutting spending.
“ But that’s not on the table. Everything the Democrats have wear the table is taxes hikes. And I’m directing out that the only taxes hikes that will work in reducing inflation would be tax outdoor hikes on the middle class and the poor. But again, the best way to deal with inflation is through spending cuts. ”
In this podcast, Peter also talked about the current economic downturn that the government and Fed deny is on us , the weakened labor market, and the market reaction to the GDP news.