Answer: Should government grants and contracts, especially from the 2022 CHIP Act, be converted into government ownership?

For context, this is a question I answered on Quora

No but that is how the current Admin has rationalized taking partial ownership of U.S. Steel, Intel, and three mining companies and they aren’t done yet. Commerce Secretary Howard Lutnick has modestly proposed partially nationalizing the aerospace and defense industry, particularly the big 5 that includes the only other commercial jet manufacturer in the world aside from Airbus. When asked in a CNBC interview what the bar for the government to buy an ownership stake in a company is, he said if the U.S. government is ‘adding fundamental value to your business’ its fair to ‘think about the American people’ and immediately followed up by implying that university researchers who receive patents for their discoveries should give the government a stake in their patent. If holding a patent or any other IP from R&D conducted in universities is the litmus test for ‘adding fundamental value to your business’ then every major company, who all rely on IP licensed or sold by universities, is fair game for this socialist scheme. If receiving grants is now a condition for partial nationalization then farms that receive USDA grants are now fair game for this hair brained scheme and with farm bankruptcies surging right now the magical phrase “national security” could just as easily be swapped with “food security”. Since the federal government has stuck its tentacles in everything there is no limit to the private enterprises they can claim an ownership stake in with Lutnick’s rationale. Of course, the idea that government grants and contracts are “handouts” like SNAP or WIC is completely idiotic in the face of the reality that the government gets tax revenue from the recipient companies and their employees, unlike WIC and SNAP recipients who typically have a negative tax liability. Patentees who collect royalty income owe taxes on it; if the American peoples’ return on this is too low we should discuss levying a higher tax rate on royalty income not nationalizing companies and patents. The government isn’t getting nothing, they are getting new enterprises and markets that generate new sources of tax revenue. The real moral hazard of government grants isn’t that it is a handout where the grantor gets nothing in return, but that it rigs the markets in favor of some competitors over others, creates deadweight loss by subsidizing ventures that operate at a net loss, and lowers the cost of reckless behavior that would otherwise be discouraged by market discipline (e.g. bank bailouts). It is essentially like the referees (govt) only making calls for certain teams (businesses) and now they have decided to get even more biased by buying ownership stakes in those teams. Now instead of moral hazard encouraging malinvestment (e.g. Solyandra) we will just have an economy controlled by entrenched government backed monopolies that no startup will have any chance to compete against. The idea that government grants should be converted into government equity was originally championed by self-proclaimed “Democratic socialist” Bernie Sanders when the CHIP Act was originally passed in 2022 and he lauded Trump in August when they acquired a 10% share of Intel. A bad idea does not become good just because a new messenger (that you may like) takes it up especially when the starting premise is still false and the inevitable conclusion is still bedlam.

Cronyism is Inevitable; Market Distortions are Already Evident

Even if you don’t want to call this socialism just because the government doesn’t own the majority of the equity you cannot deny that it is at least cronyism because market distortions are already apparent. Intel competitors like Texas Instruments and Micron, who received CHIP Act grants but no government buy in have already been put at a disadvantage not only by the immediate cash infusion that intel received 2 months ago, which they have not, but also because when the government bought 10% of Intel their stock valuation jumped 80% afterwards, giving them an advantage among even private investors not afford to U.S. firms that compete with Intel. A similar situation has unfolded when the Trump admin bought 15% of rare earth mining company MP Materials. They had 3 potential competitors in the pre-production phase that stalled funding rounds after the government bought MP Materials. The potential for abuse by government officials here is infinitely worse than simply having an industrial policy that controls companies through regulations. Government ownership makes the prospect of insider trading among cabinet officials much easier to do and deny, especially with relaxed ethics rules and any government acquired companies that don’t fall in line with this admin or the next now risk massive stock sell offs. Once Democrats get back in the oval office they can now use government ownership as leverage to push DEI and punish non-compliance with stock sell offs. Also you have to be completely delusional to think U.S. citizens will see a dime of any dividends or capital gains from government selling stock. Any profit will be routed to the treasury where it will be allocated to another pet project. This will not lead to debt or deficit reduction.