Category: global warming

It’s Hot

Here in Washington DC, the temperature has reached 96 degrees and the news warns of the dangers of such heat. When I was in college in California (Bakersfield College and UC Berkeley) in the early 1960s I worked in the oil fields as a Roustabout for Shell Oil when the temperature was generally 104-6 degrees every day with two or three days each summer reaching 112. Why were we not in danger and you might be here in DC?  The difference is humidity. Bakersfield is in the semi desert of Kern County and the hot air is dry. This facilitates sweating that cools our bodies. The Washington DC area has very high humidity, which impedes sweating and its cooling affect.

I learned the power of sweating when in my third summer in the oil fields I was promoted from a Roustabout (ditch digger, basically) to a Well Puller. As a well puller I worked on a well pulling, or service rig. Unlike the bigger drilling rigs, a service rig does no drilling. Rather it pulls up the pipes and pump of an established, operating well for servicing. You might have seen the oil well rockers that move the rod holding a pump at the bottom of a well up and down thus forcing oil up the pipe to the surface. Over time the pumps wear out and need to be serviced or replaced. Our service rig performed that task by first remotely opening the bottom of the pump so that the oil flowed out the bottom rather than being lifted up the pipe to the surface.

Occasionally the pump can’t be opened. When that happened the oil was pulled up with the pump as our service rig pulled the pump to the surface, resulting in what the guys called a wet well. As we pull the pump up on a wet well the oil spurts out the top of the rig and all over the surrounding area.

As luck would have it on my first day on our well pulling rig, we had a wet well. I was advised by the other two guys on our rig to put on rubber rain gear to keep the oil from getting on my skin. I thought that was rather sissy (not to mention really hot inside the rain gear) and choose not to. So, I became drenched in oil, which sealed all my sweat glands and I almost passed out. I had to quit working for the rest of the day.

Reducing CHIP Supply Risks

When semiconductors where invented in the U.S. in the late 1950 and began to replace vacuum tubes in electronic circuits, the world of electronic circuitry changed dramatically forever (from the computer I am composing this note on, to the mobile phone on which I might discuss it with you or the electronics in the car I might drive to meet you while listening to the radio these chips made possible, not to mention of submarines, planes, and satellites they empower).

American companies continue to lead the world in the design of the most sophisticate chips and semiconductor circuits. However, they have increasingly found it more economical to outsource their manufacture to facilities in foreign countries. Almost all the most sophisticated chips (still designed in the US) are now produced in Taiwan by TSMC, which produces about 56% of world output of semiconductors.  Especially given the increasing suggestion, even by the President of the United States, that the U.S. might renounce its acceptance of China’s claim to Taiwan, such reliance on TSMC for our most advanced chips is an economic and security risk we should reduce.

What is the best way to reduce the risk of our heavy dependance on Taiwan’s supply of such Chips? The rest of this note briefly compares the market approach with the government (socialist/industrial planning) approach to reducing that risk.

American and other firms concentrated the manufacturing of the chips they designed and/or needed where it was cheapest to produce (and deliver) them. Where China violated the WTO rules of fair trade via state subsidies, importing countries are allowed by WTO rules to impose tariffs at levels designed to neutralize such artificial advantages. WTO rules also allow the use of tariffs to diminish the risk to national security of dependance on foreign supplies.

The opposite approach is for a government to subsidize the otherwise uneconomical manufacture of semiconductors (or whatever) in their own country.  In the U.S., the CHIPS and Science Act of 2022 appropriated $280 billion in part to subsidize factories to produce such chips in the U.S. Why was so much needed to get firms to produce chips in the U.S.? “’It’s much cheaper to build the chips and the factories in Taiwan than it is in the United States,’ former Google CEO Eric Schmidt told Semafor. ‘Similarly, the workforce quality is not as good as it is in Taiwan.’” “Chip war-US-Taiwan”

The Biden administration’s industrial policy approach suffers all the well-known disadvantages of industrial policy. First, like China’s subsidies, it violates WTO trading rules, which the U.S. seems all too willing to do when it is the violator rather than someone else. Second, it, rather than market factors, must decide who gets the subsidies (and tax breaks), either by establishing the rules for access or by outright picking winners. Governments’ records at picking winners, especially picking technologies, have historically been poor compared with the search for profit by entrepreneurs, most of whom fail and quietly fade away without further cost or waste. Third, when governments pick winners, they establish an economic incentive for corruption by those seeking to be “picked”. Governments, like everyone else, tend to bend to such temptations.

Rather than paying hundreds of billions of American taxpayer’s money for more costly Made in American products, imposing tariffs on imported chips sufficient to reflect the existing sole source risk would leave it to the market to find the best alternative and more diversified sources (India, Korea, Japan, Viet Nam, etc.). The full cost of lower living standards from industrial policies will only be felt in the longer run. “The slippery slope”

The same economic forces and arguments apply to slowing or preventing further global warming. A carbon tax reflecting the global warming externality of carbon producing activities leaves to the market the search for the best technologies for reducing carbon emissions without loss or with minimal loss of output.