We went line down last week due to shortage of a chip for our component.
In reality, the shortage is somewhat self-inflicted, like toilet paper a year ago, but for whatever combination of real demand + hoarding, we can't get chips.
Extra points by diversifying from China/Taiwan
In direct opposition, Auto makers approach of minimizing inventory and producing "just-in-time" caused them to be vulnerable to supply chain or big market shifts
> New cars often include dozens of microchips but Toyota benefited from having built a larger stockpile of chips - also called semiconductors - as part of a revamp to its business continuity plan, developed in the wake of the Fukushima earthquake and tsunami a decade ago.
Take a look on the linkedin jobs in Shenzhen.
The trend IS NOT towards diversification. In the last 5 years since Trump's election, US multinationals were increasing their presence in China, not decreasing.
Google for example said to open "a small representative office" in Shenzhen 2 years ago, now it's a full giant RnD centre in the Ping An Tower where they shipped all of Pixel's development.
Apple had RnD offices in China for more than a decade, but they barely acknowledged their existence. Their people in the Kerry Plaza were prohibited by their contract to even show their employment for Apple in their LinkedIn profiles. Their Shenzhen RnD centre is where AirPods were developed, along with many other iPad, and iPhone sub-assemblies. Apple's VR goggles project had its start in Shenzhen as well.
Amazon had no presence whatsoever in China besides a failed Chinese Amazon.com launch. They left China, and then returned to move the whole of their Kindle, and Echo device development to Shenzhen. Now they are working on something rather cryptic there. Some suggest VR goggles of their own design.
Facebook... absolutely bizarrely opened their RnD centre in Shenzhen amid the COVID, just a floor below Google I heard.
Dell, Microsoft, Nvidia, Qualcomm, Intel — all conventional hardware makers were here since nineties, but I think they really doubled down on China recently as well too, to one up the dotcom upstarts in hardware.
e.g. Foxconn investing in capacity outside of China (India) and Apple being part of it (as customer)
In other words, the Silicon Valley is still going all in on China, despite 4 years of Trump, public scorn, trade war, rising costs etc.
In other words, they really gave up on any vision where they don't critically depend on China, and can run with critical assets in US only.
Claiming that the results of ag subsidies have been "nightmarish" with no further elaboration or citation does nothing to advance the conversation, it's simply a strongly worded opinion.
While I agree there are definitively some downsides to ag subsidies, I think the real question is if the interventionist downsides are worse than the non-subsidized downsides. As bad as they are, I'm not sure that incentivizing unhealthy food is actual worse than famine.
https://reason.com/2019/03/02/thanks-to-decades-of-governmen...
Maybe there’s an argument that we’ve moved passed the era of food scarcity when those policies were enacted and they should be modified. But I think a blanket claim that food subsidies are an inherent bad policy misses their point.
>The nightmarish results of agricultural subsidies in the US is an excellent reason to not involve the government
This sure sounds like you think it's a claim of subsidies being bad policy.
>The made claim was that the ineptitude and mishandling of agricultural subsidies is reason to reconsider
How do you combine the view that "ag subsidies aren't bad" with "the government shouldn't be in the business of managing subsidies" when the definition of subsidy involves the government? At first take, this comes across as back-peddling to avoid dogmatic cognitive dissonance.
But I'll be generous and assume you did not mean that ag subsidies are bad in and of themselves, but the way they are handled is poor. So what do think is a more proper way to handle them? Should the focus be on different products? If so, which ones?
The point has already been made that ag subsidies are operating as intended and the downsides you refer to are downsides of abundance. I have a feeling that most people who have actually lived with food scarcity would find them preferable to the actual "nightmarish results" of too little food.
I don’t know if we’re just talking past each other, but it’s hard to make sense of your stance. If you think subsidies are a viable solution to some problems but the US govt can’t manage subsidies, are you implying the US should not use subsidies, even on the problems they would solve? If so, can you elaborate on govts that have used subsidies to solve similar problems by better implementation? When govt is, by definition, who wields subsidies these are difficult points to reconcile.
Pointing out less than perfect implementation isn’t really helpful unless you can figure out a way to improve it. Just saying “the govt is inept” isn’t helpful when they are literally the only organization who provides subsidies.
I don’t disagree with the problems you point out but they come across as flippant “see!? See how bad the govt is!?” Dogmatic axioms might make someone feel good without actually addressing the problem.
I’ll give an example. I think subsidies need to have clear metrics to measure effectiveness and sunset clauses. This would help prevent things like alpaca subsidies meant to assist in the Korean War somehow staying in place until the mid 1990s.
The point of the subsidies was national security, not “protecting the family farmer” or “minimizing food waste.” To that end, they worked.
The U.S. government has decided that it's in our national security interest to remain a net exporter of crops.
If World War III broke out and all the borders shut down, America would still be able to feed herself. The U.K. wouldn't. There would be mass starvation in much of the first world, and people would say "the government should've done something."
All the diabetes is a pretty rough unintended consequence, I'll give you that, but shifting some chip fabs to our shores as a matter of national security doesn't sound like too bad of an idea.
Time and capital investment. It's like this generation of people have never heard of production and supply disruptions, and were oblivious to such things being possible. Frankly, this doesn't matter very much, it's not a critical situation.
The auto market malfunctioning short-term due to a pandemic doesn't present a strong argument for government intervention. Tesla can't make batteries fast enough, there isn't enough supply, its restraining their auto production, the government must step in and fix the problem! It's nonsense. The government should not step in every time there is a short-term problem in a market.
Toyota won't sell as many vehicles. So what.
I know, I know, but what if people have to make due with a three year old vehicle. What if they have to suffer and endure those vehicles being made to last for five or six years. Ten years! The horror.
Toyota won't die. Time will pass, during which necessary investments and adjustments will be made. Supply will be increased. The problem will be fixed. It's as simple as some time and capital investment. The companies that maneuver the best will come out ahead, gaining an advantage on their competitors. And the world keeps on spinning.
Toyota has generated something like $90-$100 billion in operating income the past five years. They have the resources - and then some - to fix the problem. If they choose not to or can't that's their own incompetence, their competitors will eat their lunch. Never feel bad for a corporation earning $20 billion a year. If they can't get their production corrected, someone else will figure it out and reap the benefits.
It does not matter as much as is being portrayed. This is not an important problem and does not warrant the government burning its time and resources to step in and fix (assuming they can help at all). Governments have a lot of other far more important things to be focused on.
Thousands of employees lose their livelihoods as factories shut down?
I am by no means against government intervention. Companies have short memories, and market forces will force eventually pressure a return to JIT. But now is the exact wrong time to intervene.
The Fed was established by Congress and the Chair is appointed by the President, however the Fed is still a private institution. That independence makes it a very different organization than what most people mean by government.
If you're going to point a finger, the Federal Reserve is a very good institution to point at.
The cycles only make sense because people like and want them. I.e. they love the scarcity of money. For example, in a depression the return on money is greater than the return on labor, people logically flock to money rather than labor even though real wealth is eroding as people stop working.
http://rootbug.com/how-could-it-be-solved/taxing-money-throu...
Let me put it in my own words:
If republicans think that unemployment benefits compete with private businesses on labor, then I get to think that 0% interest money competes with labor for capital.
The fundamental problem is that the 0% lower bound combined with a deposit guarantee represents not only a minimum wage for capital. It also presents a job guarantee. A minimum wage doesn't guarantee you a job.
So yes, the Federal Reserve is not responding to market conditions at all. It's artificially holding up interest rates at zero or above. This is causing massive distortions in the economy that can only be fixed by a swiss-army knife of policies. Among one of the needed responses is "free and open printing of money". The world economy is already flirting with disinflation (a reduction in inflation). If you don't have negative interest rates you will need a whole load of "money printing" to keep the system standing in place.
The assumption that a scarce money system (i.e. guaranteed non negative interest) has a fixed velocity of money is absurd. Put interest at -5% and just watch everyone withdraw cash from their bank account. The velocity of cash would be basically be zero and the velocity of money on bank accounts would be extremely high. As the government is doing deficit spending all the money just piles up somewhere and ends up doing nothing. QE is even worse because you cannot spend centralbank reserves to buy groceries.
Ok, let's do the negative interest thing. It sounds like a big hassle right? Just think about the benefits: The first step after negative interest ratess would be to adjust the inflation target to 0% meaning perfect price stability. Actually, you wouldn't target inflation at all because the negative interest rate completely replaces the need for inflation. You would target the CPI itself meaning your goal as the government would be to maintain a CPI of 100 for all eternity. Any deviation would become inexcusable. Meanwhile today inflation is a hack to make a broken money system work.
Don't blame the fed. Blame the money.
The government needs to recognize the fact that semiconductors are essential to national security and ensure we have the capability to produce our own.
I might be more time efficient by speeding everywhere, but that efficiency gain needs to be understood in terms of how much additional risk it incurs.
That's also obvious: the inefficiency in governments originates largely from coordination overhead between many competing entities with overlapping responsibilities. Self-regulating systems like markets do not eliminate that overhead, they just use other means of coordination that trade some of the complexity overhead for a time overhead - instead of having to coordinate a complex set of rules, you now have to give the system enough time to "find" its stable state. But when time is of the essence, an intelligent, singular entity without the need for coordination with anyone besides the entities to be regulated can always outcompete the self-regulating system when it comes to short-term stabilization (though not necessarily with regard to long-term stabilization, but that's not the issue here).
I'd call that quite a lot of "market management". But as everyone could see it resulted in the fastest vaccination ramp-up worldwide (excluding Israel, which was a bit faster, but is also much smaller than the US and which had its own way to get "preferred" access to vaccine produced in the EU).
I'm unfamiliar with this having happened, but if it did as you say that would definitely support your point.
> It then compelled the manufacturers into exclusively servicing the US purchase contracts
Wasn't this just a component of the purchasing contract? I would draw a distinction between cases where the gov was a purchaser and where it was not.
If other countries are implementing protectionist policies, like keeping semiconductors for themselves or supplying other nations first to curry favors or improved relationships, for example, it might be in another nations interest to increase fab capacity with its borders to avoid being vulnerable to those political and diplomatic factors.
There's all kinds of examples, but aerospace is a classic one. There would be no airline industry or commercial space industry if the government wasn't willing to bear a disproportionate amount of the risk when these industries were nascent. There just wasn't enough market demand to incentivize the private sector to do so on their own. So the govt sets up an incentive structure that brings the risk to a level where the private sector is willing to partake. The government is also generally more tolerant of longer-term scenarios than the private sector.
There are market failures where the government needs to step in, but this isn’t one. Even with climate change (where they should step in) the government can’t get to the point of saying it’s ok for gas prices to be high.
We don’t want the government to pick winners and losers when it doesn’t need to.
I guess it's "brand damage" but I feel there would be something more fair and honest if in times of tight supply they ran their own ebay-like store and auctioned them off. It wouldn't feel like a price hike and prices could automatically settle as supply/demand reaches parity.
I've never heard of this brand, are they big in regions outside North America? Or do they function as an ODM for other brands?
> MSI has admitted that one of its subsidiaries has been selling RTX 3080 graphics cards on eBay at almost double the MSRP.
> The controversy first appeared on Reddit, where users accused MSI of scalping its own RTX 3080 graphics cards on eBay under the name Starlit Partner. Since, it’s been confirmed in a Justia Trademarks listing that Starlit Partner operates under MSI Computer Corp and was first set up in 2016.
https://www.techradar.com/uk/news/msi-subsidiary-gets-caught...
They did. There have been at least three major prices increases which rocked entire industries.
There have been reports of people paying 30x the usual price.
https://www.scmp.com/tech/tech-trends/article/3133901/europe...
Now you have a chip shortage, and you can only produce 50 cards. If you charge $200/card, you only sell 10 cards, earning $2,000 in revenue. If you charge $100/card, you'll sell all 50 cards, and earn $5,000 in revenue. So it can still make sense to keep the price lower if it makes you more revenue overall.
What you've described is nothing like a real market. Where are the people in your model who are happy to pay $110? $120? If there are 10 who'd buy it at $200, and 100 who'd buy it at $100, surely there'd be 50 who'd buy it at $130 or so.
That ignores the social aspect entirely, too. How many who were originally willing to pay $100 will later pay $200 when they see others pay that amount for the item and it becomes scarce?
“Omg these [new market entrants] are messing up my ability to take screenshots of my framerate and never enjoy myself”
Well now its back to business use cases!
The scalpers can absorb the rising prices until the desperate companies no longer can afford the increase. That will cause the market crash, which is not good for anyone. I think government should regulate that space so that businesses engaged in scalping could no longer purchase nor sell the chips.
The whole point is for manufacturers to raise the price until desperate companies/consumers can no longer afford it and don't buy them. Im not sure where scalpers come in. If prices are set high enough, scalpers can't make a profit.
2. Price is probably a red herring anyways. I'm willing to bet that fab equipment suppliers are losing out not on price negotiations, but on volume negotiations. I.e., they might even be willing to pay more -- even much more -- than other users, but can't buy in massive quantities so don't go to the front of the line.
3. Is there any (legal) mechanism at the moment that prevents chip makers from increasing prices?
4. Fab equipment producers are small consumers of chips but have such a disproportionately high impact on the rate of future supply. In the midst of a global shortage, we could straight up socialize 0.00...01% of chips produced every year and hand them out for free to fab equipment manufacturers without even effecting the short-term price dynamics. I'm not actually advocating this, but the assertion that earmarking a small number of chips for a particular high-value use fundamentally skew the market in the short-term is probably false.
5. Even if markets can eventually work in this case -- and for the record I'm convinced that this is a perfect example of contract negotiators being extremely myopic -- market dynamics have non-O(1) time complexity and the chip shortage is wrecking havoc on the real economy.
My comment wasn't suggesting price controls or socializing chip fabrication. It was suggesting that we very temporarily give special treatment to a very small consumer of chips that has an outsized impact on production rate, in the midst of a global chip shortage.
Why would we do that if the fabs themselves don't think it is worth paying their equipment manufacturers enough to afford their own chips?
Giving "special treatment" is a price control. It is forcing a transaction that otherwise wouldn't settle at that price.
Because there is a global chip shortage that is making life substantially worse for the vast majority of Americans. And because markets are tools used by man, not the other way around.
Is it really? I don't know anyone who has had substantial impacts. Some prices have gone up, but I don't see the urgency.
> Some prices have gone up
Specifically, prices on new and used cars that most Americans depend on -- for better or worse -- to do basically everything in their lives (including getting to work, getting to school, getting food, etc.)
You're assuming that increased profit margins will automatically increase supply chain buffers. But rather, the same incentive to hire too many financialists that "save the company money" will exist, and the extra profit margin will just go to increased dividends.
And increasing the supply chain buffers won't help much right now either, it has to be done during good times. In fact I'd say most of the shortage is from companies deciding to increase their buffers, in the same way as what happened to toilet paper. "Hoarders" and "speculators" are easy illustrations to point to, but the real demand comes from regular consumers silently buying twice as much as they usually do.
I read GP's comment as increase prices to decrease hoarding, which in theory could provide the slack in the system. Problem might be that certain products may not be viable if prices get too high. Only those with sufficient margins prior.
It's like foodstuffs during the early pandemic - when you finally found something that they had been out of, you didn't particularly care about the price, and you generally bought extra so you wouldn't run out if it went missing again.
That's how it works in econ 101, but not necessarily in practice. Prices on many goods are less flexible than commodities like oil and lumber, for many reasons. Manufacturers may be locked into fixed-price contracts or distribution agreements, for example. Or a scarce component might be shared across "budget" and "premium" product lines, but the budget line is too price sensitive to change so the premium product goes up 10x instead. Or the company just borrows money and eats the loss...
In today's environment debt is cheap, so companies that might otherwise shut off a production line can afford to borrow and bid up the price of parts.
It kicks low value products out of the market and prioritizes the high value products.
"We don’t want the government to pick winners and losers when it doesn’t need to. "
Markets are not even remotely close to as efficient as you're implying.
In a clinch, people are making all sorts of crazy guesses at what the future will bring, making everything very inefficient. Remember that efficient markets depend on rational acting based on good information. We often don't have very good information at the unit level, and, we often act irrationally.
Some company flush with cash, decides to buy things at crazy high prices thereby denying the 'critical sources' (those that support production) access.
Right now there is a lot of parts hoarding - speculators buying up parts to sell them at higher prices. They're adding no net value to the system and causing all sorts of other problems.
The clearing of those prices may happen over time, but not without terrible damage being done.
Supply chains are not like stock markets with clear prices and instant transactions.
You may not need the government stepping in, but you definitely want non-market actions. For example, chip makers may want to work with their supply chains to ensure a kind of absolutism or preferential customer tranches.
FYI this already happens, all the time. Price is not King for parts, like it is on the stock market. Vendors of 'everything' are aware of the long term growth of their business, and will generally want to work with consistent buyers.
So in this FUBAR panic, supply chains have to think not about one thing, about many.
I believe that root causes was already a fait-accompli at the start of the pandemic when a bunch of parts of the supply chain shut down - we're still paying the price of trying to get things going.
Stability ==== good in undergrad engineering, but not here. We DON'T want production rate to be stable when we have a global supply shortage! Here, a negative feedback loop is stabilizing the system in an undesirable equilibrium.
I.e., the function that's being controlled in "supply of chips", the stable state is "saturated supply", and the negative feedback loop that maintains that equilibrium is "starving chip fab suppliers".
(meta: people down-voting comments on control theory terminology by two different experts in this field at least makes me feel a bit better about the signal:noise ratio on the vote counts on my other comments in this thread ;))
One of the most complex pieces of the semiconductor fab is the building itself. Even with plans and permits in hand, it takes years to make one that can output at reason throughput and yield.
This report is from 1999 and it hasn't gotten easier.
https://www.imia.com/wp-content/uploads/2013/05/Construction...
"Typically the product life of a semiconductor chip (nine to 12 months) is less than the time required to construct the facility and install the equipment for manufacturing (24 to 36 months). As such, the construction/commissioning process is a rapid, constantly overlapping and complex set of events. In addition, construction of semiconductor facilities is very complex and costly (about USD 1.2 to 1.5 billion) due to the extraordinarily sophisticated processes and equipment required to manufacture semiconductor chips."
That's an absurd underestimate of market lifetime. I'd bet that fully 80% of the chips available in 1999 when that report was written are still in production today (or would be, if not for the crunch.)
So positive feedback on a falling signal would tend to make it drop more. And positive feedback on a rising signal would cause it to rise more.
So, basically, for any signal S at time t, we would expect something like S(t+1) = S(t) + S'(t) * k, for some k > 0. And blatantly abusing derivatives for "should probably be a delta between S(t) and S(t-1)".
But, then, I am not a control theory specialist, I don't even play one on TV.
If it was negative feedback, the "error" (shortage in production) would lead to an error cancelling signal, and therefore an increase in production. Positive feedback has error leading to larger error, shortage leading to more shortage.
It is like saying that I tested positive for COVID-19 WRT my health because I don't have the virus, it is not what a positive test means and it will confuse anyone who knows the correct terminology.
https://thehill.com/policy/international/392636-schumer-on-c...
The amount of disrespect to highly skilled professionals in this thread working like crazy to respond to a massive exogenous shock, and then following it up with the idea that "well, the government should fix it" with no specific idea of how exactly, the government would fix it, is mind-bending.
Unfortunately, no Western government can do it even if its life depends on it.
German trade officials for example went and completely prostrated themselves in front of Taiwanese govt, and TSMC, offering anything short of switching the recognition of China to Taiwan.
It bounced off without any effect.
It was only a blank cheque from USA that made them to even scratch, and that is still pending that cheque being honoured, and cashed out.