Supplying Demand: The Chip Shortage in Macro Context

Summary

Figure 1 — Source: Bureau of Economic Analysis (BEA)
Figure 2 — Source: BEA
Figure 3 — Source: BEA
Figure 4 — Source: BEA
Figure 5— Source: BEA
Figure 6: Source: Federal Reserve Board of Governors, Authors’ Calculations
Figure 7: See footnote regarding the role of hedonic adjustment in accounting for “real” economic gains in semiconductor manufacturing¹. Nominal capacity expansion would still be outsized over the same period (see Figure 2), but of much lower magnitudes. Source: Federal Reserve Board of Governors, Authors’ Calculations
Figure 8— Source: Bureau of Labor Statistics (BLS)
Figure 9— Source: BLS, Authors’ Calculations

Intel has been making, or “fabbing,” chips in the U.S. since its founding in 1968 — for practical reasons, mind you. “That was not a result of us wanting to be patriotic. Operationally that was the most logical thing for us to do,” he said, in a phone interview.

Why, historically, has it been practical for Intel? “The people doing the technology manufacturing were highly trained, highly disciplined staff. And there was a lot of desire to not start manufacturing operations willy-nilly all over the place,” he said.

“effectively a half-decade path to profitably making low-margin semiconductor devices that carmakers need now. Companies that built — and currently operate — the fabs have brought costs down. New entrants just won’t be competitive.

Furthermore, they don’t really have much financial incentive to expand and increase manufacturing because carmakers still largely rely on chips that first came online a decade ago. The market for lagging edge technologies, in general, has not grown.

“BEA was actively working to push forward the frontier on quality-adjusted price indexes. During the 1980s, BEA had worked with IBM to develop early quality-adjusted computer price indexes for GDP; during the 1990s that work moved forward and expanded to other topics like semiconductors and telephone-switching equipment. BEA didn’t see itself supplanting BLS as a producer of price indexes — rather it hoped that its own work would help BLS move forward in producing quality-adjusted PPIs and CPIs that BEA would be able to use as deflators. As BLS developed its own quality-adjusted indexes, BEA gradually dropped its work on hedonic quality adjustments”

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