Micron’s big new Boise fab will slow US economy, bring higher taxes and worse

Big project, big costs.

Early this month the CEO of Micron Technology Inc. and several local politicians celebrated the planned construction of a $15 billion semiconductor fabrication plant with a groundbreaking ceremony at the company’s Boise campus. It’s a big project that many have said will help grow Idaho’s economy.

To support the project, Micron will use “grants and credits” from the federal government. It is easy to say that this is a costly taxpayer subsidy to a private corporation, but there are even more costs to consider.

A 19th century French economist, Frédéric Bastiat, once said, “There is only one difference between a bad economist and a good one: The bad economist confines himself to the visible effect; the good economist takes into account both the effect that can be seen and those effects that must be foreseen.”

There are costs to Micron’s new Boise plant beyond the immediate construction.

The first cost to consider is how the legislation that created the subsidy will actually slow the U.S. economy. This outcome is known as Barro-Ricardo equivalence, an economic model demonstrating that taxes and government borrowing each slow the economy.

When the government borrows to fund grants like Micron’s, the investing public buys up the government bonds, and in so doing, reduces current consumption or other private investments. While it is difficult to measure this cost, we know that everyone in the U.S., not just federal taxpayers, is now paying for a new fab in Idaho.

A second cost to consider is the one imposed on Micron shareholders, including many of the company’s local employees. This additional cost comes from the higher fixed assets that the company will now have to maintain over time. Micron may not be paying to build the plant itself, but it will need to generate more cash flow to keep it running.

The likelihood that this additional cost will be high is evident in the stock market reaction to the legislation and Micron’s new plans. Since the start of the year, Micron’s stock is down more than 40%, compared with 20% for the S&P 500.

Micron’s stock sells at a price-to-earnings (PE) ratio of only 6, well below other technology companies with fewer fixed assets. Examples include Advanced Micro Devices Inc. (PE = 32) and Analog Devices Inc. (PE = 41). Micron’s low PE indicates shareholders should expect a much lower return on their investment going forward.

It’s easy to get excited about Micron’s new Boise project. But the costs of this big project are going to slow the economy, increase taxes, and perhaps most importantly, hurt the many here who put their savings in the company.

Peter Crabb is a professor of finance and economics at Northwest Nazarene University in Nampa, Idaho. prcrabb@nnu.edu

This story was originally published September 27, 2022 at 1:27 PM.