> while the upfront cost to scale up production is huge, prices are now high enough to justify it even if demand is expected to drop abruptly later on.

Given the nature of the industry and how critical the product is I think it would make more sense for governments to bankroll fab construction in a way that the public takes on the risk of consumer prices falling below a certain level within some limited timeframe. Mildly subsidized chip production seems like a much better downside than the current sky high prices.