BIDEN ADMITS THE INFLATION REDUCTION ACT IS A GREEN GIVEAWAY – by Philip Pilkington [15/7/23 DT redacted]:
“After months of the GOP insisting that the Biden Administration’s IRA is a Green giveaway, Biden has finally put his hands up. “I wish I hadn’t called it that, because it has less to do with reducing inflation than it does to do with dealing with providing for alternatives that generate economic growth”.
The IRA was sold as an industrial policy. Actually, it is the infamous Green New Deal watered down and repackaged. For every $1 the IRA allocates in loans and subsidies to manufacturing, it could end up spending around $6 on Green energy and environmental programmes.
The goals of Green policy and industrial policy could not be more opposed to one another.
The core goal of modern American industrial policy is to on-shore manufacturing that has been lost to countries with lower labour costs. The cheap loans and subsidies provided to US manufacturers are designed to plug the wage gap between richer and poorer countries.
But Green policy does not seek to rebalance trade or shore up the domestic industrial base. Instead, it aims at forcefully changing the consumption habits of the population.
But Green companies are not viable without cheap loans and subsidies, because consumer choices dictate that their products are not desired. Solyndra, the CA company that filed for bankruptcy only two years after taking half a billion dollars in guaranteed loans, is an example of that.
This is not surprising. In undertaking basic import substitution, the government would identify a sector where the country imports a lot of products, check the wage differential between the domestic and foreign producer and plug the gap with subsidies and loans. With Green stimulus there is no simple way to make these judgements and so cronyism and lobbying are inevitable.
Obama-era ARRA stimulus is an example. A 2013 paper argued that well-targeted lobbying could release enormous amounts of money. One company paid $10.7m in lobbying between 2007 and 2012, and got $5.2 billion in loan guarantees. Another saw $2.8bn unlocked for only $1.65m spent on lobbying.
The capital allocation this produced was predictably poor. Out of 26 large loans granted by the Obama Department of Energy, 22 of them were for projects rated “junk” by credit agencies. The entire loan portfolio had an average rating of BB-, below investment grade.
Attempts to force consumers to behave in a way that produces Green utopia while telling them the goal is to get prices down is disingenuous politics and extremely expensive.
Green policies are aimed at restructuring consumption among the population to reduce the carbon footprint of consumers. They will not magically generate prosperity or address serious macroeconomic problems.
Free marketeers and proponents of industrial policy should be united in rejecting this new Green spending.”