While it is dubbed the Inflation Reduction Act of 2022 it is spoken of as a climate bill. I am skeptical that it accomplishes either.
Inflation is a mismatch between supply and demand. To fight inflation you can decrease demand or increase supply. Raising taxes on production and increasing government spending does the opposite of both.
While everyone is parsing the definition of recession and trying to deny we are in one, we should simply recognize it as a likely response to the overspending, while sharply constraining supply, on the pandemic followed by a more rapid than expected recovery. A recession is not the end of the world; we have advanced through dozens of them. Inflation today is a product of monetary policy funding profligate fiscal policy. “Milton Friedman is not in charge anymore” (Biden) has proven prophetic.
Kevin Williamson comments of the climate side of this bill in The Democrats’ Unserious Climate-Change Deal:
Unsurprisingly, the European Union is farther along that curve than is the United States, which relies on renewables for about 13 percent of all its power compared with the European Union’s 22 percent, and which generates about 20 percent of its electricity by means of renewables, compared with the European Union’s 38 percent. That has real consequences for climate policy: By the most economically relevant measure (emissions per unit of GDP) the United States is about twice as carbon-intensive as Germany.
But it is Germany, not the United States, that is getting ready to fire up coal plants.
Policy proposals are constrained only by the utopian imagination; policy outcomes are constrained by physics, geography, and technology, among other inconvenient exogenous factors. At a sufficient level of subsidy, wind and solar are economically viable alternatives to coal and gas, but they are intermittent, and it is likely that their role in total electricity generation will always be a limited one. Affordable, nearby hydrocarbons — Russian gas or, in its absence, coal — are what is going to fill in the gaps.
The case for a carbon tax is that current U.S. practice does not put any price on the externalities associated with burning hydrocarbons. And that is fair enough. But we should not delude ourselves into thinking that there exists some “clean” source of energy capable of sustaining modern life. As Thomas Sowell put it, “There are no solutions; there are only tradeoffs.” Some of those tradeoffs are economic: You can pay to make renewables relatively affordable either by subsidizing them or by taxing hydrocarbons. Others are environmental: The more batteries are used in transportation and utilities, the more battery manufacturing and disposal are going to be major environmental problems. Petrochemicals and petroleum-derived polymers are used in manufacturing solar cells, wind turbines, batteries, and much else that is “green.”
It is particularly amusing to watch Democrats argue for a bill that purports to address the problem of businesses not paying their “fair share” in taxes while larding up that same bill with billions of dollars in special-interest tax credits for their favorite businesses. That is the great Democratic tax strategy: create tax subsidies for businesses and then, two elections later, complain that businesses take advantage of tax subsidies. It is the unserious program of an unserious party run by unserious people…
Even if we were willing to endure what surely would be an astronomical transition cost, there isn’t an electric long-haul truck on the market that can do what a diesel-powered semi does — at any price. Container ships are the lifeblood of the global trade in physical goods, and most of those run on barely refined oil. Even if we were willing to deal with the security issues involved in developing a nuclear-powered global cargo fleet (there have been prototypes), those ships do not yet exist, and neither does the fuel-processing infrastructure that would be necessary to sustain them.
- Trade-offs. Energy independence has national security implications. Imagination and fears must face physical realities. Why is a barrel of oil from Venezuela or Saudi Arabia more carbon neutral than a barrel from Texas?
- Tax policy is once again much less about transferring from rich to poor than it is about transferring from politically unconnected to politically connected.
- Fairness is ephemeral. Today it is fair to subsidize the buyer of a $100,000 Tesla. An all electric Hummer has a greater carbon footprint than an economy size internal combustion vehicle, but only the Hummer gets a generous tax subsidy.