Biden’s Leviathan Part I
A. To Lock in with Gigantic Discriminatory Subsidies, and, Pursue Full Blown Industrial Policy is Hardly Competing With the World’s Second Largest Economy
“Winning the competition with China should unite all of us” —Joe Biden
“The market characteristics of infrastructure more closely resemble military hardware than consumer goods. Often only a few firms have the connections, technical skills, and capacity to construct highways, bridges, tunnels, wind farms, solar farms, and broadband networks. This is the outcome of burdensome permitting requirements and geographic specificity of infrastructure projects. In turn, each successful contractor requires dozens of unique components to complete the task. By excluding foreign contractors—even technically qualified firms based in allied countries such as Canada and Korea—competition is quashed at the outset. Then, by denying U.S. contractors from acquiring scarce components from foreign sources, delay is guaranteed. President Biden invokes Buy American not in the name of national security, but in the name of jobs, jobs, jobs—notably at a time when unemployment has reached a 50-year low of 3.4 percent, and almost two job vacancies exist for every American looking for work.” —“Biden Embraces Buy America, Doubles Down on Trade Protectionism” Gary Clyde Hufbauer, Megan Hogan ~ ProMarket
“In short, the Biden economic policy on a net basis is not likely to meet its lofty goals of creating a new dynamism of US manufacturing and job creation. The negative effects of his economic program will not only lead to a prolonged period of slower growth, but will harm relations with trading partners, especially the EU and Pacific Rim manufacturing powerhouses. It would be better from geostrategic and purely economic perspectives to enter into joint development agreements with these allies for the production of renewable technologies and the raw materials required for that production.
This is especially the case at a time of war and economically painful high energy prices which sap Western manufacturing competitiveness in favor of China, which benefits from the fire-sale pricing of Russian oil and gas. The US and its allies are better served in these circumstances to meet the crisis by increasing oil and gas production and cooperating to achieve longer-term goals for a transition to a renewables based economy.” —Thomas J. Deusterberg, “The Uncertain State of the Biden Economy” ~ The Hudson Institute
“On both the left and right, the economic “threat” from China provides an excuse to peddle decades-old ideas. For Democrats who champion green technology, “independence” from China is an excuse for massive domestic subsidies. For Republicans eager to make the GOP a “workers party,” Chinese competition is a great talking point for “onshoring,” “buy American” protectionism, and industrial policy— Jonah Goldberg ~ The Dispatch
“Free trade is not a gift from Americans to others. Free trade enriches Americans too. It creates global markets for the goods and services that Americans sell most competitively: everything from soybeans to pharmaceuticals to insurance to software. Free trade reduces prices for the things Americans buy, and especially for the things bought most often by the poorest Americans. With inflation concernsuppermost in mind, it seems irrational to the point of perversity for Biden to volunteer the U.S. taxpayer to pay unnecessarily high prices for goods and services that could be bought more cheaply from partners and allies. It seems irrational to the point of perversity to pledge that Americans would fight and die to protect, say, South Korea from invasion, but not buy highway fenders from South Korea if South Korea can sell them for less” —David Frum ~ “This is No Time For Protectionism,” The Atlantic
“Progressives lament what they call America’s ‘market fundamentalism.’ Sensible people say: Would that this were real. Populists will note that Buy American is popular. It is that, and it also is proof that polarization can be ameliorated by the bipartisan appeal of a bad idea” —George F. Will ~ “Why ‘Buy American’ is Misguided and, Alas, Full of Bipartisan Appeal” The Washington Post
What began with an effort, not harmfully in concept, with reshoring microchip manufacture, or “critical technologies,” with the $280 billion CHIPS Act, or technically the $1.2 trillion Infrastructure Investment and Jobs Act preceding it, devolved into harsh trade restrictions on virtually any foreign direct investment or commercial business in China— and from there with the IRA, descended into extravagant $368 billion subsidies and $7500 tax breaks to incentivize the domestic production of electric vehicles only for vehicles manufactured—and whose component parts are sourced—in America, or a nation with which the US has a free trade agreement.
Since then Joe Biden’s grandiose infrastructure ambitions rationalized under the convenient pretext of national security imperatives, have revealed themselves to be all elements of a sweeping grand partisan strategy to effect and impose a full scale green “transformation” of the American economy and society by legislative fiat. This transformation, the promethean gloss of which neoliberals would sooner snuff out and relabel, Central Planning. No one should be sheltered from the mortifyingly banal though still grave reality that Biden is attempting to revitalize infrastructure and save us from environmental collapse, mainly by singling people out for tax breaks who buy Teslas or the “Ford Lightning.” His designs even include allocating taxpayer dollars to plant more trees.
The CHIPS Act was one thing. I’m actually inclined to agree with the idea that for national security reasons, the US should reshore the manufacture of semiconductors, if not to divert production to our allies which would be better (however of course I lament highly what the CHIPS act became as of late with the secretary of commerce stipulating recipients of semiconductor subsidies must provide childcare to their employees and grant unions special patronage). Likewise I would be in favor of sharply curtailing the exportation of technologies with military applications to countries that are not our allies who are hostile to western interests.
These are tense times. Russia invaded Ukraine. China is threatening to invade Taiwan in similar fashion. Iran is brutalizing its people and still working on nukes. Israel is transforming rapidly into a theocratic regime. So we should get our ducks in a row. That being said, green energy subsidies and tax incentives for electric vehicles, “Made in America,” and “Buy American” requirements, excessive import and export controls—all in the Inflation Reduction Act—is quite another thing. This is all a gigantic, not to mention illiberal, utter waste of taxpayer money and resources, and an abusive of our allies’ trust and reliance on American global leadership. This is industrial policy. This is protectionism. It is economic, in contemporary parlance, self-harm.
A. Why Industrial Policy is a Bad Thing
In consideration of a certain kind of policy’s well-documented failures, you would hope at some point people learn such policy is not well advised. America’s misadventures in protectionism have been catastrophic just recently. Here’s a great example: Solyndra.
During the Obama years the government invested in a silicon valley start up called Solyndra that made solar panels without polysilicon, an expensive material. After they lobbied, the Department of Energy gave Solyndra a $535 million government loan in 2010 to manufacture solar panels. But as the price of polyslicon went down over the years and cheaper natural gas alternatives to solar power emerged and cheaper Chinese solar panel firms appeared, too, Solyndra became a doomed enterprise whose survival was kept afloat entirely because of Obama administration officials who had a personal stake in the company, as the Washington Post later discovered. An egregious waste of half a billion taxpayer dollars, let alone one of many misguided experiments in industrial policy, what became known as the Solyndra Scandal, became one of the Obama administration’s worst failures. It was a horrible misallocation of resources, a waste of half a billion taxpayer dollars, and it was a case of cronyism to boot.
Another recent example would be Donald Trump’s FoxConn odyssey. According to Reason, Trump and Wisconsin governor Scott Walker collaborated to offer FoxConn a Taiwanese tech manufacturer $4.5 billion in subsidies and tax incentives, to build a 20 million square foot factory in Mount Pleasant. The motivation for this nightmare was Trump’s campaign promise to fill the heartland with industrial jobs and rebuild local communities. Sound familiar? Neither happened.
After bulldozing the rural community of Mount Pleasant, what was supposed to be a massive productive factory employing 13,000, was downgraded into a storage facility employing 281 people. In the process, which happens with industrial policy, the government used eminent domain (a much-abused legal mechanism giving the government license to usurp people’s property as long as the effort benefits the public, however loosely construed) to flatten a whole neighborhood in Mount Pleasant, and coercively evict locals from their homes to build the manufacturing plant. At the time Trump said promoting the facility, “I think we can say this is the eighth wonder of the world.”
i. For anyone who doesn’t know why these ventures tend not to work out, there are a number of reasons. One is hubris. In his terrific book The Next American Economy, (I would recommend highly to any globalist who wants a readable overview of the challenges confronting American market capitalism in the 21st century) Samuel Gregg writes,
“Industrial policy involves trying to alter the allocation of resources and incentives in particular economic sectors that would otherwise transpire if entrepreneurs and businesses were left to themselves. The goal is to produce better results in that economic sector. Efficiently realizing such goals assumes, however, that political leaders, civil servants, and technocrats possess the knowledge to comprehend all the technical details, possible methods of production, the range of incentives, actual and future prices, unintended consequences, and alternative uses of resources (to name just a few sets of information) that they would need to decide accurately the most optimal allocation of resources and course of action.” (Gregg, 95).
The knowledge problem is quite clear in the Solyndra case. Presuming the country would benefit the most in particular from Solyndra’s solar panels, the government meanwhile did not anticipate better cheaper solar panels would just as easily be produced by China not much later, or that natural gas would be discovered. Since government cannot know what resources, innovation and prices the market will just as well generate if left to its own devices, it is folly for government to attempt to anticipate, control, and plan or in any way engineer, the best outcome that free markets can deliver on their own, selecting certain industries and certain companies for special treatment, with certain subsidies at a fixed cost decided between the state and companies with great lobbying power.
Specifically as regards the IRA, for our purposes, Veronique De Rugy writes in Reason, “Democrats Say They Support Green Energy. Why Do Their Policies Say Otherwise?”—
“Looking at the subsidies alone, you could believe that Democrats are all in on using the government to impose green energy. But such a focus is too narrow.
For one thing, most innovations capable of truly addressing climate change are likely yet to be discovered by the private sector. Betting that the few options picked and heavily favored by government officials—namely solar and wind—will prove to be the best options is risky. And, in fact, government incentives could be counterproductive as they direct investment toward politically alluring but scientifically or economically unpromising options, while leaving genuinely promising options underfunded regardless of their merits. We have seen this happen before with the Section 1705 green energy program, when DOE funding attracted many private investors to the now-defunct Solyndra and Abound solar.”
Here is an energy professor from NYU in a Wall Street Journal interview on the prospects of natural gas as a renewable energy. Describing how government subsidies make it harder to pursue climate policy,
Professor Amy Myers Jaffe says, “The IRA financing is a mixed bag for U.S. LNG. On the one hand, the industry is now much more serious about carbon capture and storage projects under the IRA legislation than ever before, and announce-ments have become more forthcoming. But when one looks at the historically high level of public funds being made available under the IRA legislation, developers have to consider the three-to-five year window that it takes to bring any kind of large energy project online and ask themselves: ‘When I get to year five and my new energy facility is coming online and can operate for 20 to 40 years, what kind of energy will I want to be selling over the life of my asset?’”
You can’t anticipate so many years down the line, the energy sources in which it is the most profitable to invest, or even incidentally those which will be best for the environment, let alone how much your endeavors might cost. Not to mention intervention is a tax on innovation.
Martin Wolf in his Financial Times column, “The New Interventionism Can Pose a Threat to Global Trade,” says, moreover, “government intervention becomes more difficult the closer an economy is to the technological frontier: innovation is usually harder than copying.”
In his recent City Journal article “Bizarro Supply Side Economics” Judge Glock nails it. “…few organizations have a worse track record than the federal government when it comes to industrial investments. From backing the failed syngas plant pushed by President Jimmy Carter to subsidizing Amtrak, the decades-running money sink that is Biden’s favorite government corporation, government investments tend to prop up stodgy existing industries. There’s no political constituency for birthing new and disruptive industries; there’s always one for subsidizing large and failing ones.”
The problem is since government is political by nature, its activity in way of subsidizing industry to promote future growth is constrained by the demands of the well organized constituencies of the moment. So the possibility of future innovation is beholden, in all events, to the constituencies of the present and past, monopolizing production to the detriment of efficiency.
Besides inefficient and wasteful, it can even be dangerous in its recklessness. After I wrote most of this article, in a newsletter from Propublica, I learned that a biofuel proposed by the government as sustainable, was found to be full of cancerous elements.
ii. If one issue with industrial policy is epistemic, then another problem consists in the methods themselves government uses to implement it. One of the signal methods for implementing industrial policy is subsidies. When the state determines the cost of a project conferring patronage on a certain industry, it creates problems because these artificial costs take away market incentives by taking away the competitive discipline of the free market mechanism for determining costs. What Hayek called price signals convey knowledge in a market by signaling the value of a good and the cost to make it between suppliers and producers. When markets in the absence of state intervention, better coordinate supply and demand left naturally to their own devices, the state’s attempt to direct supply and demand and influence the market by subsidizing industries, on the other hand, ruins the free market mechanism for accurately conveying information between suppliers and producers. By interfering with the spontaneous order of the market, this leads to inflated costs and market distortions which lead to inefficiencies across the economy. It also creates perverse incentives and frequently leads to cronyism.
When a government decides to redirect its activity to a certain industry using public money, then it cannot be relied on to select the best company to do a project; it will only choose to fund the company that lobbies the best compared to others. But since government decides whatever industry it arbitrarily targets is essential, but the market does not decide, the companies that get subsidized can only guess how much money they need from government to do a project and how best to do it. Frequently this leads to government financing expensive projects that don’t pan out, as a company is free to extract more and more money, while government provides it entirely for its own political reasons, say for creating jobs or greenifying the economy. Helpful for understanding this dynamic is public choice theory, a neoliberal concept that holds public servants have the same incentives and are morally no better than consumers in the private sector maximizing utility for personal gain.
Martin Wolf quips in the FT article I quoted earlier, “…there is a political economy of intervention, with losers picking governments rather than governments picking winners.”
Gregg explains in The Next American Economy,
“{…} there is a major difference between private sector initiatives and enterprises driven by industrial policy. Those involved in a private endeavor directly bear the costs of failure in economic and reputational terms. The same cannot be said of the government department or technocrat responsible for the design and implementation of a failed industrial policy. For one thing, their personal resources are not at stake: those costs are born by and dispersed among millions of taxpayers. That diminishes the odds of government officials learning from their mistakes. It may even encourage them to take risks they would never take with their own assets, thereby increasing the chances that they will persist in promoting a failed industrial policy. Such individuals are also usually insulated to varying degrees of other costs of failure. Career government officials are notoriously hard to fire. They might find themselves transferred to another project or department. Rarely, however are they let go” (Gregg 98)
Solyndra was an abysmal case of cronyism. The Washington Post reported in an investigation in 2015, “Solyndra Politics Infused Obama Energy Programs,” —
“Meant to create jobs and cut reliance on foreign oil, Obama’s green-technology program was infused with politics at every level, The Washington Post found in an analysis of thousands of memos, company records and internal e-mails. Political considerations were raised repeatedly by company investors, Energy Department bureaucrats and White House officials.”
The administration, which excluded lobbyists from policymaking positions, gave easy access to venture capitalists with stakes in some of the companies backed by the administration, the records show. Many of those investors had given to Obama’s 2008 campaign. Some took jobs in the administration and helped manage the clean-
energy program.”
And there was cronyism with Foxconn too. The billions of dollars Trump doled out to the Wisconsin governor you can interpret as a political favor. Because Trump liked him, he decided he would try and revive manufacturing there in Wisconsin; much like the only reason Trump cared about manufacturing in the first place was to acquire power, because no one else would vote for him except a bunch of resentful white guys. Trump even said of Scott Walker at the time, that he wouldn’t reap the benefit of this project if it weren’t for Trump’s federal largesse. Industrial policy breeds cronyism. And it is no coincidence that plutocrats or the political class in government always want to initiate industrial policy, them and unions, never taxpayers and consumers, not the lower middle class customers at the massive corporate grocery store for which I work. No one embraces full on industrial policy except for populists who need to be photographed benefiting the rough and tumble proletariat, cutting a big red ribbon with a giant pair of scissors in Michigan or Wisconsin or some damn place.
It sounds nice when an old grandfatherly guy like Joe Biden or an outsider like Trump who speaks his mind and looks like and sounds like you, says he intends to help the working class and that he will build all these factories and give rural towns a new lease on life. But the hidden cost is borne by consumers and taxpayers and even the communities it’s supposed to help, as eminent domain is used to flatten these communities, and the money that comes out of your taxes is wasted for a political project that never gets completed and only helps unionized labor and select businesses with outsize influence over the political process, and even if it works just protects a dead or less advanced enterprise.
Rather than competing with China, it’s likely that with these socialist interventions, we’re only setting ourselves up to travel down the same road to inefficiency and misallocation of resources as China has, under increasing conditions of state capitalism, that is depending on what this strategic competition portends. It’s quite absurd I would add that America thinks they can only compete with China by mirroring their industrial style capitalism, when China’s industrial successes occurred, not because of but in spite of, their interventionist economic policy. But I would argue, partisan politics just make it sickeningly convenient for our leaders to think American manufacturing must dominate Chinese manufacturing. So they can pander to and pamper the working class for their votes and feel like they care. Which brings us to “Buy American” content requirements.
B. Trade Protectionism Does Not Make a Country Rich or Powerful
“Tonight, I’m announcing new standards to require all construction materials used in federal infrastructure projects to be made in America. Made in America. I mean it.
“Lumber, glass, drywall, fiber-optic cable.
And on my watch, American roads, bridges and American highways are going to be made with American products as well.”
Patrick Semansky/ AP photo
This brings us to protectionism, or trade restrictions. Nothing in the IRA is more repellant to me than Biden’s “Buy American” requirements.
This will have a very adverse effect on production, because these requirements in order for companies to qualify for Biden’s subsidies, limit suppliers and manufacturers to using materials sourced in North America to produce goods. Assembly also has to take place in America. On the other hand, it could cost much much less by comparison to get an EV made in Germany or the Netherlands or South Korea. What really strikes me as excessive is that the parts used in batteries are required to be sourced in America. It might cost more to get nickle in America though it could be much cheaper in Indonesia, Congo for example. Why shouldn’t we just do what saves us the most money?
Scott Linnicome in his article in The Dispatch “Bye America,” notes the tedious absurdity of these restrictions—
“Central to these complications and delays are the domestic content requirements that Trump and now Biden keep increasing—rules that may have worked in bygone eras but make no sense in a 21st century world of increasingly complex products and constantly changing global supply chains. Today, documenting the contents and origins of every product—especially ones that, say, a construction company needs but doesn’t make—is painstakingly difficult and costly (if not outright impossible in some cases). One county official put this well back in 2009: “The [Buy American] rules affect a small part of the project but are like a virus infecting the whole thing. … It’s like they want us to go back in time.” I couldn’t have said it better myself.
And, as National Review’s Dominic Pino noted last week, determining what’s “local” is also open to interpretation: “components” need to be local but “subcomponents” don’t, so a “Made-in-America” standing desk can magically become “Not-Made-In-America” depending on whether a Chinese motor is deemed a “component.” Thus, litigating Buy American’s intricacies can become a battlefield for lawyers and competitor companies—leaving the rest of us worse off in terms of both cost and project delays.
There may be no better example of this problem than New York City’s insanely costly, long-delayed Second Avenue Station (SAS), which received federal funds and was thus subject to Buy America. Back in 2011, New York’s Metropolitan Transportation Authority (MTA) approved two contractors’ use of Finnish fire suppression systems that, after months of MTA study, the agency had determined to be Buy America-compliant. In 2013, however, a competitor company got wind of this contract and complained to the Federal Transit Authority, which, after a lengthy formal investigation, overruled the MTA in 2015 (yes, four years later!) and demanded that the agency replace the systems with American-made ones. One system had even been purchased already. Sadly, that wasn’t the only Buy America-related problem for the project: giant, custom granite archways were another.”
i. In addition, stringent environmental regulations currently severely constrain the way to all this industrial development. In no better way does it illustrate the incompetence of government intervention to pilot an economy than the fact that environmental regulations (particularly the 1970 National Environmental Policy Act) currently block construction for EV factories, also mining for American minerals for batteries. Barring permit reforms and other land use regulation overhaul, God knows how long companies will be waiting to build semiconductor and EV factories.
The Economist says in their article, “Green v Green,”
“Biden’s signature legislation and the most ambitious climate law America has ever passed, includes all manner of tax credits for clean-energy projects. But the process to get them approved can be long onerous and litigious. Mckinsey, a consultancy reckons it can take five years to get a permit for a solar farm and seven for a onshore wind farm. An ambitious timeline to build a high-voltage transmission line is at least ten years, says Scott Bolton, vice-president at transmission development at Pacifcorp. The Rhodium Group, a consultancy, estimates that the investments in the IRA have the potential to cut emissions by 32-42% below 2005 levels by 2030. But a recent study from Princeton University’s ZERO lab suggests that America would need to more than double its average pace of transmission expansion over the last decade to realise that goal.”
Much of this overregulation has to do with the jungle of excess permits progressives have forced developers to require over the years, with regulations established to protect the environment. The Editorial Board recently wrote acerbically in the Wall Street Journal
“Mr. Biden’s target is 100% clean electricity by 2035. To hit his climate goals, according to a report last year in E&E News, “annual installation of new wind and solar generation would have to increase from two to seven times historical levels.” How does he expect to do that without cutting the red tape that ties up construction of all kinds?
The L.A. Times had a story this week about a Mojave Desert solar project intended to occupy “a seemingly lifeless wasteland of hellish sand dunes, lava flows and vast flatlands.” But there are bighorn sheep. A proposed rail link to Las Vegas might involve creating three wildlife overpasses, and a biologist from Oregon argues that the solar site could make the sheep refuse to use the bridges that haven’t been built. “We favor renewable energy but not here,” a conserva-tionist insists. They always say that, no matter how desolate the desert or tundra: Not In My Barren Wasteland.”
Indeed, the renewables projects are encumbered with numerous regulations it will take years to get through, without recourse to supply chain kinks and shortages on the supply side of the economy, stubborn inflation and considering one doesn’t know when or how renewables will come online, other energy sources having to go offline for the transition to get underway meanwhile are screwing up the electricity grid.
The Wall Street Journal wrote in another op-ed recently, “S.O.S. for the US Electric Grid,”
The Journal says PJM is one of the nation’s biggest electric grid operators, and in one of their recent reports,
“…PJM is predicting a large decline in its power reserves as coal and natural-gas plants retire. The report forecasts that 40,000 megawatts (MW) of power generation—enough to light up 30 million households—are at risk of retiring by 2030, representing about 21% of PJM’s current generation capacity.
That’s why it’s especially worrisome that PJM is predicting a large decline in its power reserves as coal and natural-gas plants retire. The report forecasts that 40,000 megawatts (MW) of power generation—enough to light up 30 million households—are at risk of retiring by 2030, representing about 21% of PJM’s current generation capacity.
The editorial board at WSJ states frankly, “The left’s green-energy transition is incompatible with a growing economy and improving living standards. Renewables don’t provide reliable power 24 hours a day, 365 days a year, and the progressive campaign to shut down coal and gas plants that do will invariably result in outages.”
ii. And the longer the green transition takes and the more difficult it will be to implement, of course the higher the cost will be to taxpayers. Finally the costs of all these expensive projects are going to be borne large and small, whether they succeed or fail, by the taxpayer, and as much as Biden lauds his agenda as a “foreign policy for the middle class,” the middle class is going to get hit the hardest with taxes to pay for his projects. In an analysis of the costs of Made in America and Trump’s steel tariffs (which Biden has not removed and shows no signs of lifting), The Peterson Institute writes,
“When presidential candidates agree, the policy must be a political winner. Nevertheless, “Buy American” or “Made in America” as a slogan for excluding imports is an economic loser. We calculate that the annual taxpayer cost for each US job arguably “saved” by Made in America probably exceeds $250,000. We put “saved” in quotation marks because buy national requirements essentially shuffle jobs from other sectors of the economy to the procurement sector. And the shuffling takes a toll on economic efficiency, which shows up in elevated price tags on everything from computers to bridges. On balance, buy national requirements create no new jobs, but they do save jobs in domestic firms that supply government needs, often at a high cost to taxpayers.”
So understand that when Biden yells about creating jobs in his SOTU, he’s not actually adding any jobs. He is only protecting those jobs that already exist but using our tax money, for no good reason.
The Peterson Institute continues,
“Government procurement is skewed toward manufacturing and construction, rather than activities like health, education, and entertainment.[2] On average in the US economy $1 billion of manufacturing production requires 2,138 direct jobs. The comparable figure for $1 billion of construction is 4,504 jobs. Based on these figures, we assume that $1 billion of US government procurement requires 2,635 direct jobs.[3] To be conservative in calculating taxpayer costs, we assume that an equal number of indirect jobs are supported in other sectors, giving a total of 5,270 direct and indirect jobs per $1 billion of government procurement. So, the extra $68 billion of domestic procurement supported 358,360 US jobs (5,270 times $68 billion). Our CPE model indicates that the price tag on domestic production for procurement increased by 5.6 percent on account of Buy American requirements at the federal, state, and local levels…”
This is a lowball estimate,” they say, “because of optimistic demand and supply parameters built into the CPE model. However, a markup of 5.6 percent on $1,674 billion of the observed level of US domestic procurement in 2017 translates into a taxpayer cost of $94 billion. Arithmetic leads to the startling conclusion that the annual taxpayer cost was over $250,000 for each job “saved” in the domestic procurement industry ($94 billion divided by 358,360). While this figure is high, other studies have shown that the consumer cost per job “saved” in the steel industry exceeds $900,000. Such analysis demonstrates that protection in whatever form—outright tariffs, nontariff barriers, Buy American—extracts a considerable price from taxpayers or consumers for each job preserved in the sheltered activity. Of course, very little of the money finds its way to workers. Instead, the extra cost is largely lost to inefficient production and higher profits collected by firms.”
And there are other costs. To the extent Biden is trying to replace the fossil fuel industry with clean energy, he will just be cracking down on oil, natural gas, auto-manufacturers and the fracking industry, paying to shut down a whole sector of the economy and for all his talk about jobs, inevitably he will be shedding an untold fuckton of jobs. In the process he will only build semiconductor factories employing some thousands at most, and that is without accounting for the fact that robots will be doing a lot of the factory work factory workers used to. As both parties oddly decided to fetishize workers and factory jobs, I suppose because it’s good politics because only disinherited old people vote now I guess, they seem to have completely missed the big reason we don’t have factory jobs anymore. Automation. So to put this in perspective, Biden is just giving clean energy big business like Tesla and Ford handouts and overpaying them to use mostly robots and employ several thousand workers, with inflated wages too.
In the Heritage Foundation article, “Combat the Inflation Reduction Act’s Central Planning,” Richard Stern and Daren Bakst say
“…the legislation would increase the costs for oil and gas drilling by increasing the royalties companies have to pay for offshore drilling from 12.5 percent to 16.66 percent (and as high as 18.75 percent), and for onshore oil drilling from 12.5 percent to 16.66 percent. It also includes a methane emissions fee for petroleum and natural gas companies. Unavoidably, these costs will be borne by the American people through slower wage and economic growth and higher consumer prices.”
Not to mention since this involves retiring fossil fuels we formerly relied on for electricity generation, we are losing sources for electricity of which we increasingly need more, to completely shift to driving electric cars. Casey Mulligan says, in the National Review, “We Cannot Have EV’s Without E,”
“Without a large reduction in miles driven, the electrification of all, or even most, passenger vehicles would increase the per-capita demand for electric power by about 25 percent, while more than 70 percent of the baseline electricity generation (i.e., using fossil fuels) would be retired, and another 11 percent (nuclear) would not expand. To put just the 25 percent in perspective: that is the amount of the cumulative increase in electricity generation per person since 1979, which is a period over which nuclear and natural-gas generation tripled.”
She says the total cost will amount to a whopping 2% of GDP. While,
“The costs would be disproportionately borne by Texas, North Dakota, and Pennsylvania, where much fossil-fuel wealth would be stranded as policies prevent them from making it to market.”
So in my introductory piece about ten days ago when I referred to these subsidies and requirements (protectionism) as antieconomic and partisan in nature, hopefully this analysis provides a good understanding of what I mean. Under the right conditions I should mention industrial policy can work, like with the Manhattan Project, but it’s different when the government subsidizes defense, because the pressure of war provides the necessary market incentives, to ensure efficiency. But to pursue a green energy transformation of the economy to guard against the abstract threat of climate change, and give workers jobs: is a terrible prescription for inefficiency and corruption, and perhaps most importantly it is going to be very very expensive. In part two I will discuss how the discriminatory nature of the subsidies illegal according to WTO rules, can harm our relationship with our allies and also worsen our relationship with China, even making future armed conflict with them much more likely.
—Jay