The Only Thing Worth Leveraging the Debt Limit for is to Repeal Biden’s $1.2 trillion Climate Subsidies
Republicans Should Make Concessions at Least on Work Requirements and Focus on Energy
““It is now clear that the Inflation Reduction Act, which was supposed to cool the economy by shrinking deficits, will in fact widen them, owing to the higher-than-forecast take-up of its clean energy tax credits.” — The Economist
“The EU was spooked by the financial windfall that the IRA offered companies investing in green technologies, worried that it would not only suck up new investment, but also entice European companies to set up shop in the U.S. The EU has countered with subsidies of its own to boost green investment, setting up a subsidy arms race between China, Europe and the U.S. when it comes to green technology.” — Daniel Kochis, “Europe Should be More Worried About Energy Security” ~ Discourse
“Ironically, the threat to the global trading system turns out not to be from climate change, but climate policy, such as the European Union’s carbon border adjustment mechanism (i.e., tariffs) and the United States’ Inflation Reduction Act – $370 billion of subsidies and trade privileges designed to decarbonize electricity generation. Inflation reduction? Residential electricity prices in Britain more than doubled in a decade, increasing from 8.08p (9.91¢) per kWh in 2009 to 17.98p (22.04¢) in 2019, thanks largely to climate policies.” — Rupert Darwall “Leading economist: ‘Net Zero Means Higher Interest Rates’” ~ Real Clear Energy
“Idealism is fine, but as it approaches reality costs become prohibitive” — William F. Buckley
“I agree with the former Joe Biden,” Kevin Mccarthy said admirably in his speech to the NYSE two weeks ago— reminiscing that Joe Biden as a senator 4 times agreed to raise the federal debt limit only on the condition that federal spending reductions were attached.
I. House Republicans Did Their Part— Now Biden Needs to Stop Being a Grandstanding Progressive Infant and Do His Own
Unless you’re living under a rock, I’m sure you’re aware of the disturbing possibility that the US can default on its debt as soon as June according to the Treasury, and if you trust the plunge into investing in bonds, and central banks buying up gold, and the surging derivatives market for credit default swaps, as indicators of a coming crisis.
Last week I praised Mccarthy for defying expectations of GOP dysfunction, passing a fantastic bill in the House, the “Limit Save Grow Act,” that in addition to taking back Biden’s $80 billion for the IRS, and repealing the $500 million student loan forgiveness plan, clawing back unspent pandemic aid and imposing spending caps, most importantly would roll back Biden’s gargantuan climate subsidies—nothing of which since Trump’s steel and aluminum tariffs (illegal by WTO rules, the same as Biden’s subsidies) have done worse to destabilize international trade and US relationships with their trade partners and military allies; to say nothing of the domestic cost of the uncapped tax credits for taxpayers, and their not negligible impact on the deficit.
Despite my reservations about most of the policies of today’s Republican party, such as their downright uncivilized hardline stances on immigration and abortion, and highly distasteful volte face opposition to gun regulation, and most repellant of all to me: the grotesque preening they exhibit in flaunting their opposition to social security reform—McCarthy and his Republican backers, in the House and Senate—Mitch Mcconnell et al—have my support entirely in the debt ceiling standoff.
Nevertheless I think to successfully negotiate a compromise to lift the debt limit with the Democrats and Biden, the GOP should pare down, specify and alter some of their demands—that is if the Democrats are even willing to negotiate. It’s disturbing how far Biden seems willing to go to pursue a “clean” debt limit raise, no less outrageous an idea than Trump’s reckless expostulation during that self-sabotaging clownshow of a town hall, that the GOP should default unless they secure unspecified “massive cuts” …
II. The “Green Transition” is Defrauding the Consumer and Extorting the Taxpayer
But let me first enlarge on why Biden’s climate subsidies are so destructive and underscore the necessity to repeal them. Although originally estimated at a still astonishing $400 billion, Goldman Sachs estimates the Inflation Reduction Act is now going to cost $1.2 trillion. Three quarters of the cost, I read in Foreign Affairs, are the consequence of $7500 tax credits intended to incentivize the production and purchase of electric vehicles, the procurement of whose component materials, batteries, and minerals, are required to be sourced in America. The EV’s are also required to be built in America. This means that if an EV manufacturer doesn’t satisfy those “Buy American” requirements, then they won’t qualify for the huge tax credits.
To anyone who knows or cares anything about economics, let alone deficits, this is less than smart. The domestic content requirements in particular, by making production more expensive than it otherwise would be, will jack up the price of EV’s for consumers, raise taxes for taxpayers, and the subsidies will raise the cost of driving regular cars, by draining the auto industry of competition. It’s much worse when you factor in the EPA’s new carbon emissions regulations, which will serve to tax regular cars, internal combustion engines (ICE’s), slowly out of existence.
The Peterson Institute trade policy scholar observes on his excellent Trade Talks podcast that although America is responsible 40% of the world’s green house gases, largely because we drive cars, 5% of Americans drive EV’s. Since the IRA the number has risen to 13% because Biden loosened the rules for the tax credits to subsidize leasing. It’s worth noting that EV’s only contribute to reduce emissions by 2% (even emitting some themselves). Only if you’re such a climate fanatic that you think anything the government can do, whatever the cost, to reduce emissions is a net positive, the cost of reducing carbon emissions, economically is not worth the benefit. Not least for the reason that the market for electric cars has been growing bigger and bigger, without any subsidies or emissions regulation or state intervention at all!! Economist Noah Smith (who’s also notably a big renewables and EV fan), writes on his Substack, “Noahpinion”—
“… the impact of government subsidies on the transition is actually pretty modest. The reason EVs are taking over is that the technology improved — between 1990 and 2010, our scientists figured out how to make lithium-ion batteries about 2.5 times as energy dense, and then we scaled up factories and figured out how to make batteries much more cheaply, causing battery prices to fall 97%between 1990 and 2018. That’s pretty much the whole story. When a new technology becomes cheaper than the old one, and can do all the same stuff, people switch to the new technology.”
Indeed, there are already plenty of EV’s on the market anyway, which will only be produced more abundantly and more cheaply as they become more popular, and self-abnegating progressives especially become more frantic about the environment. Especially with the democratic socialist, social climbing, activist-consumer youth nowadays, it would probably be better for the EV market in fact, if the federal government implemented no policy to incentivize renewable energy. The EV market for self-abnegating, activist-consumers, driven by social media clout-chasing, would explode in reaction.
Subsidizing the manufacturing of EV’s, on the other hand, is making the existing market for EV’s less efficient, distorting it by warping opportunity costs. In an article for Reason, “Inflation Reduction Act is Screwing up Market for Electric Vehicles,” Joe Lancaster says Volkswagon has recently begun producing a $26,000 EV in Europe that it takes just 20 minutes to charge. Most EV’s on the market for that price take hours to charge. Although Volkswagon’s car is more efficient, they are not going to start producing in the US, because the market for Volkswagons is too small, as Americans prefer to drive bigger SUV’s. Because of the domestic content requirements for the tax credits in the IRA, mandating final assembly in the US, the bulkier Nissan “Leaf” or the Chevy “Bolt” has a monopoly on the market to the exclusion of Volkswagon, because it’s markedly cheaper for larger, more popular Leafs and Bolts to be produced here with the tax credit. So the subsidies crowd out entry for the more efficient Volkswagon. Lancaster overtures regretfully,
“In a free market, consumers would get to choose the products to buy based on cost and dependability. A choice between a $26,000 electric car that charges in minutes and a $28,000 electric car that charges in hours seems like not much of a choice at all. But when the government, over misplaced protectionist sentiments, uses the tax code to artificially advantage one product over another, it disadvantages not only competitors but consumers.”
Something else that’s worth noting (not that we care about “jobs” for their own sake as neoliberals)—for all Biden’s and the Democrats’ obsession with “good jobs,” the EV transition is hilariously but tragically shaving tens of thousands of good jobs in auto manufacturing. Since it’s bound to revolutionize the auto industry, it will displace eventually a whole generation of autoworkers. Even left-leaning Atlantic writer, Annie Lowry voiced concern in her recent article, “The Green Revolution Will Not be Painless.” Here’s an excerpt,
“The United States is embarking on an epochal transition from fossil fuels to green energy. That shift is necessary to avert the worst outcomes of climate change. It also stands to put hundreds of thousands, perhaps millions, of people like Feldermann out of work. The result could be not only economic pain for individual families, but also the devastation of communities that rely on fossil-fuel extraction and a powerful political backlash against green-energy policies.”
These are some of the costs of industrial policy. By corrupting the market, the state produces less efficiently products that may not be desirable to consumers, contradicting its own aims. And even if it creates jobs, it is forced to close others down. But there are wider issues with this misguided policy with major geopolitical implications…
III. We Don’t Have the God Damn Luxury to Save the Planet at the Outset of the New Cold War
The “green transition” or the “net zero” agenda in general is expected to raise the cost of all energy for decades. And for all that the left worries about wealth inequality and bristles with resentment at the profit margins of large corporations, wholesale decarbonization by fiat will concentrate the energy market and just line the pockets of the biggest corporations, including rightwing nuisance and the most annoying man in America after Donald Trump, Elon Musk—as Alyssa Findlay commented on in her Wall Street Journal column, “Elon Musk Squeezes his Electric Vehicle Competitors,” detailing how the IRA tax credits have enabled Musk to corner the EV market; last week Musk slashed prices for Teslas in an effort to force other EV companies to compete or die, and,
“Automakers don’t receive regulatory credit for making electric vehicles unless Americans actually buy them. So by slashing Tesla’s prices, Mr. Musk is trying to force traditional automakers to do the same to compete. If they don’t, their electric vehicles may languish on dealer lots, requiring automakers to record even bigger losses and buy even more regulatory credits from Tesla.”
But lest my raging hatred of Elon Musk undermine my argument, I should add Biden’s subsidies are creating a rent-seeking nightmare moreover, because only a handful of well-organized car companies and utilities will profit from the handouts, tasked to effect a wholesale transformation of the electric grid, so a mass misallocation of resources is almost inevitable (as I outlined in my Biden’s Leviathan Part I newsletter months ago, illustrating the folly and the hubris of industrial policy), as corporations doubtless will secure much more funding for projects than it will be economical for them to produce, and then if you factor in strict permitting requirements holding development back for years if not decades; and again, that they’re forced to use “American steel” and “American iron” for solar, wind and batteries... The Economist two weeks ago reported that since the IRA passed last summer, 2,000 lobby groups have begun competing for subsidies that corporations are now spending in the hundreds of millions to secure. The magazine quotes a lady whose utility company stands to gain $2 billion in federal subsidies. She said, “We stopped counting… we just have a big smile on our faces all the time these days.”
If anything the insane Net Zero agenda, will add considerably to the deficit, not least by slowing growth, domestically and globally. It will raise taxes as the cost of doing business, and raise prices too across the economy, as well as almost certainly add to inflation. And depending on international geopolitical stability, regarding the war in Ukraine, OPEC, and China; also financial stability, regarding China’s real estate lending bubble, or likely more western midsize bank runs; a historically tight labor market, absent welfare reform or increased immigration; continued high government spending—inflation may prove not only to be very sticky, but we can reasonably suppose it to get worse. And the government consolidation of energy markets, and central planning with emissions regulations, will not help any of it!! But as much as the subsidies aggravates me as a free marketeer, I’m even more concerned as a free trader. Indeed the IRA is a globalist’s worst nightmare. You can almost hear the fury of Margaret Thatcher and the Austrian School neoliberals, howling from beyond the grave.
Just when international cooperation between the US and our allies is as urgent as at any time during the 20th century, to face a genocidal expansionist neofascist Russia, an increasingly temperamental neoimperial China, and the atrocious prospect of a nuclear Iran—in addition to Trump’s steel tariffs which Biden, the demagogue that he is, hasn’t bothered to remove, Biden has to drop these hundreds of billions of dollars in tax credits (not just on EV’s but semiconductors, solar, and wind power, carbon capture technology, geothermal, nuclear, reforestation and more) in a maniacal attempt to transform America into a magnet for global foreign investment and make America, a “clean tech superpower” in the Financial Times’s phrase— which many critics warn is fragmenting the West. He himself has declared he wants America to be a “world leader” in domestic manufacturing. But…
WHY?
Since the IRA’s passage America’s allies and trade partners have rightly freaked out. Now all their own manufacturers are flying to America to take advantage of the tax credits with content requirements, making EV’s and semiconductors tradewise cheaper to produce. As America becomes a “green” or a “clean” superpower, the EU has turned on us diplomatically seeing us correctly as selfish and unreliable. Emmanuel Macron, if his opinion matters, denounced Biden saying he had “betrayed” his country. Europe also begun stupidly to pull itself apart loosening their state aid rules and implementing absurd net zero emissions regulations, such as the Green Deal, to kill their own auto industry, just like we are, sadly in open contradiction of the purpose for which the EU was created, as an economic bloc constitutionally guaranteeing free trade between European democracies.
This is very bad for the EU, because they have already barely weathered an energy crisis last winter, with massive state spending and large imports of US liquified natural gas. The energy crisis took a big toll on the Eurozone’s deficits, and even with generous social spending, with inflation, it was very hard on consumers. The reason it happened was because of Russia’s invasion of Ukraine, the resulting western sanctions, and Putin’s decision to cut natural gas exports, on which Western Europe was overly dependent. What gets scant attention in the mainstream news though, is the energy crisis wouldn’t have been nearly as hard on Europe if they had not cut natural gas production so much over the years for environmental purposes, leaving them hostage to Russia as their main supplier of oil and natural gas. As Kevin D. Williamson gives an overview in The Dispatch
“Germany began phasing out its clean and efficient nuclear power in 2000 under a left-wing coalition government comprising Social Democrats and Greens; it continued that policy under Angela Merkel and her conservative Christian Democrats. Germany is not alone in its green utopianism. Spain’s Basque-Cantabrian Basin has some 8 trillion cubic feet of recoverable shale gas according to the U.S. Energy Information Administration, but Spain produces almost no gas. In the United Kingdom, the coal-fired power plants were replaced with natural-gas plants for environmental reasons, but then regulators began choking the domestic natural-gas industry, which has left Britons—85 percent of whom heat their homes with gas—dependent on imports. One of Prime Minister Rishi Sunak’s first acts in office was to reinstate the fracking ban suspended by his predecessor, meaning that the 1.3 trillion cubic feet of shale gas in the north of England is going to sit there in the ground, useless—even though a small fraction of it would make the United Kingdom gas-independent for decades to come while allowing it to become an exporter to gas-hungry Europe as well.”
The war in Ukraine will continue to rage potentially for years. To further limit the production and consumption of dirty energy with regulations and taxes, for the sake of the environment, at expense to consumers and the global economy, is a terrible idea. It’s also shameful morally that even as we, ideally, arm Ukraine to the teeth to defend them, Europe continues to import natural gas from Russia at high prices that Putin gets to set. All because of the fanatical narcissism of climate activists, we are propping up a marauding dictator, murdering and torturing innocent civilians, raping women and girls, and kidnapping children.
The other thing is, just when the US particularly is stupidly attempting to economically decouple (they say it’s “derisking,” the Sino-US relationship, but that’s a euphemism; it’s trade warfare) from China, by ramping up EV production we are making ourselves more dependent on and more vulnerable to China in a new way. The reason for that is most mineral sourcing and metals for the EV batteries, happens in China. China also produces and exports most of the world’s wind and solar technology. This means to switch from dirty to clean energy we’re not just going to help Chinese industry, but we’ll become more dependent on it, even while Biden steps up Trump’s extremely dimwitted trade war on China, with “strategic” export bans on “critical” technology. The more this “green transition” progresses, perhaps right when we become the most dependent on China for clean energy technology, Xi will choose strategically to weaponize that dependence in retaliatory fashion for our economic warfare. Jason Bordoff and Meghan O’Sullivan write in Foreign Affairs, “The Age of Energy Insecurity,”
“Even with redoubled efforts to produce more clean energy at home, the United States and others will still depend on China for critical minerals and other clean energy components and technologies for years to come, creating vulnerabilities to Chinese-induced shocks. For instance, in recent months, China has suggested that it may restrict the export of solar energy technologies, materials, and know-how as a response to restrictions that Washington imposed last year on the export of high-end semiconductors and machinery to China. If Beijing were to follow through on this threat or curtail the export of critical minerals or advanced batteries to major economies (just as it cut off rare earth supplies to Japan in the early 2010s), large segments of the clean energy economy could suffer setbacks.”
Of course the Biden administration and the EU hope for the opposite. They are deluding themselves that they are weaning us off dependence on China, because we are supposedly in “strategic competition” with the Chinese by reshoring manufacturing or “friendshoring” or “nearshoring” supply chains, and subsidizing clean energy production. The ambition is to surpass China’s clean tech manufacturing in the dramatic “race” basically to plan the green tech economy of the future, but as I said the cost is tremendous, and China already has the edge on us, and engaging them in this competition especially with severe co2 emissions regulations, we’re committing the grave risk of just securing China’s economic dominance over us in energy markets—if not making military conflict of some kind one way, or another more likely (which nobody should want, though you wouldn’t know it from the way our politicians have been talking). According to Sullivan and Bordoff, China does “60 to 90 percent” of the refining for metals for EV batteries, which manufacture “more than three- quarters” of the world’s EV batteries. An article in the Financial Times the other day appeared with this headline, “New US solar tax credit rules will do little to break dependence on China, experts warn,” —
“The Treasury department on Friday issued new guidance that would only allow US-based solar developers to secure tax credits offered in the Inflation Reduction Act if they made their cells domestically.
“However, because the US has very little production capacity for solar cells, the requirement would mean virtually none of the existing developers would be able capitalise on the subsidy, analysts said.
“Directly and indirectly, the US will rely on supply from China,” said Pol Lezcano, a senior associate at BloombergNEF. “This guidance may encourage more cell manufacturing to take place in the US, but most of the cells used in US solar projects will continue to come from . . . factories in south-east Asia, most of them owned by Chinese companies.”
Here’s an article in the New York Times “Can the World Make an Electric Car Battery Without China?” I read the other morning all about how China dominates: global EV production; refining for minerals, manganese, cobalt, nickel; the supply of battery components, anodes, cathodes—
“Experts say it is next to impossible for any other country to become self-reliant in the battery supply chain, no matter if it has cheaper labor or finds other global partners. Companies anywhere in the world will look to form partnerships with Chinese manufacturers to enter or expand in the industry.
“There is no way anybody is going to become successful in electric vehicles without having some type of cooperation with China, either directly or indirectly,” said Scott Kennedy, a senior adviser at C.S.I.S.”
So, anything Republicans can do to mitigate the domestic economic, international trade, and national security harm of the IRA’s climate subsidies, if not to repeal them, should be welcome without question. Consider Net Zero, or decarbonization, or the green transition, the end of the world for the American economy and global trade.
IV. Halting the Growth of Unaccountable Bureaucracy
Now let’s move on to the IRS funding Republicans want to repeal. In the Inflation Reduction Act, Democrats have allocated a whopping $80 billion to the IRS. The majority of which goes to enforcement. This is the specific part of the IRA Biden touted as lowering deficits. In a facile way it’s commonsense. Giving more money to the IRS to enforce the tax code over ten years should generate more revenue over the long term, collecting taxes more efficiently. But the fact is, according to the Cato Institute, while at best raising a comparatively meager $50 billion in revenue, it will raise compliance costs to such an extent it will be damaging to society and the economy. Especially when you factor in the energy subsidies, supposed to revolutionize how people consume energy, common citizens, small business owners, entrepeneurs will find themselves rather set upon by the IRS, which is in the process right now of rewriting new rules for how people use energy. Also they are attempting to enforce arbitrary regulations, no thanks also to the Democrats. In his Wall Street Journal editorial, “Congress Gave $80 billion to a Lawless IRS,” Travis Nix, a student of tax law at Georgetown, says that the IRS has prohibited 36 listed transactions. He writes,
“One of the few definite action items the IRS included in its 150-page report was an enforcement objective to levy tax penalties against taxpayers engaging in “listed transactions”: practices the service has labeled as prone to tax abuse. These currently consist of a series of 36 transac-tions that the IRS has simply published on its website and in taxpayer notices over the last two decades. The IRS enforces and cites these notices as having the force of law even though taxpayers had no opportunity to voice concerns about these rules. Because the notices didn’t undergo the proper review process to become regulations, they can’t legally be enforced and should be nonbind-ing.
“Congress passed only the statutory rules taxpayers must follow to avoid penalties if they engage in a listed transaction. Taxpayers engaging in listed transactions are required to attach a disclosure statement to their tax return and mail an additional copy of that disclosure statement to the Office of Tax Shelter Analysis. Failure to follow any of these steps exactly results in a minimum $10,000 penalty for each transaction. This penalty applies even if no additional tax is owed and no tax avoidance was committed.
“There is no good-faith defense to this penalty, meaning taxpayers have no recourse other than to challenge the constitutionality of the penalty. Simple mistakes—such as mailing a copy of the form to the wrong IRS office—can incur tens of thousands of dollars in penalties.”
V. Pushing Back Against Social Justice
And let’s go over student loans. There is simply no justification for this regressive, illegal, unconstitutional and crony donation of taxpayer money to the soon-to-be white collar professional subgroup of citizen. It is immoral as Jonah Goldberg eloquently argued in his witty Dispatch article, “Getting Away with Murder Sort of.” And it is economically boneheaded. Because it will just raise the cost of tuition and incentivize prospective students to take out more loans, it creates moral hazard, and it is a recipe for a lending bubble and mass defaults. To lower college costs, the government first just needs to stop subsidizing the student loan industry, To cancel student debt, however, threatens to nationalize it.
The executive also lacks the constitutional authority to “forgive” or rather foot citizen’s bills for them with the money of other citizens. All neoliberals beware, this is the logic of the antidemocratic tyranny of social justice, or “wokeness” if you like, embodied. Where the individual taxpayer has to be sacrificed to promote a targeted group of people for no apparent reason, but the morality rather of a popular cause. If Republicans could repeal this originally $500 million dustbin fire, which recently the CBO estimated will inevitably cost $900 million, great. It’s not much out of a 31$ trillion budget deficit, but to claw the back the money would at least send an important symbolic fiscal message to the nation that “cancelling” student debt is not a permissible way to spend federal money.
VI. Improving the Social Safety Net
Republicans also want to levy federal work requirements for Medicaid eligibility. During the pandemic we loosened rules for medicaid eligibility across the country, with the result that millions of people are on Medicaid who wouldn’t normally qualify for the program. While Medicaid already does require work to some degree, the stricter postpandemic work requirements the GOP proposes, though, would enable over a million more people to raise their incomes enough to get off Medicaid, raise their standard of living, contribute more to the economy, and save 120 billion in federal revenue while conserving resources for those who are actually eligible for Medicaid.
VII. And Why is the Federal Deficit Such a Big Deal?
You don’t have to be a fiscal hawk or a libertarian to be rightly concerned about the US’s government’s finances. The Financial Times’s very centrist Gillian Tett wrote in her most recent column, “Investors are Waking up to America’s Debt Dysfunction,”
“Anyway, what is desperately needed now is not just a short-term ceiling fix, but a long-term fiscal plan to tackle America’s spiralling national debt. However, this will almost certainly require significant reforms (that is, cuts) to social security and Medicare — an idea that both Biden and Trump have ruled out.”
I would argue the same. While my argument for spending cuts hinges on repealing the climate subsidies, I acknowledge the Republican’s bill is not a serious enough plan to reduce deficits over the long term. 4.5 trillion over ten years is a start but we really need budget rules and spending reforms, not just cuts. The problem is mandatory spending; that is, the increasing cost of federal healthcare and social security. In future newsletters, I shall be a strident advocate for bold entitlement reform. Indeed social security and our finances: should be a neoliberal American’s most urgent priority in the 21st century, besides our mounting foreign policy challenges.
Last week’s Economist also left generous space to worry about America’s mushrooming debt, “In God We Bust,”
“When factoring in just a portion of these variables—the higher spending on industrial policy plus the continuation of Mr Trump’s tax cuts—the deficit would average 7% over the next decade and hit 8% by the early 2030s. Year after year, such expansive borrowing would lead to much bigger national debt. On the CBO’s trendline the federal debt would roughly double to nearly 250% of GDP by mid-century. Well before that time the debt clock in New York, which currently runs to 14 digits, would need to add a 15th as national debt passes $100 tn.”
America’s national debt is a huge problem, excuse the pun. I hate puns. By 2030 the debt will exceed 100% of GDP which is considered dangerous for any country’s economy. It is already 90 something percent now. Especially in an era of higher interest rates, and entrenched social spending programs, without reforming them—if we can’t exercise some control over the rate at which we borrow, we are going to shift a greater and greater burden of the cost to finance the government onto future generations, as well as undermine our own power and influence. High debt countries are more vulnerable to market shocks from across the world, and though people are recognizing how bad it would be to default for our credit rating, it would be just as bad for the same reason if we continue to borrow and spend without restraint. Foreign investors will really begin to wonder whether US treasuries have any value sooner than you think, while our debt mushrooms even as we spend more and more on frivolous things like student loan forgiveness or Biden’s “American Rescue Plan, easily his worst policy which, The Economist this week acknowledges, “lit the match” that set off our crazy inflation.
VIII. Reservations
Over the last weekend I have read news that Biden and Kevin Mccarthy have had meetings to raise the debt ceiling. Though admittedly his approach is tepid, Biden has crucially signalled some minimal willingness to negotiate budget reforms. So far, Biden seems open to permitting reform (another brilliant part of the Limit Save Grow Act I forgot to mention which would make it easier for developers to get permits), clawing back unspent pandemic money, work requirements interestingly, and spending caps. This is progress.
However, one thing the GOP has made a mistake on in the Limit Save Grow Act was failing to specify the caps on discretionary spending, as I read in an insightful article in the Dispatch by James Capretta, “Mccarthy’s Debt Ceiling Plan is Based on Unrealistic Spending Caps.”
Ambitions to cap spending at prepandemic levels are admirable. The problem is where this leaves the defense budget. We seriously need to ramp up defense spending to aid Ukraine for a conflict with Russia that can last years, and bolster our own military to deterrence against China in the pacific. It’s urgent that Republicans make room for defense spending which might require deeper cuts to the budget elsewhere. All the more reason they should focus on stripping the net zero climate agenda, which is the most costly thing in sight.
XI. It’s Time for Austerity
All that being said, I don’t want to downplay how important it is that congress and the president work to raise the debt ceiling as soon as possible. Default would be catastrophic. It should be unthinkable. But to better negotiate while saving the most important part of the Limit Save Grow Act, which in my opinion is repealing the IRA tax credits, I think the GOP should limit some of their own agenda.
I think they should back down on repealing student loans and work requirements. The latter is political poison, and because progressives would revile it so much for all the commonsense of it, it’s not worth pursuing. And emergency funding for the pandemic will be over soon anyway, making work requirements less necessary. Comparatively it wouldn’t save that much. Regarding student loans, we don’t need to repeal, it because the Supreme Court is likely to throw it out anyway. That also wouldn’t save us enough. Since we can only seriously tackle the budget by reforming entitlements, I’m less concerned about the discretionary spending cuts than I am with gutting the clean energy spending. The best chance we have for succeeding in that regard, should involve a very tight focus on it. Perhaps Republicans should even back down on the IRS funding repeal. Anything to stop the “Buy American” tax credits would be my strategy if I were in Mccarthy’s shoes. Anything to hold onto the old, meaning the true, Washington Consensus.
In negotiating with the demagogue if Republicans limited themselves to overhauling Biden’s climate subsidies, then we can force Biden to abandon his most deeply harmful policy, save the country from dependency on China, which the Net Zero agenda would necessitate, save the American economy from inflation, and preserve the global economy from fragmentation. It would also offer him a way out politically. He can hold onto student loans, gratifying young voters. He can have the dignity not to give into conservative work requirements. He would only end the green transition which the average voter likely didn’t even know was occurring.
And nor should they, because it shouldn’t happen.
— Jay
There is actually another problem that is that traditional Thatcher/Reagan neoliberals in my opinion really don't have an energy policy of their own. The French Messmer plan in favor of nuclear power was created by the same folks that opposed Western involvement in Algeria, Vietnam, and Iraq. Hardly unapologetic neoliberalism. France's nuclear power sector has always been in direct conflict with the EU's state aid and competition rules.