The Inflation Reduction Act does nothing to reduce inflation. Seldom in America’s history has there been a piece of legislation put before Congress so inappropriately named.
If the Inflation Reduction Act was really about tackling inflation, you might expect it would say something about monetary policy. Nope. Or maybe it would change the Federal Reserve’s terms of reference. None of that.
What the Act does do is spend $739 billion. Add that to the $1.9 trillion that this administration has already spent in the name of COVID recovery, and we’re talking some serious money.
Over half ($369 billion) of the Inflation Reduction Act’s $739 billion spending will go to “fighting climate change.” The Act seeks to reduce CO2 emissions by roughly 40 percent by 2030.
According to an analysis by Princeton University’s Zero Lab, the bill would reduce greenhouse gas emissions by 6.3 billion metric tons over the next 10 years. It would do this by subsidizing a massive increase in solar and wind power production. The amount of energy that the US produces using wind and solar power is set to increase from 15 GW of wind and 10 GW of solar in 2020 to almost 40 GW of wind and 50 GW of solar by 2025 – 26.
“Great!”, I hear you thinking. “America would, at last, be producing lots of cheap, renewable energy.”
It won’t be cheap. Unless the Act is able to change the laws of physics, the cheapest way to generate electricity will remain through burning oil, natural gas or coal. If wind and solar were cheaper, the federal government would not be having to spend billions subsidizing the switch.
Here in Mississippi, energy companies are able to charge consumers what it costs them to produce electricity, plus a profit margin (of about 10 percent). In other words, producers do not really have much incentive to produce electricity as cheaply as possible when they know they can pass the cost on to their captive consumers.
Having the local Public Service Commissioners rubber stamp the price fixing process is no guarantee that it is done in the interests of consumers.
What Biden’s latest boondoggle will do is offer local Mississippi energy companies even more incentive to open solar and wind production plants, safe in the knowledge that they can benefit from the federal subsidies and that they can continue to pass on additional costs to ordinary Mississippi households. Various vested interests must be salivating at the prospects.
“But what about the new jobs the bill will create?” some will ask. Lobbyists for various vested interests in our state will be quick to point out that the Inflation Reduction Act will create thousands of clean energy jobs.
The idea that this Act will ‘create jobs’ is a fallacy. As Daniel Hannan recently pointed out in the Telegraph, back in the mid-nineteenth century Frédéric Bastiat used the ‘broken window’ argument to show that you do not make a town rich by smashing up its shop windows. Breaking all the windows might generate lots of economic activity as the shopkeepers rush to employ every available glazier. But what that would do is merely divert labor and capital from other more productive activity. So, too, with Biden’s new Act, which will divert labor and capital from more productive activity and engage them in activity that is inherently expensive and wasteful.
The Inflation Reduction Act represents another step toward the steady socialization of America.
For the past 20 years, Europe has subsidized a switch away from oil, gas and coal toward solar and wind. Renewables have been subsidized and oil, coal and natural gas production are often outright banned.
Today it is becoming increasingly clear that this has been a disaster. Not only are solar and wind simply unable to generate enough energy to keep Europe warm, what they do produce is hideously expensive. So expensive that much of Europe’s manufacturing plant is likely to have to shut down for periods of the coming months.
At the precise moment Europe’s energy disaster starts to unfold, the Biden administration seems determined to emulate it. America deserves better.
Douglas Carswell, President & CEO, Mississippi Center for Public Policy, Cell: + 1 (601) 249-7463, Twitter: @douglascarswell, firstname.lastname@example.org