When it comes to the United States Congress, nothing is ever over until it’s over. But as of late July, it looks as though two major pieces of legislation will soon be on President Joe Biden’s desk, awaiting his signature. The first is the Creating Helpful Incentives to Produce Semiconductors (CHIPS) Act, which will provide tens of billions of dollars to support domestic semiconductor production and research. The second is the Inflation Reduction Act, a slimmed-down version of the failed Build Back Better Act that nonetheless contains hundreds of billions of dollars to support clean energy and incentivize decarbonization across the economy.
Together, these bills are more than enough to flip the narrative about Biden’s first two years in office. Suddenly, the administration’s legislative achievements have gone from “disappointing” to “exceeding expectations.”
By now, many voters have forgotten about the March 2021 American Rescue Plan, which cemented a strong post-pandemic recovery and prevented a repeat of the long, grinding semi-depression that marked the Obama years. Though many commentators have blamed the American Rescue Plan for today’s higher rate of inflation, the truth is that its contribution to that problem was small. Pandemic-related supply issues and Russia’s war in Ukraine have driven up prices globally. But even more to the point, it is better to have a temporary increase in inflation than another lost decade of tepid growth.
No one can deny that it is in America’s interest to have $50 billion in semiconductor manufacturing credits, $200 billion for high-tech research, $370 billion in climate-related funding, $288 billion in drug-price savings, and $450 billion of additional revenues. The country will produce some $325 trillion of goods and services over the next decade. Of that, the US committing only 0.7 percentage points to strategically critical semiconductor-related investments, 1.3 points to increasing tax revenues and enforcement, 0.9 points to drug-price savings, and 1.1 points to combating climate change and decarbonizing the economy.
Viewed in this context, the biggest complaint that one can muster against CHIPS and the IRA is that they are too small. They represent only a minor redirection of resources toward critically important strategic and economic objectives. A rational government faced with the current problems facing America and the world would have allocated ten times more. But, to their credit, the Biden administration and congressional Democrats have done what they can, given the resistance from Republicans and rogue members of their own caucus (namely Sens. Joe Manchin of West Virginia and Kyrsten Sinema of Arizona).
One is reminded of the story that John F. Kennedy once told about French Marshal Hubert Lyautey. Asked to plant a new tree, Lyautey’s gardener “objected that the tree was slow-growing and would not reach maturity for a hundred years,” to which Lyautey replied, “In that case, there is no time to lose, plant it this afternoon.”
All the core features of CHIPS and the IRA are no-brainers. The semiconductor industry will be much healthier if it is pushed away from monopoly and oligopoly, and America will be more secure if it becomes a site for advanced chip manufacturing. To stay competitive in the twenty-first century, the US must remain at the cutting edge of research and development.
Similarly, no one can seriously argue against slightly more progressive taxation to offset a small part of the income inequality caused by years of regressive tax policies. Moreover, slimming down the rents that pharmaceutical companies have obtained by lobbying past congresses is long overdue, as is action to address climate change and accelerate the energy transition. We are now three decades late in doing what we should have done when then-Vice President Al Gore pushed Congress to enact a carbon tax in 1993. That effort was blocked by a lone senator from West Virginia, Robert Byrd, consigning it to a similar fate as the Build Back Better Act.
“Why can’t America make good decisions or good policies anymore?” When one of my foreign-born friends asked me that question a few weeks ago, I had no answer. But now I won’t need one. If CHIPS and IRA become law, Americans will be able to retain at least some hope in their elected representatives.
It would be nice to be able to say that the political culture of “owning” the other side is on its way out. Unfortunately, it is not. The Republican leadership in the House of Representatives did what it could to prevent CHIPS from garnering Republican support, and all but 24 Republicans ultimately did vote against the bill. Republicans oppose legislation that is designed to protect US national and economic security simply because they don’t want to give Biden any more legislative accomplishments. For the party that tried desperately to make Barack Obama a one-term president, partisanship still trumps all else.J. Bradford DeLong
J. Bradford DeLong, a former deputy assistant US Treasury secretary, is professor of economics at the University of California, Berkeley and a research associate at the National Bureau of Economic Research. -- Ed. (Project Syndicate)