Joe Biden’s political outlook has just rebuilt better. The passage of the Chips and Science Act by Congress last week breathed new life into the White House’s plans for industrial policy and support for US manufacturing.
Meanwhile, famed West Virginia Democratic hardliner Joe Manchin, the king of coal country, has made a shocking U-turn on climate change. He agreed to back clean energy investments and health care subsidies that will be largely funded by a 15% minimum tax on large corporations.
So in a week that has been even darker than usual economically – with the Fed’s latest rate hike to fight inflation, dismal consumer confidence numbers and news that states States were now in a technical recession, Biden managed to score a big political victory by doing something almost unheard of in Washington these days – orchestrating a compromise. His victory matters politically. The question now is what this might mean economically.
While the budget bill has yet to pass and the Senate’s support for semiconductors comes with far fewer strings attached to companies than progressives would have liked (Senator Bernie Sanders has referred to as “corporate extortion”), there is reason to argue that simply getting yes in Washington has some economic benefits right now.
Business leaders have long complained that the uncertainty resulting from the political impasse, as well as the lack of adequate federal investments in areas such as basic scientific research and workforce development, have hampered growth plans in the United States.
The $280 billion flea and science bill not only has strong bipartisan support, but makes heavy investments in manpower training and basic science research, as well as in the support for regional manufacturing centers (which research shows has a disproportionately positive economic ripple effect on local communities) .
It can be argued, as Sanders and progressives such as former Clinton-era labor secretary Robert Reich did, that companies like Intel don’t need lavish subsidies to stay in the United States rather than moving more investment abroad. Many progressives believe paying them now could set a dangerous precedent by granting taxpayer welfare to the wealthiest corporations, forcing them to demand future ransom from the government to stay in the United States.
I’m not so sure. Silicon chips are unique, as they are essential for just about everything else. The world needs greater geographic diversity in semiconductor supply. The fact that 92% of high-end chips are made in Taiwan, perhaps the second most politically contested country in the world after Ukraine, is worrying for all countries, which partly explains why Europe has its own chip regionalization effort underway.
While it’s always possible for US companies like Intel to move jobs and factories where they want, I suspect that tighter provisions around dual-use technologies that fall on the legislative picket line will make it more difficult to outsourcing of strategic industries in the future. Regionalization of supply chains, not unfettered globalization, is the future.
The ramifications of the budget bill, whose name has been changed from Build Back Better to Inflation Reduction Act, are harder to predict. That the administration was able to push through a spending bill billed as a way to fight inflation is an impressive piece of political economy ju-jitsu (there’s over $300 billion cut deficit for those worried about excess demand, which helps a lot). But we still don’t know if the compromise will pass. Even if so, its effect on short-term inflation is entirely up for grabs.
The benefit of the bill is that it would allow the federal government to deal with rising health care costs. It would do this by helping poorer families pay health care premiums, and also by capping out-of-pocket drug spending for people on Medicare. This will allow the United States to do what most other rich countries do – negotiate with pharmaceutical companies to reduce prices by using the power of the federal government (the largest purchaser of prescription drugs in the world) to take advantage of scale to reduce costs. This is a no-brainer that could save taxpayers hundreds of billions of dollars.
It is also beginning to address the outsized power of major lobbying industries such as Big Pharma. This, coupled with the fact that much of the bill would be funded by a minimum 15% tax on large corporations, goes a long way towards delivering on the administration’s promise to ensure the private sector pays its fair share. taxes.
Investment in clean energy is also welcome. I am all for investing in electric vehicles, wind farms, solar panels and lithium battery production. It is crucial to fight climate change, which has its own enormous economic costs. This is the best way to encourage a “productive bubble” of widely shared private sector growth. Ultimately, this will lower the price of energy. But this process will take years.
No legislation is perfect. But the past week represented an important first step toward bipartisan compromise on key elements of Biden’s agenda that could have real economic impact. Restoring some sense of confidence that America can still govern itself comes with a reward beyond dollars.