From the Left
by Lance Simmens
Let me begin by stating right up front: I am not an economist — you know, one of those academics who constantly begins sentences with “on the one hand … but on the other hand” and then proceeds to pontificate for an hour using enough statistics to completely befuddle the mind while never reaching a definitive conclusion. Furthermore, I refuse to follow the path of a political economist who abides by the mantra “statistics don’t lie, but liars use statistics” either. So the huge task before me in this column is to try to make sense of a piece of legislation that has gained significant traction for Congressional passage known as the Inflation Reduction Act (IRA) 2022.
Congressional staff, including yours truly at one point in time, spend considerable effort at coming up with clever names for legislation that often have little bearing on any ability to accomplish its designated purpose; however, it does make for entertaining shorthand. But make no mistake, IRA is in the immortal vernacular of former vice president and now President Biden a BFD (for the uninitiated a Big Friggin’ Deal).
It addresses demand by raising revenues $313 billion through a 15 percent corporate minimum tax, $124 billion through better IRS tax enforcement, and $14 billion by closing the carried interest tax loophole. It increases supply by investing in domestic manufacturing and deployment of reliable clean energy. It reduces consumer expenses by capping Medicare beneficiaries’ out-of-pocket costs for drugs at $2,000 per year, and provides money for home energy rebates, consumer tax credits for energy-efficient homes and vehicles, and grants to make affordable housing more energy efficient. These measures would help reduce energy costs for families by more than 10 percent on average. It is projected to reduce the budget deficit by over $300 billion over the next decade.
It contains $385 billion in spending and tax breaks for efforts to combat climate change by curbing carbon emissions by 40 percent by 2030, the largest commitment in history, and allows Medicare to negotiate drug prices for the first time.
While the bill is considerably reduced from the initial $3 trillion Build Back Better bill proposed by the Biden administration a year ago and effectively stalled by opposition from West Virginia Senator Joe Manchin and Arizona Senator Kyrsten Sinema. Assuming their support, the now-required 50 votes for passage will be secured, although it is likely to draw consternation if not ire from more progressive Democrats in both houses of Congress.
With the looming midterm elections this fall, it is emblematic of the degree to which negotiation, compromise, and consensus are such integral components to the mosaic that is the American form of representative democracy. Inevitably, certain groups within the Democratic Party will have to bite their collective tongues and hold their noses in order to support the legislation; however, there is little doubt this is the best deal that can be struck at this juncture.
Whether or not it will forestall what often is viewed as an inevitable slowdown or outright recession is likely to be the subject of vigorous debate moving forward. One thing that is for certain, however, is the economy and the travails that have been visited upon it by the COVID pandemic, accelerating climate change, and the Russian invasion of Ukraine render the current economic picture clouded with uncertainty.
But this much is certain: The U.S. economy grew faster last year than in has in nearly 40 years. The number of jobs added to the U.S. economy since January 2021 is approaching 9 million, while 96 percent of jobs lost at the start of the pandemic have since been regained, and projected 2022 real GDP growth, according to the Congressional Budget Office, is 3.1 percent. According to the International Monetary Fund, the U.S. economy will grow faster this year than most other advanced economies. This is not your grandfather’s economy.
In the meantime, traditional standards of identifying a recession, namely when there are two consecutive quarters of negative GDP growth is competing with the fact that the unemployment rate and layoffs remain at historic lows, while job openings are at near-record highs. Such anomalies cast a considerable degree of argumentation over the likelihood that we are either in or entering a recession. Further, because of various lag times in some of the variables that are also looked at by the National Bureau of Economic Research (NBER), the official recession scorekeeper, oftentimes a recession is not even apparent until it is over.
Quite simply, it is too early to gauge the success or failure of the Biden administration’s efforts to tame inflation, but it is safe to say that we all should be wishing that it works. That is the American “can do” spirit at its best, so buckle up it promises to be an interesting ride.