The Dispatch Podcast - The Inflation Reduction Act, a Libertarian Nightmare

Episode Date: August 18, 2022

On Tuesday, President Joe Biden signed the Inflation Reduction Act into law. Scott Lincicome, director of general economics at the Cato Institute, joins Declan to help us better understand the legislation. What’s actually in the law? How questionable is the budget math?   Show Notes: -Uphill: Breaking Down the Inflation Reduction Act of 2022 -Read Declan in The Morning Dispatch -Read Scott in Capitolism Learn more about your ad choices. Visit megaphone.fm/adchoices

Welcome to the Dispatch podcast. This is Declan Garvey, editor of the Morning Dispatch. And today we're going to talk about the Inflation Reduction Act. After more than a year of negotiations, stops and starts, rebrandings and renamings, President Joe Biden finally signed the Inflation Reduction Act into law this week. While significantly downsized from its original buildback better version, Biden's landmark climate and health care legislation makes significant changes to our tax code and is being hailed as the biggest federal investment. in climate change mitigation efforts in American history. It's also, as this week's guest, Scott Linsicum argues, a libertarian nightmare. Scott is the director of general economics at the Cato Institute and the author of the Capitalism Newsletter here at the Dispatch. On today's episode, we talk less about the politics of the bill and more about what he sees as the biggest problems with what's actually in it.

From its questionable budget math to its Jekyll and Hyde approach to business investment, and it's doubling down on green energy subsidies that didn't work out so well a decade ago. Plus, stick around until the end for a conversation about why industrial policy is seemingly the only thing lawmakers in both parties can agree on nowadays. Scott, welcome to the Dispatch Podcast. Oh, thanks for having me back. Before we drill down on kind of some of the specific provisions, I want to take a big picture look at the overall size of the bill. You know, Democrats labeled it the Inflation Reduction Act,

I think mostly so that Joe Manchin could declare build back better as dead in his press release announcing it. But there's, you know, been plenty of debate over whether it actually will bring down inflation, whether it will reduce the deficit the way that they say. you know, purely on a revenue raised money spent calculation, a couple nonpartisan estimates from the Congressional Budget Office and Joint Committee on Taxation, have found the legislation would reduce the deficit by about $300 billion over the next decade. That's obviously if the extensions to the Affordable Care Act subsidies are not extended beyond the three years

that they currently are in this legislation, which is not a fair bet per se. What is your thought on all of that? Are those estimates an accurate reflection of how you see this legislation playing out over the next 10 years? Not really. No. Look, you know, unfortunately, we've really got to the point where gaming CBO scores is like an official sport in Washington, that when you front load some of the spending, but then assume that it's going to continue like the ACA sub disease, right? So we're going to front load that spending, but only for three years. And, of course, CBO has to deal with a 10-year budget window, right? So you know that going into it. So then you add a bunch of taxes at the back end, right? So taxes aren't going to kick in.

The majority of the taxes aren't going to kick in for a while. So you're just gaming the 10-year window, right? And if you end up extending out the ACA subsidies, if you end up assuming, that some of the tax increases might not ever get implemented or might cause distortions that people owed, I don't really like this, like for the book tax or the buybacks tax, then all of a sudden your budget estimates change dramatically, right? And everybody in Washington knows this, and it's unfortunate because, you know, the CBO is a legitimate entity. They have an important job, but, you know, they have to do what they're, you know, what they're told to do

in terms of when it comes to these budget projections. And everybody in Washington, of course, knows it. And so they gain the whole thing. In that regard, you know, that's that you want, so that's the budget side. And then on the inflation stuff, I mean, come on. It's, it's really ridiculous. Particularly again, since you have front-loaded spending and backloaded taxes, is that the taxes that might mute inflation a little bit, none of the quote-unquote supply side, which is a distortion of the term anyway, but none of the expansions of supply

energy or whatever are going to come online for a few years. And so because of that, if anything, in the near term, it's going to, it'll goose inflation a little bit. But you're not talking about, you know, this is not the American, American Rescue Plan. This is not some of these others that are just massive injections of cash into the economy. So if anything, I mean, you know, a modest increase in inflation probably, but

I mean, modest, right? Some of the estimates I've seen are, you know, like from the Tax Foundation or whatever. It's like a 0.1% decrease or, I mean, who cares, right? Again, it's, and quite frankly, it is Orwellian. I forget, what was that, John Carl, who said that yesterday, it is. And I'm, I hate that I have to call this thing the Inflation Reduction Act when I talk about it. I prefer IRA. I'm just going to call it the IRA. I don't care that there's another IRA out there because I refuse to play this idiotic game of, I mean, you know, what's next we're going to call things the, you know, rainbows and puppies act. And it's, you know, it's just more Washington nonsense. Usually, at least it spells out something in a catchy acronym. The, you know, we didn't get that

this time around. So we got that going for us. Like Mike Lee's formula act, my favorite maybe ever, that they spelled out formula by using this was the infant formula bill. Little Americans was at the end to get the L.A. I mean, really brilliant, brilliant stuff, whoever came over. Yes. I was originally planning to save the dessert of the conversation, the taxes aspect of this bill till the end. But I think since, you know, you touched on a lot of it there, we can kind of move that up towards the front. in these estimates that maybe I should stop citing because they're not as authoritative as you might assume, they basically point to new taxes raising about $500 some billion over the next 10 years, something like that, and then an additional $200 billion in health

savings from allowing Medicare to negotiate drug prices and institute some. price caps on specific drugs. The biggest one of those taxes is a new 15% minimum tax on corporate alternative minimum tax. You know, this is something that it kind of evolved out of a talking point from the Democratic primary that the biggest companies in the United States don't pay any taxes, that their tax bill is literally zero and that, you know, we need to do something to make sure that the Amazon's and the apples of the world. paying their fair share. Is that a fair characterization of, you know, would Tim Cook say that Apple pays no taxes? No, of course not. So there's two bits of idiocy in this whole book tax thing. The first is the rhetorical stuff about companies paying no taxes is mostly nonsense. And it's mostly nonsense for two reasons. One, because some of the reason why companies occasionally pay no

taxes, particularly in the tech sector, is because they actually made no profits, right? I mean, particularly if you look at some of the earlier years of companies like Amazon and others, they were actually losing money for years. And when you lose money, guess what? You don't pay taxes. This isn't surprising. And then the law allows you to carry forward these losses through subsequent tax years, because if you lose a trillion one year and then make a billion the next year, the law lets you, you know, spread out that trillion dollar loss over a while. So again, that's just the law. And then that gets to the second part of this nonsense about this. The main reason why American companies don't pay any tax

is not any sort of nefarious schemes or anything like that. It's not about tax havens or rest. Those certainly there are, you know, little things that companies do with intellectual property in Ireland and the rest. But the biggest reason is because these companies are acting within the law to minimize their tax burdens through things like R&D investments, tax credits and other, so tech, things that are, that Congress has put in the law to encourage these types of business activities, capital expenditures, research and development, green energy usage, you name

it. The companies then do the things Congress wants them to do, thus lowering their tax liability, and then Congress screams at them for having little to know tax liability. These are the types of things that it makes it difficult to be a policy wonk at times because it is such a stupid argument. They are basically doing what Congress wanted them to do. And Congress, of course, will take credit when business investment goes up, when usage of solar panels or whatever Congress has incentivized through the tax code goes up, they will say, aha, we did it. We encouraged solar panel usage or whatever, and then in the very next breath, they will say, oh, these darn multinational corporations didn't pay any tax. I mean, it's just, it's, again, makes you want to throw your computer out the window sometimes.

Again, you're not wholly in politics if you're like me and you're a dork who just wants to write about policy and not deal with that type of stuff. So that's the, so first, first big reason is a lot of that. rhetorical stuff is nonsense. But the second big reason is that book tax is not what matters when it comes to paying tax, right? So the book or book income, excuse me, book income is what they report to shareholders. And it's just a different system. And it doesn't include, again, some of the tax credits and other stuff under the law that determines your actual IRS tax liability. This, again, has nothing to do with any sort of nefarious tax avoidance. It is simply that you have two different

systems for determining what is income, right? Now, the big problem, I think, with the book income idea, quite frankly, is that book income is a very malleable thing too, right? We talk about taxable income being malleable. You know, you can maybe classify certain things as R&D so that you get extra tax credits or whatever. Well, at least Congress has a say in all of that. When it comes to book income, there's an unelected board of accountants in, I think, Delaware that determines what constitutes book income or not. So all of a sudden, we are essentially empowering a small cadre of pencil pushers in the private sector to determine very, very consequential things about about book income. Because again, the tax, the new law says that if you make over a billion

dollars in profit, you're going to pay either the normal tax system or you're going to pay on your book income, which again, book income, minimum book income, 15% on determined by these accountants in Delaware. So that just opens itself up to all sorts of gaming, like I said. But I think the other big thing that people haven't really thought about. reason why I think a lot of these projections are stupid, is the uncertainty involved. I mean, if you're a company, you really don't know at the beginning of the year whether at the end of the year you're going to have book income up or taxable legal income, whatever we want to call it, down. Who knows, right? It's going to depend on a lot of factors that are way outside

of your control. And that type of uncertainty could very well be muting economic activity. So not only you're going to encourage all sorts of gaming, but you're going to be injecting more uncertainty in the U.S. economy. Uncertainty tends to depress investment and whatever. So why is this increasing, why is this a bigger problem for the book tax? Well, if you look at the JCT's score of the book tax, you see that the industry that is affected the most is manufacturing. So the, sorry, the sector that's, and particularly chemical manufacturing, but all manufacturing. So we want to encourage investment in manufacturing. Another big area that gets hit is real estate, which, again, we want to encourage construction, housing, whatever.

And by essentially making those the industries that are like the most uncertain when it comes to this new business tax, you could be potentially depressing investment in those sectors. So that, again, makes no sense. And I forget who it was on Twitter, but basically said very smartly, I think, we did this a long time ago. It was stupid. We moved away from it. Now we're back. And we're probably going to move away from it again in a few years.

And quite frankly, that's one of the big problems with economic policy overall, is that it seems to change every four years with whoever is in power in Washington. And, again, certainly that's going to have a depressing effect on economic. activity. Right, right. And it's not, as we can see, it's, you know, it's not going to be just these businesses that are that are paying the price for this. I think you talk about some of this kind of split between, you know, on the one hand, we want to increase taxes on these businesses. And in effect, you're taking away the tax credits that Congress has previously enacted to, Except, of course, they carved out the news tax credit. So the semiconductor tax credits go and get

touched and a couple other tax credits, which is, it's just all, you know, string pulling and economic planning from Washington. I mean, you know, and again, it makes libertarians like me. It makes my skin crawl. But, you know, look, the only way you can push companies to do what you want is to have certain tax burdens and then exceptions to those burdens and the rest. And that's just, you know, kind of classic Washington playbook. The other thing I would just add is that, so that, I mean, are we going to talk about the dividends tax next? Or, yeah, or the buyback.

Byback, excuse me, buybacks. Yeah, buybacks tax. I mean, that's the other. I mean, I think that, so the book one is foolish. The buyback one is just absolutely moronic. But it's, they kind of in the same way. you know, first is that there's this weird idea in Washington, particularly among left-wing Washington, but also among populists on the right, that buybacks somehow subtract from business

investment. So you've heard, for example, that if Abbott Laboratories, the infant formula maker hadn't initiated stock buybacks, it would have, you know, kept up its equipment and not, you know, had this infant formula shutdown and FDA inspection of the rest. But that's, I mean, anybody who understands corporate finance knows that that's absolutely nonsensical, that companies engage in buybacks for all sorts of reasons, and more importantly, that there is no reason why a buyback must necessarily subtract from capital expenditures, because you can simply finance capital expenditures through all sorts of other means. Maybe you just have cash on hand. Companies are sitting on tons of cash. Maybe you want to take out debt, right? Maybe because interest rates are at zero like they were. There are all sorts of ways you can finance capital expenditures. The other end studies have shown that there is basically no connection, no correlation between stock buybacks and capital expenditures. And in fact,

in 2021, we had a ton of buybacks. Everybody's screaming out buybacks, but we also had a lot of capital expenditures at the same time, and by many of the exact same companies. So there's no reason that this is something that must be disciplined. And again, there's a potential for this to create all sorts of distortions, because buybacks actually can do some important things. you know, signaling the availability of new investments in the industry or whatever. And so this is just going to simply distort those decisions.

It makes not, it doesn't make a lot of sense. And it's not going to, the other thing is it's not going to, I mean, the good news, I should say, is it's not going to raise much money or have much of an economic effect because it's, it's 1% not a game changer. If it stays at 1%, yes, eventually. Well, yeah. Well, that is, that is true. And it is the camel's nose, right?

I mean, once we've started down this road, what are we going to do next? But like any good libertarian, I'm eagerly awaiting the ways that corporations and their crack legal and accounting teams just get around all of this, right? Because let's face it, there are always loopholes that are always creative ways to do this that won't run afoul of the feds. I'm sure that several of the congressional staffers that wrote this law are going to cash out soon and go to big five accounting firms or giant corporations, and they'll be figuring this out soon enough, because let's face it, that's what they always do.

Why would anybody ever be a libertarian? So, I mean, we have, we throw great parties, and let's face it, being endlessly disappointed means really you're never disappointed, right? It's always, I mean, I expect this type of stupidity. So you teed it up a little bit there with, you know, companies are going to be able to find the right accountants and find ways to minimize the economic damage, so to speak, that this will have on their ultimate tax burden. Will that get harder with the, you know, $120 some billion that is included?

included in this bill for additional IRS funding, you know, hiring up to, I believe I saw 90,000 or so new IRS agents. You know, there's this idea out there that, you know, for every $1 spent on IRS enforcement because of a either real or imagined tax gap, there will be more revenue coming in because there's just so many tax cheats out there that are not paying their fair share, and if we only had more resources, we would be able to find them. What say you? It's a great theory, but it does run into some reality problems. The first, well, first I let's note, I don't have any problem, even as a taxationist theft libertarian, giving the IRS basic resources like new computers and whatever, right? You know, there have been some stories floating around,

and I think that are totally valid about the IRS was still using like computers from the 60s and still using like paper, you know, actual paper, which, I mean, who uses actual paper for stuff? And, you know, so that kind of stuff I don't have a problem with. I also don't have a problem with boosting. And there's some money earmarked for particularly for that, for systems upgrades. I also don't have a problem with the IRS having more for customer service. service, right? Customer service, let's face it, at the IRS, could stand a little improvement, right? But the problem. The problem is that more than half of the money goes to enforcement,

right? And there are no guardrails on how that enforcement is going to occur. Everybody wants to talk about, oh, we're going to go after the rich, we're going to go after evil corporations and all that kind of stuff. But the reality is that going after the rich and evil corporations is really, really hard. And when the IRS has faced challenges in the past with enforcement and achieving the type of return on Congress's investment that Congress demands, well, what has the IRS done? It is actually gone after poor and middle class people who don't have armies of lawyers to defend themselves, who really, you know, basically are up the creek when the IRS calls, right? So without any sort of guardrails, without any sort of direction there,

I think you can easily envision a scenario where the IRS starts out very well-intentioned. We're going to hire all these tax cops and go after all these rich people and stuff. And then after a few years of endless litigation by teams of very smart lawyers and accountants at companies and hired by, you know, the richest people in the world, the IRS is going to go, man, this is really hard. And we're not really winning a lot. We're just stuck in court. And then Congress is going to come calling. They're going to haul the head of the IRS and, you know, to some sort of show trial deal in D.C. and they're going to say, where is this enforcement revenue we were expecting?

And then they're going to say, okay, well, let's, how can we improve our return? And then they're going to go after the poor and middle class again. So that's, I think, the concern. It's not that the IRS is like biased against the poor or anything like that. It's just human nature, right? That they have their own personal incentives and pressures, particularly after a few years of lackluster enforcement and lackluster returns. And human nature is going to say pick the low-hanging fruit, particularly when you're a bureaucrat. And so I think that's your more likely scenario.

And again, it comes from the lack of any sort of procedural checks on what the IRS can and can't do with this new money. So give them new computers, but I don't think 80,000 new enforcement agents, which is admittedly over a window of time. It's not like tomorrow. I don't think that's going to be the best use of my money. Not long ago, I saw someone go through a sudden loss, and it was a stark reminder of how quickly life can change and why protecting the people you love is so important. Knowing you can take steps to help protect your loved ones and give them that extra layer of security brings real peace of mind. The truth is the consequences of not having life

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may vary. Rates may vary. To kind of transition this conversation a little bit from, we talked about all this new money that the government's going to have at its disposal, how are they going to spend it? So we've got, you know, the initial about $100 billion going towards what we talked about earlier, the extension of Affordable Care Act subsidies, again, for three years. It will probably be extended again in three years and in perpetuity, as well as some Medicare reforms and additional subsidies there. I want to talk a little bit more and focus a little bit more on what, this bill does for energy and climate tax credits and subsidies. It's being hailed and possibly accurately as the biggest federal climate change piece of legislation

in terms of money, not necessarily in terms of impact, but, you know, we've got just ticking through $37 billion in clean manufacturing tax credits, $160 billion in clean electricity tax credits, conservation, rural development, forestry, $35 billion, goes on and on and on. is this the best way you know obviously i think there's not necessarily anything wrong with you know promoting transitions to cleaner uh energy towards fossil fuels away from fossil fuels has to be done at the right pace has to be um you know balanced with a global scale and a global effort here um but is this the right way to go about it in in your view oh no it's a horrible way to go back every question that i have is just scott is this is this is there anything good

about this bill? It's terrible. Well, look, I mean, I unfortunately, even the stuff that I could be generally on board with, they screwed it up. So let's take, as a starting point, it's really important to acknowledge that private investment and private demand for green energy and green clean technologies, whether it's electric cars or batteries or solar panels and windmills or whatever, has been skyrocketing over the last couple years. Wall Street Journal had an article, just a month and a half of a letter or whatever. People who read my newsletter, I actually, I linked to it in there in my piece last week, not this week's piece, but the piece last week.

So on the 10th, I think, that there is a massive demand right now for growing. green and clean energy. The problems in the United States economy right now are far more on the supply side of energy production. You know, we have all sorts of stupid supply side restrictions on the deployment of clean energy technologies. We have tariffs on solar panels. We have the Jones Act, of course. I get points for always, I have to mention the Jones Act every podcast I do. that restricts the deployment of offshore wind facilities. We have, of course, tons of environmental regulations and environmental permitting rules that delay or thwart solar panel arrays or, you know, all sorts of other clean, geothermal,

even hydroelectricity stuff. So we have a lot of supply-side stuff. And a guy over at R Street just for a great piece about a week ago that said that those supply-side things are just even discrete supply-side reforms would provide more bang for the buck. And of course, zero bucks. It's not taxpayer dollars here than the entire clean energy chapter of the IRA. So that's the first problem. And the second is that the IRA just simply goes after the same demand stuff that we already, like I said, demand is fine. We have tons of demand.

It's just boosting, it might boost demand a little more. However, there's two big problems with that. One is that there's just as much a risk of crowding out private investment in these very same sectors instead of encouraging even more investment. So once the government gets involved, for example, it starts picking winners and losers. You know, I hate industrial policy. I've written a ton about this. But, you know, one of the problems with industrial policy is that the folks that end up winning the subsidies might not actually be the biggest invest and most innovative. Private investors might say, you know what, the government's going to handle this investment. So I'm going to go invest in something else that the government isn't involved in. Or I just, this is too uncertain because the government's involved, not going to do it. So there's a chance that it simply crowds out. And I think if you look at the history of U.S. Green Energy subsidies, because we don't have to go back very far, go back to the Obama stimulus, the American Recovery and Reinvestment Act in 2009, there's a lot of evidence that in a lot of sectors, government involvement, again, in renewable energies, clean energies actually crowded out investments, didn't actually boost them above.

And let's face it, here we are 10 years later saying that there's a big problem, we have it, we don't have enough, you know, we're losing the clean energy raise. I mean, we just did this a decade ago. You know, President Obama said he was going to make the oceans recede and do all that sort of nonsense because of that stimulus bill and we're back just now bigger, batter, and better than ever. So that's the first problem with the demand side subsidies. The second problem, though, and I think the bigger problem, is that Congress, in typical Congress fashion, has attached all sorts of strings to these subsidies. Most notably, there's a boatload of protectionism. Your car batteries have to be made in America. Your electric vehicles have to

be assembled in North America. Your advanced manufacturing tax credits have to have some American-made content. There is, of course, good old, you know, fashion labor and Davis-Bacon prevailing wage restrictions and all sorts of stuff that will inevitably increase costs. So we're going to get less bang for our investment buck, because if these were the cheapest available sources, well, we'd be using them already. There'd be no need for restrictions. But the other thing is that they're just going to admire things in paperwork, bureaucracy, and the rest. And again, we did a lot of this in the Obama stimulus, and we had bi-American restrictions and stuff, but these are actually much worse than last time around.

And it ended up delaying projects, and it ended up really undermining the efficacy of these demand-side subsidies. So what's a better approach? Well, there's two things. one is, you know, we, like I said, we have those supply-side regulatory reforms. That's a place to start. Two, is we could do simple things like a carbon tax, right, to the extent that we want to account for the externalities that are caused by carbon emissions and fossil fuel production. Well, economists will tell you, the easiest thing to do is tax that. Now, that does raise some implementation concerns, but that's easier, or at least more efficient and would be far better

at getting capital to flow or capital needed to flow. But the last thing is, if we want to do consumer subsidies, just do consumer subsidies. Stop attaching any strings to them, right? You know, if you want to encourage people to buy EVs or use solar panels, just give them a tax credit and be done with it. Don't give them a tax credit for solar panels that just happen to be made by somebody in Ohio or whatever. I mean, it's probably, you know, it's always got to be Ohio.

And, you know, you don't, because once you start adding all the, strings, you end up not raising costs, discouraging deployment, and the rest, which is exactly what you want to do, right? And so, you know, as I wrote last week, Congress really revealed its priorities when it attached all of these protectionist measures, which are just a big sop to big labor and certain domestic companies, and are going to inevitably restrict the deployment of these clean energies, which, of course, is such a joke. I mean, if climate change is the existential crisis of our lifetimes. You know, maybe we don't have to pad labor unions bottom line for once. Maybe we could actually, you know, just get the job done here. So I think that

overall, you know, again, I'm somewhat morbidly fascinated to watch this all play out because my guess is that once again, we're going to see a bunch of problems with that. And I don't even have to mention the fact that, you know, Europe and Korea and others, who should be our allies in this, right? We are all kumbaya global partners. Don't even worry about China. China, okay, China's terrible, whatever. All of these other countries that are excluded from all of these new renewable energy subsidies are already threatening to retaliate, to file WTO cases, or to implement their own protectionist measures that's, again, just going to restrict and further distort the the market. If this is a global problem, right, we need global solutions. The last thing we want to

do is, you know, piss off the Europeans just because, again, we're trying to placate domestic constituents. Right. And especially if you look at, if you view as I think is the correct way to view this, climate change and, you know, carbon emissions as a global problem, like the United States bringing its carbon emissions down 30% by itself would not do anywhere near or close to what a lot of the scientists are saying is necessary on this front, then you need these technologies to be as cheap and affordable and available as possible worldwide, not just in the United States. And so, you know, what will these subsidies do?

I mean, are these companies going to be incentivized to make costs as low as possible for people in Africa and people in Southeast Asia to, you know, adopt these technologies to bring them into everyday use in these countries where that would make a much bigger difference than it would. would here. Right. Yeah. And in fact, you don't have to take my crazy libertarian word for all of this. The fact is that there was a guy named Barack Obama whose administration actually tried to negotiate what was called the Environmental Goods Agreement that was going to be a global agreement to lower tariffs and other trade restrictions on the deployment of clean energy technologies,

with exactly the idea, as you discussed, that we need to make the consumption of clean energy products as cheap as possible. And we want to encourage the production of those clean energy products anywhere we can, particularly because we don't know who's going to come up with the next big, great thing when it comes to clean our energy development. And we don't want to discourage companies abroad, whether they're in Africa or Asia or wherever, from coming up with those technologies and developing those to service the U.S. market and their own markets. So Obama wasn't perfect. he imposed stupid tariffs on solar panels. But at the same time, his USTR was far, far better and smarter about tackling the global problem of climate change by trying to eliminate supply-side

restrictions on, again, the global deployment. Unfortunately, today, Biden's USTR is very much not of that mold. And quite frankly, has been extremely depressing when it comes to essentially championing the industrial policy and protectionism that's embedded in the IRA and then in the chips, the semiconductor bill as well. Right. And I think we might have buried the lead here a little bit. Am I right that there are currently zero or next to zero electric vehicles on the market in the United States that will qualify for these subsidies because almost all of them use batteries that are produced elsewhere? Yeah. And I think that's the most egregious example, right? that they put so many restrictions on the EV tax credits that no cars currently qualify.

And the hope in Washington, and it's so hilarious, the hope is that K Street, the lobbyists and the corporations will somehow convince the executive branch to water down these restrictions via regulations, because, of course, the law has to be implemented via regulations, that will thus then magically make EVs start to qualify, right? And then the long-term plan is that someday the EVs will be made in America and the batteries will be made here and then they'll qualify. But that again, that totally belies the idea that climate change is an urgent threat demanding immediate attention.

If you're saying, no, it's fine. In five years, the EVs will qualify. Well, look, I thought this was an urgent problem, right? No, it's fine. We can wait five years if, you know, again, we're giving some job to some dude in the industrial Midwest or West Virginia or whatever. Never mind, right, that there are 850,000 job openings in the U.S. manufacturing sector right now. Never mind that unemployment is at three and a half percent. Unemployment in the tech sectors at one and a half percent. I mean, we are not, it's like the hottest labor market ever and we're still like obsessed with with like manufacturing

jobs for some reason it's people's priors like never change yeah well i i want to move on from these subsidies just because i think the the vein and the top of your forehead is going to pop if we if we spend too much more time on them but just kind of zooming out a little bit too uh you know you mentioned it there that this is kind of a recurring theme in the abid administration this far with the Chips Act and with this legislation, these subsidies, things that were in the American Rescue Plan, kind of this more supply side subsidies and kind of incentives from the federal government. I'm not entirely convinced that if Republicans retake Congress in 2022, the White House in 2024, that we're not going to see a similar version of the same thing here.

It won't necessarily be propping up solar panels and electric vehicles, but different industries, whether it be, you know, coal or agriculture, things like that. For sure. You know, why is it that both parties seem to be coming to a increasing consensus around industrial policy and using the federal government to really change how these industries operate? So I think there's three big reasons. Reason number one is Donald Trump.

Really kind of changed the calculus on Republicans' views on not just trade and immigration, but on markets generally. Trump was very much an interventionist. He wanted to conjure companies to make stuff in America. He was very much into doing that. And they also liked industrial policies. So that, I think, warmed Republicans up who had been traditionally against that type of interventionism,

mostly, unless it's in the farm sector, right? Then, you know, they're fine with it. But in the industrial sector, right, they were against that type of stuff. Now all of a sudden, you know, it's fine. and then the trumpier ones, of course, embrace it fully. Two is China, China, China, China, China. Everybody in Washington has convinced themselves that China is an existential threat

and that China's greatness has been derived from massive industrial subsidies. Now, again, this is a classic case of people not updating their priors. You know, maybe you could make the argument that China was some sort of unstoppable industrial juggernaut a few years ago. Today, China's flaws are quite manifest, right? Zero COVID, demographics, productivity. Again, I wrote a whole newsletter on this. Everybody out there, feel free to Google it. And I go through the list, right? There's a ton of different things that undermine the idea that we need to abandon the American system to fight China. But it doesn't matter. In D.C., everybody's convinced on the left and the right that we have to do this, that

China subsidizes so must we. And regardless of how much I scream on the internet, nobody listens to me. And then the third big reason is the pandemic, right? So the pandemic, inevitably, as I've written a million times, screwed with supply chains, made people very insecure. Americans don't like empty store shelves, and they don't really ask questions about how the store shelves got empty. Politicians see that and want to offer solutions. And the reason libertarians aren't in power is that, hey, it'll be fine, is not a solution, right? No matter how many times I say, actually, guys, the supply chains adapted pretty darn quickly. And actually, private industry and investment in the United States did pretty well. Actually, we have tons of

industrial capacity here that we redeployed to make, you know, vaccines and hand sanitizer and things. Nobody wants to hear that, right? They want to hear, where's our plan? Where's our plan to fix this, right? And, oh, it just so happens to dovetail with the, you know, the Trumpian stuff I mentioned before and the China stuff before. And so you have all these folks that think we have to solve supply chain stuff via new industrial policy and protectionism. And, you know, like I said, It serves political ends. It serves geopolitical lens. And so it's a, it's just crack for politicians, right? They are so attracted to these ideas right now. And quite frankly, you know, a lot of people in Washington who are otherwise quite smart and level-headed have been seduced by this stuff too. I mean, I get emails all the time from like, you know, think tanks and stuff that are all of a sudden they're, it's like they're speaking in alien language. And it's, it's surprising. But I think you combine those three factors, and it really creates this perfect storm for this type of stuff.

And no amount of rational thought and facts and whatever is going to change it. I mean, you would think after the baby formula crisis, which, of course, was a product that was almost entirely made in the United States. 98% of all consumption in the United States was domestic production, domestically produced in Formula. We had tariff walls. We had government contracts. We had onerous regulations.

We had everything that industrial policy fetishists love. Everything. And a single factory closure collapsed to the market. It still collapsed. I mean, it's like six months later, and we're still suffering from empty store shelves. President Biden's airlifting German baby formula in on C-130s. Congress is enacting emergency legislation to lift tariffs. And yet, it's like that happened in a vacuum.

And I mean, nobody, they're like, okay, we're going to lift Terrace on baby for me. And oh, by the way, now we need every domestic, every semiconductor being made in America. And you, you, again, as a sane, somewhat sane, libertarian, I'm staring at this just like, I don't understand. Why can't you the left hand talk to the right hand, but look, that's Washington for you. Would you support industrial policy to subsidize the Texas Rangers signing some more starting pitching? Yes, for sure, 100%. Look, national security is a viable and valid exception to free market principles. And there is no team that more represents the United States of America than the great Texas Rangers.

In the green room, we were talking about the Scott's team just fired their general manager and their manager and are going through it a bit right now. But, you know, the Cowboys are football season's coming up. you're going to be all right. Yeah, but I'm not much of a Cowboys fan. I mean, I root for them out of knee-jerk loyalty because I grew up in Dallas, right? But I generally, I'm pretty numb to their failures. My Rangers fandom is far deeper. And to the audience, look, I mean, I do have an excuse for being a bit of a psycho on this, you know, having the Rangers be a single out away from their first world series. And having watched that in my living room, I mean, I still, it's like burned into in my brain. I can't hear the words Nelly Cruz without starting to go into convulsions. It's not my

fault. I mean, this is a perfectly legitimate, medically diagnosed condition. And on that note, Scott, thank you so much for joining us and enlightening us to the Inflation Reduction Act and why it's a libertarian nightmare. My pleasure. Anytime. With Amex Platinum, Access to exclusive Amex pre-sale tickets can score you as far trackside. So being a fan for life, into the trip of a lifetime. That's the powerful backing of Amex.

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