By Jon Sanders
It was quite the spectacle. Pres. Joe Biden threw a White House lawn party September 13 to celebrate the “Inflation Reduction Act” (IRA). The timing deliberately coincided with the release of the new Consumer Price Index (CPI) numbers, the first since the ridiculously named Act passed four weeks prior. Those numbers showed that food prices had risen by 0.8 percent in the past month, as had medical services. They were tempered by a 10.6 percent decline in gasoline prices, but the overall 0.1 percent increase had overturned expectations of a monthly decline.
Over the past year, the CPI showed year-over-year inflation was at 8.3 percent, sustaining an intolerably high level not seen in four decades. Year-over-year core inflation was at 6.3 percent, also higher than expected.
“This bill cut costs for families, helped reduce inflation at the kitchen table, because that’s what they look at — how much are their monthly bills and how much do they have to pay out for their necessities,” the President said.
CNN could no longer endure it, quickly cutting out as the network split screen showed the Dow down over 1,200 points while the president whooped it up. It ended up being the worst day for stocks in over two years, since June 2020.
To kick the party off, the President brought on folk singer James Taylor to serenade the crowd with his gentle dirge about a friend’s suicide, his own heroin addiction, and his time in a mental institute. An ode to self-destruction seemed oddly appropriate for the moment, plus it was probably easier than getting Billy Joel to do a fast rewrite, “We Really Started a Fire.”
That morning the White House had apparently decided their word for the IRA would be “historic.” In the press briefing earlier that day White House press secretary Karine Jean-Pierre used the term several times to describe the bill. Biden used it in his remarks as well.
Rote repetition of “historic” was clearly meant to impress, but White House press gullibility notwithstanding, the word is not in and of itself a synonym of “beneficial.” The IRA is certainly not beneficial to the American people. Plus, anyone familiar with the Great Depression (and the work of J.K. Rowling) would note that other, deeply harmful legislation can properly be called “historic.” For example, the Smoot-Hawley Tariff, the National Industrial Recovery Act, and the Agricultural Adjustment Act were all historic. Terrible, yes, but historic.
The IRA promises to be terrible, too. With only a limited time to respond, hundreds of economists warned Congress that the act would perpetuate, not reduce, inflation. In particular, the economists warned, “its $433 billion in proposed government spending would create immediate inflation pressures by boosting demand, while the supply-side tax hikes would constrain supply by discouraging investment draining the private sector of much-need resources.” Economist David R. Henderson, research fellow with Stanford University’s Hoover Institution and editor of the Concise Encyclopedia of Economics, explained in simple macroeconomic terms why the act would necessarily increase inflation. In his review of the act, University of Chicago economist Casey B. Mulligan found that over the next decade the IRA would likely reduce employment by 900,000, reduce GDP by 1.2 percent, reduce average household income by roughly $1,200, but increase the rate of inflation and the federal budget deficit.
So Biden’s lawn party was his own inept “MISSION ACCOMPLISHED” moment, a deep breath before the plunge, the short-term interim between passage of the act and the full costs being felt.
Will the IRA’s historic spending on climate change bring historic benefits?
Let us look at one of the big reasons we’re told that the IRA is “historic”: its “climate change” promises. The monetary costs alone are enormous, which is strangely a point of boasting for the Biden administration. Vice President Kamala Harris recently told a gathering of Democrats that, “We made the largest investment to combat the climate crisis in history and deliver on environmental justice for people everywhere.”
With such an enormous expenditure in the midst of inflation the likes of which haven’t been seen in half a century, what benefits can we expect? Shouldn’t they be commensurately larger? To the extent that reduced carbon dioxide (CO2) emissions reduce climate change, and to the extent that such reduction prevents a greater occurrence of natural disasters, what will Americans have been forced to buy at the cost of $369 billion?
A first great difficulty is that these benefits cannot accrue solely or even predominantly to those who bear the “historic” costs. Should cutting American emissions result in the actual predicted climate benefits, those benefits would be spread out equally across the globe. That’s because CO2 emissions are fungible. Emissions mix and spread out over the troposphere. One area’s reduced emissions do not hover over that area like a storm-and-warming shield of virtue against other areas’ emissions sins.
Expert estimates place the amount of CO2 emissions cut — from where they were in 2005 — would range from 31 percent to 44 percent. They estimate the current, pre-IRA trajectory at 24 percent to 35 percent. That overlap implies a nontrivial chance of spending over a third of a trillion dollars for practically nothing.
Those estimates reveal something else, however. The U.S. is and already has been cutting CO2 emissions. Why, then, are climate-change predictions more cataclysmic than ever? The United Nations’ Intergovernmental Panel on Climate Change recently gave us only “eight years left to turn the ship” on CO2 emissions, shaving two whole years off their usual “10 years” alarmism.
U.S. emission-cutting is being fast erased by China’s massive increases
Let us not entertain any possibility that the UN panel is engaged in heavier-handed fear-based appeals to cow Americans into countenancing great upheavals in their lives for their own political power, cronyism, and quasi-religious virtue posturing. No, let us imagine that the UN panel is surveying the worldwide production of CO2 emissions, which are fungible, and deciding the problem is getting worse.
Then let’s ask if it’s a problem that can be solved by the United States at great expense to her citizens alone. According to the BP Statistical Review of World Energy 2022, the United States since 2005 has reduced the volume of its CO2 emissions by over a billion tons (1,015 million tons).
Maybe the U.S. isn’t keeping up with the rest of the world? No, it’s certainly not that. The U.S. has cut more CO2 emissions than any other nation in the world by far. The nations comprising the European Union come closest, reducing their combined CO2 emissions by 978.3 million tons.
What about the rest of the world? As then–Secretary of State John Kerry admitted in 2014, “Even if every single American biked to work or carpooled to school or used only solar panels to power their homes — if we reduced our emissions to zero, if we planted, each of us in America, a dozen trees, if we somehow eliminated all of our domestic greenhouse gas emissions, guess what. That still wouldn’t be enough to counteract the carbon pollution coming from China and the rest of the world.”
Kerry now carries the title of “U.S. Special Presidential Envoy for Climate.”
Since 2005, per BP, China’s volume of CO2 emissions has increased by 5,177.8 million tons. India’s CO2 emissions increased by 1,478.5 million tons. Emissions across Africa (351.4 million tons), the Middle East (956.0), and South and Central America (148.3) have all increased. That 2005 emissions peak was in the U.S. only, not the world.
Incidentally, since Special Climate Envoy John Kerry made those comments, the U.S. has cut CO2 emissions by over half a million tons (502.8). Importantly, nearly all of the emissions reductions in the U.S. is market-oriented (from technological change, consumer preference, an expanding service sector, and especially the fracking revolution) and was not driven by government-mandated renewable energy (their effect is far too small). Meanwhile, China and the rest of the world increased CO2 emissions by nearly two billion tons (1,932.2 million tons, of which 1,394.2 were from China).
Nor does China’s rapid expansion of coal-fired electricity show any sign of slowing. The nation added 38.4 gigawatts (GW) of new coal-fired electricity in 2020, announced 43 new coal-fired plants and 18 new blast furnace projects just in the first half of 2021, and expects to increase coal-fired electricity this year by 300 million tons. India is expecting to increase coal-fired electricity this year by 400 million tons. As energy expert Robert Bryce explained in RealClear Energy on June 26,
According to the Energy Information Administration, burning a ton of coal releases about 2 tons of carbon dioxide. Thus, the 700 million tons per year of new coal consumption in China and India will result in an additional 1.4 billion tons of carbon dioxide emissions. According to BP, that’s about the same volume of emission reductions that were achieved in the U.S. between 2005 and 2020.
Meanwhile, European nations are preparing a return to coal-fired electricity in the coming winter, amid concern about Russian natural gas supplies.
Americans can expect no climate benefits, only high costs from the IRA
So even if the IRA achieved its CO2 emissions reductions to experts’ utmost predictions, all that Americans could expect is continued worsening of climate due to emissions elsewhere. We’re not the problem, and impoverishing us is not the solution. In fact, because of our greater relative entrepreneurial freedom and wealth, Americans have been cutting more emissions than any other nation. We just didn’t do it the “right” way, through government mandates. For our reward, we’ve been sold into worse inflation, worse energy poverty, and a worsening environment for rolling blackouts.
For those who want to celebrate that with the Biden administration, I leave you the advice of Guy Lombardo: Enjoy yourself. It’s later than you think.
Originally published by the American Institute for Economic Research. Republished with permission under a Creative Commons Attribution 4.0 International License.
Jon Sanders is an economist and the director of the Center for Food, Power, and Life at the John Locke Foundation in Raleigh, North Carolina, where he also serves as research editor. The center focuses on protecting and expanding freedom in the vital areas of agriculture, energy, and the environment.
For more on the Inflation Reduction Act, click here.
For more on emissions policy, click here.