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This week President Joe Biden marked the first anniversary of signing into law of the Inflation Reduction Act, a landmark piece of US domestic legislation that has been heralded as the centrepiece of “Bidemonics”.
The act’s impact on inflation is disputed, but it was introduced at a time of near-double-digit price hikes, so the title offered a handy way of signalling to American voters that the legislation was supposedly dealing with the problem, even if its effects on rising prices were secondary or tangential. But if a hefty signal that you’re doing something is what you want, then $500bn – according to the consultancy McKinsey – in new spending and tax breaks ought to do it.
Janet Yellen, the US Treasury secretary, described the aim of the act as boosting “economic growth by increasing labour supply, raising productivity, and reducing inequality and environmental damage”. It involves subsidies for renewable energy, electric vehicle and battery production, and research and development into green technologies. It is projected to reduce US CO2 emissions to 40 per cent below 2005’s levels by 2030.
The act’s measures also contain another core component: a self-consciously pro-labour politics with pro-labour policies focused on expanding well-paid, unionised, long-term employment for American workers in new green manufacturing. This is about shortening supply chains and transitioning towards a less hyper-globalised world, towards national resilience over open markets, as well as national security, according to Yellen.
There are echoes of Maga Trumpism’s rhetoric in this agenda. In basic terms, it is the left’s response to Rust Belt populism, with talk of making sure “tomorrow’s products are made in America”, as Biden said this week. Trump, too, tried to bring manufacturing jobs back to the US with massive tax breaks. And, as under Trump, thoughts of China’s rapid rise are never far from influencing US domestic economic policy. But Biden is keen to stress the differences. “The Maga view”, he said, “is focused on corporate profits.”
A White House official communiqué claims that, since the Inflation Reduction Act was signed, 170,000 clean energy jobs have been created. As intended, private money has started to follow the massive amounts of public investment: $110bn in clean energy manufacturing, including $70bn in electric vehicles. Related to the act, Biden’s Chips and Science Act also seeks to develop US manufacture of semiconductors (used in renewable and electric vehicle technologies). The world’s largest manufacturer of semiconductors (the Taiwan Semiconductor Manufacturing Company) is spending $40bn on two new factories in Arizona.
So how are we doing back in Blighty? Rachel Reeves, the shadow chancellor, has latched the Labour Party to “Bidenomics” (she prefers “securonomics”), and the party promises big investment in its Green Prosperity Plan. Just one catch: Labour will only ramp up investment when its fiscal rules allow.
The Inflation Reduction Act included billions in tax rises, mainly targeted at corporations and the wealthy, but Reeves has ruled out new wealth taxes, a rise in capital gains tax, or any increase in the top rate paid by individuals on higher incomes. That means there’s unlikely to be much cash down the back of the sofa for splurges. The Inflation Reduction Act’s pro-union, pro-worker message also seems to be less directly translatable to a Labour Party that is reportedly watering down its commitments on strengthening workers’ rights – one of the few policy options that wouldn’t include immediate spending outlays.
The standard response from Labour to all this is that the party will restore “growth, growth, growth” via planning law tweaks, removing some EU trade frictions, and promoting devolution. But if (or is that when?) big positive GDP figures don’t materialise, not least because of low levels of public and private investment, we’re unlikely to see a transformative stimulus programme like the Inflation Reduction Act from Labour any time soon. Labour have talked themselves into a classic catch-22: you have to invest to stimulate growth but, apparently, you can’t invest without growth. Meanwhile, in Conservative land, the trade minister, Kemi Badenoch, and the chancellor, Jeremy Hunt, have dismissed the Inflation Reduction Act as “protectionist”.
Is that the sound of us getting left behind?