So Kyrsten Sinema didn’t back out (although of course she threatened to), no other Democratic senator got Covid-19, and the Inflation Reduction Act passed the Senate Sunday afternoon. Passage is assured, we think, in the House, so it should soon become law.
The bill is only a portion of what should have been, true. But here’s the big picture on why even this whittled-down bill is, as Joe Biden once said of another historic but compromised piece of legislation, “a big fuckin’ deal.” In a nutshell: It begins to turn 40 years of bad economic conventional wisdom on its head by asserting that the government has a role in structuring markets, promoting growth, and guiding industrial policy.
Let’s go back in time. From the beginning of the republic until the Great Depression, America had a comparatively unregulated free-market economy, in the mold of the principles laid down by Adam Smith. Economists never really challenged those principles, because they perceived that things were working fairly well. In truth, they weren’t—millions were destitute and lived miserable lives defined by extremely hard work, especially after the Industrial Revolution, which is why the labor movement got started—but economists and elites didn’t pay much attention to those people. Work and pray, live on hay, as the song said.
The stock market crash of 1929 was something most contemporaneous economists didn’t even conceive of as a possibility. John Maynard Keynes, however, saw big problems with the free-market system. In the 1920s—a boom decade in the United States but one of almost total misery in England—he began laying the foundations of what we’ve come to call Keynesian economics: In brief, public investment to goose demand and expand employment. He also argued, contra Smith, that it did not follow that if everyone simply pursued his self-interest, the common interest would be fulfilled. Hold on to this point for later.
To make a long story short, Franklin Roosevelt embraced Keynesianism, as did his successors of both parties; we had the longest period of sustained and equitable growth in the history of the human race (well, equitable pretty much only for white men, which wouldn’t be acceptable today, but even that was pretty revolutionary for the time, for a government to care about working and poor people).
Then, in the 1970s, this order started collapsing—the OPEC crisis, stagflation. Conservative economists (who called themselves neoliberals, but never mind why) started saying aha! See? Get government out of the way! And so neoliberalism (or Friedmanism if you will, after Milton) took over from Keynesianism.
This magazine on my watch has devoted a lot of acreage to this subject. Indeed, my first big assigned cover story was to Zach Carter, who wrote “The End of Friedmanomics”—a brilliant dismemberment of the horrid man’s ideas and legacy. The destruction wrought by free-market neoliberalism has been enormous. Raging inequality, terrible health outcomes, the immiseration of so many small towns and cities in this country where opportunity has completely dried up. These conservatives bang on about “freedom.” I could take them to a lot of towns in my native West Virginia where the bulk of the people are “free” to work at the Dollar Store or peddle some Oxy.
The great project of liberalism (meant here in the usual sense) is to reverse this. Friedmanomics should have been destroyed after the Great Meltdown, but it didn’t happen for two main reasons: One, Democratic elites were not united behind an alternative vision of public investment (many Democratic economists were also neoliberals of a sort); and two, there was no movement to support any such change.
But slowly, movements that began to bend the arc back toward Keynes started to form—Occupy Wall Street, the Fight for $15 (minimum wage). Then Elizabeth Warren hit the Senate. Then we had the Bernie Sanders 2016 campaign. And much more, including new excitement on the labor organizing front from activists hoping to unionize Amazon and Starbucks—prospects that were nigh on unthinkable a decade ago. Add to all of this activism important changes within the economics profession, where a younger generation of data-oriented economists has started to question the models and assumptions of their free-market elders.
And today, the Democratic Party is a different animal than it was a decade ago. It’s very frustrating that Build Back Better Act, or BBB, didn’t pass, but I sometimes look at it this way: Of the 271 elected Democratic legislators in Congress, all but two or three either did vote for a $2.2 trillion version of BBB (in the House) or were prepared to vote for it (in the Senate). That would not have been remotely true just five years ago. The Democratic Party has embraced an economic populism from which there is no turning back.
And by the way, if you want to read the full story of all this, from Adam Smith to Keynes to Friedman and right on up to Build Back Better, preorder my new book, which is coming out next month.
So that brings us back to the Inflation Reduction Act, IRA. Yes, I wish it were bigger and contained some of the key elements of BBB like subsidized childcare and Medicare expansion and housing. Yes, that sop to Joe Manchin on fossil fuels is very unfortunate. And Republicans stripping out the insulin provision for non-seniors is monstrous, except that between killing abortion rights and keeping insulin prices high, they sure seem intent on handing Democrats opportunities to hold their majorities.
But whatever it doesn’t do, the IRA does this important thing: It establishes the principle that the government has a role to play in setting industrial policy and creating growth, and in determining what kind of growth we want. That’s why the climate investments in the bill are so important. Over the weekend, I read a National Bureau of Economic Research paper that I’m told has been making the rounds in the Biden administration that lays out a case for attacking climate change through direct subsidy of clean-electricity generation (as opposed to putting a price on emissions, like a carbon tax, which the paper also finds would be productive but for which there aren’t the votes in Congress). The IRA invests in decarbonization in every sector of the economy, with $10 billion directed toward the building of clean technology manufacturing centers and $20 billion toward construction of clean vehicle manufacturing facilities.
If you want to dive deeper into all this, read the important speech that Brian Deese, the director of the National Economic Council and the person really driving Biden administration economic policy, delivered in June to the Atlantic Council on the administration’s industrial strategy. He talked about how inequality is slowing growth. This is a key point. Conservatives have spent the past four decades arguing that growth is all that matters, and inequality is a byproduct of growth and is thus inevitable. They have that, and basically everything, backwards.
Dees also lays out the five-point strategy for promoting equitable growth: supply-chain resilience, targeted public investment, public procurement, climate resilience, and equity (“equity” is government lingo for making sure historically underserved groups share in the bounty this time). It’s a strategy that can both modernize the economy and invest in the middle class.
This is exactly what the United States needs. It’s a tragedy that Sara Gideon and Cal Cunningham raised and spent all those millions and failed to win their Senate seats. If they’d won, Biden would have had the votes for $2 trillion or so, it would have passed a year ago, and most Americans still wouldn’t even know who Joe Manchin and Kyrsten Sinema are. They lost, and we are where we are. But let’s not allow what might have been to make us too cynical about what is. The IRA is historic.
The right wing doesn’t believe there is such a thing as the common good. I do. Joe Biden does. Society is not just the sum of 330 million individuals pursuing their self-interest. Someone has to steer the ship. We can’t do it as individuals any more than people who live along a certain roadway can pool their resources to repave it. Private enterprise, which puts profit first, won’t fill these needs, as has been shown repeatedly over the decades. Only government can. The climate investments in the IRA fulfill this important social principle. Let’s hope they’re the first of many such investments over the next several years.