The Clean Air Act of 1970 authorized the government to regulate air pollution.
The Inflation Reduction Act, which Joe Biden signed into law last week, allocates more than $300 billion for energy and climate reform, including $30 billion in subsidies for solar panel and wind turbine manufacturers.
Notice the difference?
The Inflation Reduction Act is an important step toward slowing or reversing the climate crisis. It also illustrates the nation’s departure from regulator businesses for it subsidizing businesses.
From 1932 until the late 1970s, the government mainly regulated businesses. This was the era of the alphabet soup of regulatory agencies started under Franklin D Roosevelt (SEC, ICC, FCC, CAB, and so on) culminating in the 1970 EPA.
The government still regulates businesses, of course, but the biggest thing the federal government does now with businesses is subsidize them.
Consider Joe Biden’s biggest first-term accomplishments:
Infrastructure Investment and Jobs Act ($550 billion in new spending on rail, broadband and the electric grid, among others);
This shift from regulation to subsidy has characterized every recent administration.
Trump’s Operation Warp Speed awarded $10 billion in subsidies to Covid vaccine makers.
Obama’s Affordable Care Act subsidized the healthcare and pharmaceutical industries (indirectly, through massive subsidies to purchasers of healthcare and pharmaceuticals).
And Obama spent about $489 billion to bail out the financial industry (and, notably, never fully reinstated the financial regulations that previous administrations had repealed), as well as GM and Chrysler.
Before the 1980s, the US would have done all this differently. Instead of subsidizing broadband, semiconductors, energy companies, vaccine manufacturers, healthcare and pharmaceutical businesses and the financial sector, we would have arranged them – being asked to act in different ways.
If this regulatory alternative seems far-fetched today, it is because of how far we have come from the regulatory state of the 1930s in the 1970s to the state of subsidies that began in the 1980s.
Why the big change? Because of the changing balance of power between large corporations and the government.
Today it is politically difficult, if not impossible, for government to require corporations (and their shareholders) to bear the costs of public goods. Instead, the government should bribe him.
I saw this first hand. Bill Clinton’s health care plan was blocked by the pharmaceutical and health care industries, which would have to sacrifice some profits.
By contrast, Obama got the Affordable Care Act out by gutting these industries — all but guaranteeing them greater profits from a massive influx of newly subsidized customers.
Spending by corporations on lobbying grew from $1.44 billion in 1999 to $3.77 billion in 2021 and is on track to surpass $4 billion this year.
This tidal wave of corporate money has occurred at the same time that large American corporations have become globalized, to the point where many are able to play the United States off against other nations—demanding government subsidies in return for creating of jobs and conducting their latest research. in America.
The new chip act shows how powerful and highly profitable semiconductor makers such as US-based Intel can shell out billions of dollars in a global shake-up over where to make semiconductor chips.
In the 1980s, yours truly was involved in a national debate over “industrial policy.” The question, simply put, was whether the government should subsidize certain industries that generate large social benefits in the form of new technologies.
I argued that the government was already engaged in a hidden industrial policy, disguised, for example, as grants to the aerospace and telecom industries from the Department of Defense and to the pharmaceutical industry from the National Institutes of Health. It would be much better to make industrial policy openly so that the public could appreciate what they were paying for and what they were getting in return.
Opponents, who included almost every Republican, were outraged at the very idea that the government should “interfere” with their blessed free market.
Today’s subsidies are much larger, even supported by Republicans.
Republican Senator John Cornyn, arguing for the French Fries Act, said: “What we’re doing is an industrial policy, unlike people of my free market background who have done before.”
Indeed, the three-decade shift in power to big corporations has transformed industrial policy into a system for bribing them to do the things that the government once demanded as the price of being part of the American system.