More Active Management of Decline?
TL/DR –
The U.S., amidst political, social, and economic shifts, appears to be moving towards more interventionist and protectionist economic governance and prioritizing strategic investment in diverse areas such as green technology and defense. Post-pandemic recovery efforts have utilized crisis management tools and economic packages to stabilize market demand and stimulate innovation, while President Biden’s economic-planning agenda has set explicit goals for national investment. However, challenges exist such as rebuilding the bureaucracy, addressing wage growth stagnation, managing environmental and health crises, and fostering a resilient economy amidst the ongoing transition to clean energy.
US Changes Economic Governance, Backing War in the Middle East Again
The U.S., world’s largest producer of oil and gas, is once again supportive of war in the Middle East. Universities are engrossed in discussions about political correctness and free speech, and liberals are hopeful that war will rejuvenate the West’s democracies. Nonetheless, there is little hope of slowing the intense extraction of modern life.
America’s blundering through a fossil fuel-centered world economy may point towards trends from a quarter-century ago. However, there is hope for a new era of state-led investment, including in a greener, resilient economy.
Shifting Economic Governance and the Impact of COVID-19
After years of wage stagnation for most Americans and the pandemic’s financial impact, the United States is possibly transitioning away from market-mania, moving towards a more interventionist and protectionist economic governance.
COVID-19 spurred lawmakers to revive old crisis management tools. Broad stimulus packages and the Fed’s emergency lending initiatives, along with an arsenal of more targeted measures like the Defense Production Act, were used to encourage investment, innovation, and stabilize demand.
Biden’s Economic-Planning Agenda
President Joe Biden’s economic-planning agenda, including the Inflation Reduction Act, the CHIPS and Science Act, and several defense spending packages, signals a renewed willingness to set explicit goals for national investment. This also includes managing future environmental and health crises, for which COVID-19 was a precursor.
The CHIPS Act was presented as a solution to avoid semiconductor shortages experienced during the pandemic. However, the primary objective behind extreme domestic production efforts and export controls appears to be ensuring U.S. nuclear cybersecurity.
Transition to Clean Energy
The transition to clean energy is more than just a facade. There is growing demand for private and public green goods, from electric vehicles to denser cities. However, the transition’s pace may be moderated by business interests and workforce challenges that could constrain industrial policy.
Challenges in Clean-Energy Transition
The energy transition will require Americans to overhaul their home heating and cooling systems. However, the economics, politics, and workforce requirements of this national home-rehab drive are far from solved. The continuous availability of cheap gas makes it difficult for heat pump conversions to be cost-effective despite the aspirations of climate nonprofits.
Risks in the Energy Transition and Industrial-Planning Agenda
As the administration rediscovers old tools of economic statecraft, it should remain disciplined in assessing whether its economic policy is effective. The early signs suggest that the IRA may not have caused much of a boost in clean-energy investment, which had already been rising consistently for the past five years.
There’s also a risk of getting overly enthusiastic with the new planning paradigm, denying trade-offs and failing to prioritize among public goods. This could lead to the same overextension overseas, as we get more involved in a regional conflict that is not only politically unpopular but also represents the failure of long-hoped-for pivot to the Pacific.
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