Biden’s surprise victory will bring economic as well as political benefits

Joe Biden’s political prospects just got better. The passing of the Chips and Science Act by Congress last week gave new life to the White House’s plans for industrial policy and support for American manufacturing.

Meanwhile, famed staunch West Virginia Democrat Joe Manchin, the King of Coal Country, made a shocking take on climate change. He agreed to support clean energy investment and health subsidies on large corporations to be paid in large part by a 15 percent minimum tax.

Thus, in a week that was more economically disappointing than usual – the Fed’s latest rate hike to fight inflation, disappointing consumer confidence numbers and news that the US was now in a technical recession, Biden won a major political victory by doing so. managed to achieve. Something that is almost unheard of in Washington these days – compromise. His victory matters politically. Now the question is what could this mean financially.

While the budget bill has yet to pass, and the Senate comes with little strings attached to the semiconductor support business that progressives would have liked (Senator Bernie Sanders labeled it corporate “extortion”), one such case What is just happening currently in Washington has some economic benefits.

CEOs have long complained that the uncertainty created by the political impasse, as well as a lack of adequate federal investment in things like basic science research and workforce development, has curtailed growth plans in the US.

The $280bn Chips and Science Act bill not only has strong bipartisan support, but makes major investments in workforce training and basic science research, as well as supporting regional manufacturing centers (some research shows have been disproportionately positive in local communities). economic impact).

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One could argue, as do Sanders and progressives like former Clinton-era Labor Secretary Robert Reich, that companies like Intel don’t need lavish subsidies to stay in the U.S. rather than invest more abroad. Many progressives believe that paying these now could set a dangerous precedent for giving taxpayer welfare to the richest corporations that would result in a future government ransom charge for living in America.

I’m not so sure. Silicon chips are unique, considering they are essential to everything else. The world needs a greater geographic diversity of supply in semiconductors. The fact that 92 percent of high-end chips are made in Taiwan, perhaps the second most politically contested country in the world after Ukraine, is worrying for every country, which is one reason why Europe’s own chip regionalization effort. Its going on.

While it is still possible for US companies like Intel to move jobs and factories wherever they want, I suspect that the strict provisions for dual-use technologies that come under the legislative pike will make it harder to outsource to strategic industries in the future. . Regionalization of supply chains, not autocratic globalization, is the future.

The impact of the proposed budget bill, which has been renamed from Build Back Better to Inflation Reduction Act, is more difficult to predict. The fact that the administration was able to push through a spending bill branded as a way to fight inflation was an influential piece of political economy called ju-jitsu (a $300 reduction in deficit for those concerned about excessive demand). billion, which helps a lot). But it is still unclear whether the agreement will pass. Even if it does, its impact on short-term inflation is enormous.

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The upside of the bill is that it would enable the federal government to address rising health care costs. It will do this by helping poor families pay health care premiums and limiting out-of-pocket spending for drugs on Medicare. This would allow the US to do what other wealthy countries do – with pharmaceutical companies to drive down prices by using the power of the federal government (the largest buyer of drugs in the world) to take advantage of the scale of low costs. Have a conversation. This is a no brainer that could save hundreds of billions of dollars in taxpayer money.

It also begins to address the external power of major lobbying industries such as Big Pharma. This, coupled with the fact that most of the bill will be financed by a 15 percent minimum tax on large corporations, goes a long way in fulfilling the administration’s promise to make the private sector pay its fair share in taxes. Is.

Investment in clean energy is also welcome. I stand ready to support investments in electric vehicles, wind farms, solar panels and lithium battery production. This is critical for addressing climate change, which comes with its own huge economic cost. This is the best way to encourage a “productive bubble” of growth for the widely shared private sector. Ultimately, this will drive down the cost of energy. But this process will take years.

No law is perfect. But last week was an important first step toward a bipartisan agreement on the core bits of the Biden agenda that could have real economic impact. Restoring some sense of confidence that America can still rule itself comes with a reward beyond the dollar.

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