The IRA will be net deflationary, because the tax increases are larger than the spending by about 300 billion. That said, it's not going to be a detectable effect, just because the package isn't big enough. 30 billion a year is only about 1.5% of the Recovery Act, and that was all delivered in just one year. So maybe a 0.1% decrease in the inflation number.
I agree the green vortex effect is likely to be much bigger. Developing industrial hydrogen could be a HUGE win because the ever-plummeting cost of solar means the energy cost of green hydrogen will get very small soon. If the capital costs of electrolysis can be brought down substantially, green hydrogen could obliterate natural gas and most coal in industrial processes, and there goes another big slice of CO2 emissions.
The unfortunate reality for us is there are few good tools to fight inflation in the short run. The best tool is raising interest rates, and while this effectively reduces demand it tends to push us into recession. We have a few big hammers to fight inflation in the short run. We do have lots of scalpels which can help in the medium term, which is what this bill pulls out.
We shall see how well Jay Powell does, I am hoping he can be a second Paul Volcker (maybe with a softer landing).
I don't expect the economic models capture this, but in my experience over the last 10 years there has been an inverse correlation between the rate at which new renewables come onto the grid, and wholesale power prices, which can be seen at the state level. I put this do to the fact that renewables have a low marginal cost, always dispatch, and often (in recent times) aren't owned by the dominant utility in the area.
It’s discouraging to read so much about “green energy” without mentioning nuclear. In 1972, Nixon’s “Project Independence” proposed construction of 1000 nuclear power plants by the year 2000. None has been built. The impact of this failure -- in part at the hands of the environmental movement -- dwarfs by 10x all of the benefits ascribed to the IRA. It’s also sadly ironic that Greens argue against nuclear as “too expensive,” while touting the learning curves and cost reductions associated with the increasing pace of investment in renewables. Those curves would equally have applied to a truly serious nuclear effort. Yes, there are a few billion dollars in the IRA for prolonging the lives of a handful of existing nuclear plants, but nothing for the proposal that Nixon made FIFTY years ago.
All well and good, but given most solar panels/batteries are now coming from China, and a good number of rare mineral mines are controlled by China -- and, now China is scarily aggressive (see Taiwan).
How in the world can laws/policies that make us more dependent on China be good....?
“The revenue increases in the IRA will be disinflationary, because lower deficits and higher taxes reduce aggregate demand.”
Higher taxes are disinflationary when they’re on the demand side. Since the IRA tax hikes are corporate taxes, I don’t see how that could be disinflationary. Raising costs for producers is textbook inflationary, no?
Help me understand this logic: “Targeting tax hikes selectively at more profitable companies will weaken monopoly power, since monopoly power increases profits.”
I get that as monopoly power increases, profits increase. But is it necessarily the case that reducing profits also reduces monopoly power?
If that’s true, by what processes is it true? Is it that the incentive to merge decreases as the potential profit of merging is capped by taxes? Is it that, as profits are taxed away, the cash to execute mergers is no longer available to corporations? It seems like it can be, but isn't necessarily, true; so I'm not sure I agree with the logic.
If monopsony causes high rents, why do economist keep getting mad when lefties say corporate greed adds to inflation? Isn't it just another way to say corporations are able to take more profit than of there was truly competitive market.
The insulin price cap for private insurance failed. People are pinning their hopes on Newsom/California's plan to manufacture insulin and sell it cheaply. I wonder whether this is the right approach. Would it not be better to contract out the production to some place that is good at making cheap medicine, like India or Belgium? I don't understand why this wouldn't be a less risky and faster route to where they want to go.
Put another way, there's a risk that California builds an insulin factory and then gets undercut by Mark Cuban buying it cheap on the international markets. Or is there no functional market for him to buy it at?
The IRA will be net deflationary, because the tax increases are larger than the spending by about 300 billion. That said, it's not going to be a detectable effect, just because the package isn't big enough. 30 billion a year is only about 1.5% of the Recovery Act, and that was all delivered in just one year. So maybe a 0.1% decrease in the inflation number.
I agree the green vortex effect is likely to be much bigger. Developing industrial hydrogen could be a HUGE win because the ever-plummeting cost of solar means the energy cost of green hydrogen will get very small soon. If the capital costs of electrolysis can be brought down substantially, green hydrogen could obliterate natural gas and most coal in industrial processes, and there goes another big slice of CO2 emissions.
The unfortunate reality for us is there are few good tools to fight inflation in the short run. The best tool is raising interest rates, and while this effectively reduces demand it tends to push us into recession. We have a few big hammers to fight inflation in the short run. We do have lots of scalpels which can help in the medium term, which is what this bill pulls out.
We shall see how well Jay Powell does, I am hoping he can be a second Paul Volcker (maybe with a softer landing).
I don't expect the economic models capture this, but in my experience over the last 10 years there has been an inverse correlation between the rate at which new renewables come onto the grid, and wholesale power prices, which can be seen at the state level. I put this do to the fact that renewables have a low marginal cost, always dispatch, and often (in recent times) aren't owned by the dominant utility in the area.
It’s discouraging to read so much about “green energy” without mentioning nuclear. In 1972, Nixon’s “Project Independence” proposed construction of 1000 nuclear power plants by the year 2000. None has been built. The impact of this failure -- in part at the hands of the environmental movement -- dwarfs by 10x all of the benefits ascribed to the IRA. It’s also sadly ironic that Greens argue against nuclear as “too expensive,” while touting the learning curves and cost reductions associated with the increasing pace of investment in renewables. Those curves would equally have applied to a truly serious nuclear effort. Yes, there are a few billion dollars in the IRA for prolonging the lives of a handful of existing nuclear plants, but nothing for the proposal that Nixon made FIFTY years ago.
All well and good, but given most solar panels/batteries are now coming from China, and a good number of rare mineral mines are controlled by China -- and, now China is scarily aggressive (see Taiwan).
How in the world can laws/policies that make us more dependent on China be good....?
“The revenue increases in the IRA will be disinflationary, because lower deficits and higher taxes reduce aggregate demand.”
Higher taxes are disinflationary when they’re on the demand side. Since the IRA tax hikes are corporate taxes, I don’t see how that could be disinflationary. Raising costs for producers is textbook inflationary, no?
Help me understand this logic: “Targeting tax hikes selectively at more profitable companies will weaken monopoly power, since monopoly power increases profits.”
I get that as monopoly power increases, profits increase. But is it necessarily the case that reducing profits also reduces monopoly power?
If that’s true, by what processes is it true? Is it that the incentive to merge decreases as the potential profit of merging is capped by taxes? Is it that, as profits are taxed away, the cash to execute mergers is no longer available to corporations? It seems like it can be, but isn't necessarily, true; so I'm not sure I agree with the logic.
This is important shift.
Still best IRA would have been something to address housing costs. Still not mainstream Dem policy push.
If monopsony causes high rents, why do economist keep getting mad when lefties say corporate greed adds to inflation? Isn't it just another way to say corporations are able to take more profit than of there was truly competitive market.
The insulin price cap for private insurance failed. People are pinning their hopes on Newsom/California's plan to manufacture insulin and sell it cheaply. I wonder whether this is the right approach. Would it not be better to contract out the production to some place that is good at making cheap medicine, like India or Belgium? I don't understand why this wouldn't be a less risky and faster route to where they want to go.
Put another way, there's a risk that California builds an insulin factory and then gets undercut by Mark Cuban buying it cheap on the international markets. Or is there no functional market for him to buy it at?