Economist Paul Krugman explains why Democrats’ climate bill could be a 'major step toward saving the planet'

02 August 2022

The Inflation Reduction Act of 2022, a massive $369 billion climate change/economic/health care bill, crossed a major hurdle when Sen. Joe Manchin of West Virginia announced that he would support the bill and had worked out a deal with Senate Majority Leader Chuck Schumer. The bill hasn’t passed yet; as of Tuesday morning, August 2, Sen. Kyrsten Sinema of Arizona, a centrist Democrat and key swing vote, still hasn’t said whether or not she will vote for it. But liberal economist Paul Krugman, in his August 1 column for the New York Times, expresses optimism and lays out some reasons he likes the bill from a climate change standpoint.

“After all the false starts and dashed hopes of the past two years,” Krugman writes, “I’m reluctant to count my chickens before they’ve actually been signed in the Oval Office. Still, it appears that Democrats have finally agreed on another major piece of legislation, the Inflation Reduction Act. And if it does become law, it will be a very big deal. First, would the law, in fact, reduce inflation? Yes, probably — or at least it would reduce inflationary pressures. That’s because the legislation’s increased spending, mainly on clean energy, but also, on health care, would be more than offset through its tax provisions; so, it would be a deficit reduction act, which other things being equal, would make it disinflationary.”

Krugman goes on to compare the Inflation Reduction Act to the National Interstate and Defense Highways Act of 1956, arguing that like that Dwight D. Eisenhower-era legislation, it would be “investing in the nation’s future” — and “maybe even more so.”

“To understand why this bill inspires so much hope, it’s helpful to understand what has changed since Democrats’ last big effort to deal with climate change: the 2009 Waxman-Markey bill, which passed the House but died in the Senate,” Krugman explains. “The core of Waxman-Markey was a ‘cap and trade’ system that would, in practice, have operated a lot like a carbon tax. There were and are good arguments for such a system, which would give companies and individuals an incentive to cut emissions in multiple ways. But politically, it was easy to portray it as an eat-your-spinach plan, one demanding sacrifices from ordinary workers. With the failure of Waxman-Markey, the Obama Administration was reduced to a much more limited agenda, one that relied on carrots rather than sticks — tax breaks for clean energy, loan guarantees for companies investing in renewables.”

Krugman describes the “climate portion of the Inflation Reduction Act” as “an attempt to accelerate” the “transition” to green energy “mainly by offering tax credits for the adoption of low-emission technologies, including electric vehicles, but also, by offering incentives to use less energy in general, notably by making buildings more energy efficient.”

“There’s every reason to believe that these measures would have large effects,” Krugman observes. “Unlike fossil fuels, which have been around for a long time, renewable energy is still an ‘infant industry’ with a steep learning curve: The more we use these technologies, the better we get at them. So, providing incentives for clean energy now will make that energy a lot cheaper in the future.”

According to Krugman, the “climate and energy provisions” of the Inflation Reduction Act “could also transform the political economy of climate policy” and show the “real-world effects of climate action.”

“If Democrats can pass this bill,” the economist/Times columnist argues, “the chances of additional action in the future will rise, perhaps sharply. So, let’s hope there aren’t any last-minute snags. The Inflation Reduction Act won’t deliver everything climate activists want. But if it happens, it will be a major step toward saving the planet.”

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