September 2, 2023

Interviews

A new American industrial policy—“Bidenomics”—has arrived, consisting of the Inflation Reduction Act (IRA), the Infrastructure, Investment and Jobs Act, and the CHIPS and Science Act. The proclaimed goals of Bidenomics are to propel a green energy transition to confront climate change, revive American manufacturing and union density, and check China’s economic and military power. President Biden recently described this economic agenda as a “fundamental break from the economic theory that has failed America’s middle class for decades now, trickle down economics.” National Security Adviser Jake Sullivan criticized “a set of ideas that championed tax cutting and deregulation, privatization over public action, and trade liberalization as an end in itself,” synthesized in the belief  “that markets always allocate capital productively and efficiently.” The Biden administration, in other words, has been forthrightly repudiating neoliberalism, at least on the level of rhetoric. 

A new landscape for political and economic struggle is emerging, but many questions remain. Will Bidenomics actually help achieve the critical goals of reviving working class power and confronting climate change? To what degree does this new political economic paradigm signal a sharp break from neoliberalism? How closely is Bidenomics linked to US policy concerns around Chinese dominance and the threat of a “New Cold War”? Finally, where do these policies leave the global South? 

In the following conversation, Daniel Denvir interviews Daniela Gabor, Ted Fertik, and Tim Sahay. Daniela Gabor is professor of economics at University of the West of England (Bristol). She studies development and debt with a critical macrofinance lens and researches the capitalist derisking state. Ted Fertik is a historian and strategist at the Working Families Party. Tim Sahay is the co-editor of The Polycrisis, focusing on the domestic and international political economy of climate. Listen to the discussion on The Dig here. The transcript has been edited for length and clarity, and is co-published with Jacobin Magazine.

A conversation with Ted Fertik, Daniela Gabor, and Tim Sahay

Daniel denvir: First coined by outside observers, “Bidenomics” is a term now embraced by the Biden administration. What is Bidenomics, and what does it have to do with industrial policy?

Ted fertik: From the perspective of the administration, Bidenomics has three key aspects. First, there’s a distributional aspect, about building the economy “from the bottom up and the middle out,” which is an explicit rejection of trickle-down economics. Second, there’s a sectoral industrial policy aspect. Third, there’s an emphasis on place-based policy—both in a global and a domestic sense, with a lot of concern for communities that have borne the brunt of deindustrialization.

TIM SAHAY: Bidenomics is a new legislative and macroeconomic policy mix, developed by Democratic Party elites to contain the threat of Trumpism. It’s their answer to the question social democrats are asking the world over: Why can’t the center hold? Their diagnosis is that economic and political polarization was created by the winner-takes-all, low investment, low growth, neoliberal policy regime. The gap between those with and without college degrees widened (that’s the class component) along with the gap between “Super Zips” and suburban and rural areas (that’s the place element), which created political instability. 

They want to reverse these trends by pursuing a legislative investment agenda to restore broad-based growth. On retaking Congress, they pursued a “big fiscal” program—to put money into people’s pockets as well as increase the overall sum of public and private investment. Bidenomics also has a macroeconomic component of running a hot labor market with the Fed targeting full employment and risking inflation going above the 2% target. Together these created a high pressure economy that creates upward mobility for people at the back of the labor queue. The gaps between black-white unemployment rates and wage growth for those with and without college degrees has narrowed dramatically.

How do you design spending packages with those class, place, race inequality-reversal goals? These policy provisions include “buy American” and “make in America” requirements, subsidies for manufacturers, federal loan guarantees for green projects, place-based incentives, and public R&D to boost future growth. They include plugging the terribly patchy welfare system through earned income tax credits, unemployment insurance, and SNAP expansion. These have been paired with pro-labor provisions that seek to increase union density and create jobs for those without college education. 

How do you pay for it? Do you tax or do you borrow? Here their choice was to make bills “paid for” by progressive taxes on the rich and closing tax loopholes of Fortune 500 companies. This component of Bidenomics should not be forgotten. The different factions of the Democratic party—Wall Street and Silicon Valley friendly centrists and progressives—had a slugfest in Congress over taxes. That reduced the size of the spending packages, leaving behind whole swathes of Democratic caucus priorities—childcare, pre-K, schools, public housing, public transit. One must remember that Bidenomics has been hugely contested and shaped by the thin Congressional majorities that it is trying to fix.

DD: There are three key legislative aspects to Bidenomics: the 2021 Infrastructure Act, and the 2022 CHIPS and Science Act, and Inflation Reduction Act (IRA). What does this bundle of legislation set out to do? How does it seek to expand productive capacity in particular sectors to drive the green energy transition? And how do the three pieces of legislation fit together? Can it be said, as Lachlan Carey and Jun Ukita Shepard do, that CHIPS is the brain, Infrastructure the backbone, and IRA the engine? Is it really that coherent? 

TS: That is a good metaphor. While I don’t think that the Biden White House and Senator Schumer and Speaker Pelosi made an active decision to split up the bills—that was forced on them in negotiations with moderates—there is a coherence. CHIPS and Science Act is the “brains,” because it is aimed at improving research and development, and pours money into the entire alphabet soup of American science: technology, medicine, biotech, and all of R&D agencies. Furthemore, those agencies have their own research institutes—such as the National Institutes of Health—which are spread across the country, not just located in the high tech clusters around Cambridge, Massachusetts or Silicon Valley. Therefore they would help reverse polarization by bringing innovation and productivity to other clusters across the country. 

As for infrastructure, the Investment and Jobs Act is the “backbone” in the sense that it’s meant to create the grid and rural broadband. For example, $60 or $70 billion have been funneled into modernizing the grid, which is presently unable to take on the huge amount of renewable energy that needs to be installed. The IRA is an “engine” in that it comprises an enormous artillery of public finance for loans, grants, and tax credits that build out this renewable energy system while driving manufacturing growth. But legislatively they have different logics. CHIPS and IIJA are bipartisan with 14 Republican senator votes, while IRA is Democrats-only. The bills were split up against the desire of progressives in Congress who lost leverage in that compromise.

TF: Though it has perhaps been less emphasized in recent debates, the Biden spokespeople would claim that the American Rescue Plan (ARPA), which was passed on a pure party line vote in March 2021, serves as the fourth Bidenomics bill. It is based on the idea of running the economy hot, using raw fiscal power to juice aggregate demand. It also included programs like the expanded Child Tax Credit, which points towards the aspiration of Bidenomics to make structural changes to the US welfare state, even though these were ultimately shorn from what became the IRA. 

The coherence of these bills can be found in understanding the set of problems that they’re meant to address. In an earlier talk that Tim and I gave, we laid it out as a triangle: what China’s rise means for the US economy and its “global leadership,” the question of the US political system and the sort of intertwined questions of inequality and populism, and lastly, climate. All of these three terms interact in important ways.

DD: Daniela, you’ve argued that these measures are fundamentally flawed as they prioritize a narrow form of government intervention, namely, the derisking of private investment. What is “derisking”? And why does it fail to get us to where we need to be in terms of reaching zero emissions and other related goals like increasing union density and raising worker wages?

Daniela Gabor: Let me take a step back from derisking and spell out how I think about Bidenomics as somebody outside of the US domestic politics process. First, what does it displace? It displaces a lack of political willingness to engage with questions relating to the climate, employment, and workers rights. Second, what does it offer as a replacement? Some form of increased state intervention in these issues. 

As it “brings the state back,” what kind of state-capital relationship does Bidenomics put in place? I describe this relationship as “derisking,” though it’s not a term that I came up with but rather one that has been used, particularly by private finance, to conceptualize the role of the state in mobilizing private capital for the energy transition in the global South: changing risk-return profiles to make investments more attractive for private finance.

To put it in the words of the Biden administration, it’s about “crowding in” private investment. The basic logic of the approach is to bribe private capital into fulfilling the certain policy priorities that are considered otherwise unachievable. It is constrained by the fact that we still live under an architecture of macroeconomic policymaking that puts independent central banks at the helm and subordinates fiscal policy to the priority of inflation-targeting. 

In my view derisking is a conceptual lens to think about the relationship between state and private capital that is created through the return of the state in climate politics. This derisking approach is an inadequate script for the climate transition, and it will not achieve the structural transformation needed for alignment with the Paris targets.

Carrots and sticks

DD: Instead of bribing capital, you argue instead for the formation of a “big green state.” What is that? And what tools would a big green state wield to discipline capital?

DG: Bribing is at the core of derisking in the sense that the state absorbs some risks from private investments in order to make certain public policy priorities investable—by improving the price signal or risk-return profile of those priority projects through fiscal, monetary, or regulatory measures.

With derisking, because the logic is of partnerships for investability, the state cannot discipline private capital into strategic priorities when market conditions change or when profitability conditions change—which is precisely what a big green state can do. It can move away from the logic of the market signal by enforcing closer controls on the pace and nature of private investment or just through public ownership. Another thing the big green state can do is change the relationship between the institutions of macroeconomic policymaking, ushering closer coordination between, for example, the central bank and finance ministry to support a more disciplined approach to industrial policy.

DD: Ted and Tim, are some of what Daniela characterizes as carrots actually sticks?

TF: There are a few angles from which we can approach this subject. One is to ask what progressive aims were encoded in the IRA and might not in fact follow the derisking logic that Daniela articulates. Another angle is to consider things that are getting done through regulation, or that could get done through regulation, but lie outside this particular piece of legislation. Still another angle is to consider parts of the agenda that did encode a disciplining logic but did not make it into the final legislation: for example, the clean energy payments program, which essentially mandated the full decarbonization of the power sector in the United States, and which didn’t pass.

dd: Because of the balance of political forces.

TF: Yes. We could also consider if and how this derisking logic might be defensible from a progressive point of view. For instance, there is a real theory which posited that you could get much more fiscal bang for your buck through the use of the tax code that enabled a much greater amount of climate spending than what the Congressional Budget Office would normally allow. These uncapped tax credits are what Tim has called “bottomless mimosas.” But ultimately, we should discuss if these moves affect the balance of political forces, which is at the most basic level why we get the reality we get. 

There’s obviously an immense amount of truth to what Daniela is saying. The core idea behind the legislation is to redirect—whether through pushing or coaxing the flow of private investment towards socially or politically useful purposes. People are very explicit that they ultimately expect the amount of private investment to be much bigger than public investment. I don’t think the situation is as extreme as some of what you see in discussions about how to get green investment flowing to the global South, where the ratios (“billions to trillions”) are astronomical. But the underlying logic is the same.

TS: As regards the balance of political forces, let’s recall that the Bidenomics legislative package had to make its way through Congress, where it was hemmed in by three major forces. One was the deficit hawks: those who don’t want spending to be greater than revenue, and want every dollar of spending to be backed by a dollar raised through politically costly taxation. This group includes figures like Treasury Secretary Janet Yellen, speaker Nancy Pelosi, and Biden himself.

The second was China hawks in Congress and the administration, who took the baton from the Trump administration and drove a very aggressive agenda focused on China containment. They insisted on onshoring chips and solar panel manufacturing, remaining careful about critical minerals, and increasing the Pentagon’s budget to mount a two-front war against Russia and China. 

The third group are fossil capitalists, or fossil hawks, whose influence has grown tremendously in the last ten or fifteen years. Under Obama, Congress strongly supported the shale boom in the Appalachian and the Permian Basin with subsidies and approvals of pipelines and terminals. By 2015, the United States had become the world’s largest oil and gas producer. By 2021–2022 when these bills were being negotiated, these fossil hawks in Congress demanded an increase in drilling and no sticks on fossil capital.

Dg: The US CHIPS Act draws on previous models of successful industrial policy, particularly in East Asia. Specifically, it mandates comparative state institutions whose purpose is to monitor and discipline capital to fulfill strategic priorities. Why was it possible for the US to build such comparative institutions into the US CHIPS Act but not in the IRA? Is it because the power of fossil capital operates differently in these different spaces? CHIPS maybe doesn’t have the same kind of political concern for fossil capital that the US IRA has.

Dd: And also perhaps the positive motivation of geo-economic and geopolitical conflict with China —which, depressingly, seems to be the sort of motivation that can overcome almost any obstacle in American politics?

Tf: An interesting dynamic is that CHIPS activated anxieties about corporate concentration on the left in a much more intense way than the IRA did. While the IRA offered opportunities for profit making over a ten or twenty year horizon, CHIPS promised to funnel billions of dollars directly to four or five companies that already had a massive market share within their respective sectors. The Progressive Caucus in the Congress was public about their concern. For example, the ban on stock buybacks in CHIPS—which is not actually in the legislation itself, but rather in a subsequent rulemaking that the Commerce Department undertook—was something the Progressive Caucus explicitly fought for. While we were all absolutely in favor of investments in science and technology, and understood the need for resiliency and supply chains, we did not want this to amount to a massive exercise in corporate welfare. 

TS: Are these subsidies corporate welfare? I’m not persuaded by the binary between CHIPS and the IRA. To begin with, what do we mean by sticks?

Certainly the IRA doesn’t have very many actual penalties, but there are two important ones. Firstly, it’s a tax bill, because the deficit hawks insisted that it be made into a tax bill that pays for itself. How is IRA spending to be calculated? Well, the Congressional Budget Office is going to score the bill, determining how much spending has occurred via tax credits, and demanding they be matched by “revenue raisers,” i.e taxes.

The Biden administration, right from the get go in March of 2021, when the American Jobs Plan and the American Family Plan were released, also introduced an entire slew of measures that were intended to raise $4.5 trillion through taxes. That basically entailed reversing the Trump era tax cuts on Fortune 500 companies and installing a new tax on those earning more than $400,000—recall Biden promised not to raise taxes on anyone making less than that amount. But during negotiations, corporate forces essentially said, “Screw you, you aren’t going to tax us,” and so $4.5 trillion fell to $2.5 trillion, finally down to $1.75 trillion in the House bill. The final bill is still a tax bill, but it’s much smaller. It puts a 15 percent corporate alternative minimum, which will generate $200 billion of taxes. That’s a penalty on tax-avoiding corporations, and it gives the IRS more money to go after tax-evaders. And there’s a 1 percent tax on stock buybacks included in IRA.

Dg: But this is not a penalty. It’s not a stick that ensures the companies who receive subsidies are pursuing the industrial policy objectives of the government. If anything, it’s the opposite. 

Ts: Yes, it’s a general tax on capital and not a specific penalty on firms that obtain subsidies. My point is that the IRS—which is under threat, but partially reconstructed under the Biden administration—is the agency through which much of US industrial strategy is being channeled. The Treasury, which is interpreting Congress and writing rules, needs to hire enough staff to monitor these uncapped tax credits and prevent those bottomless mimosas from turning into champagne for the rich or into carbon sludge. Without strong enforcement, greenwashing firms could show up at the Treasury door with greenwashed projects—which then would turn the IRA programs into a form of corporate welfare.

DG: I worry when progressives are told to celebrate a situation in which the distributional outcome favors capital. The idea that your tax officers are going to be in charge of green industrial policy is wishful thinking. Let’s not confuse that state of affairs for successful green industrial policy—let alone progressive distributional outcomes.

I don’t know when an IRS tax officer is going to say to Ford or to Tesla “your electric vehicles are getting larger and larger and are using more and more resources.” What we need instead are regulations for smaller electric cars and legislation to support electric public transport. We have to be critical and careful as we leave behind the status quo that was against any kind of progressive climate politics, and move into a “bottomless mimosas” approach, which even some unions in the US are questioning as not so much in favor of either creating skilled jobs. There are grounds for skepticism. 

Labor

dd: It seems like a basic point of debate here isn’t so much whether this new industrial policy is beset by the contradictions of neoliberal capitalism, which everyone accepts, but rather whether it is pointing us in any sort of promisingly new direction. 

tf: IRA does discipline fossil capitalism in that it includes a fee on methane that was viciously fought by the fossil fuel industry. If progressives could not get outright sticks, then we pushed for carrots to encourage good behavior and this is why much of the labor movement was genuinely enthusiastic about the IRA. Consider the basic clean energy tax credit, which is going to incentivize wind, solar, geothermal, and so on. While the baseline credit you get for installing such generation facilities is 6 percent, that goes up to 30 percent if you pay prevailing wage for construction, which is a 24 percent differential. This does not guarantee union organization—not by any stretch—but it very significantly levels the playing field between nonunion and union labor. 

There are many provisions that encourage private investors to meet certain priorities. There’s an energy communities provision that gives an additional bonus tax credit for locating generation in certain places that were heavily dependent on the fossil economy or that suffered from impacts of extraction. There’s a 20 percent bump to encourage investments in low-income communities.

Another provision called direct pay, which progressives rightly count as a big win, means that public and nonprofit entities can for the first time receive tax credits as a direct cash payment, even though they have no tax liability. As a result, municipal governments, for example, can get in on the clean energy game in a way that they were structurally excluded from before, which creates the opportunity for public ownership. 

DD: This was crucial to the feasibility of New York’s recently passed Build Public Renewables Act .

tf: Absolutely. It helped move the dug in opposition of the New York Power Authority and the New York State Governor towards a basic openness because, thanks to direct pay, they could tap into a massive amount of direct federal funding to build renewables themselves. 

There were some major progressive goals that were brought into the initial debates about how to structure industrial policy for the auto industry. A publicly owned competitor to private car companies was obviously never on the table, but everybody agreed that a key component of decarbonizing the economy was decarbonizing autos and finding the highest road pathway forward. 

Initially the bill encoded a union bump on the EV tax credit: $4,000 on top of the $7500 general EV credit if it was made in a union facility. This was meant to be an explicit bonus to the unionized auto sector in the northern Midwest. And a disadvantage to the nonunion foreign and US automakers that mostly produce in Right to Work states in the South. The union bump was viciously opposed by the EU, as well as Canada and Mexico. And it was opposed by Joe Manchin, who anticipated foreign nonunion EV production coming to West Virginia. It was slashed.

What emerged finally from that fight were some progressive elements from Manchin: an income cap that prevents rich households making over $300,000 from getting the EV tax credit, and $4000 used car incentive. 

But there were significant shortcomings that people in the administration didn’t like, and that the auto unions like UAW have been rightly upset about. The structures in the clean energy tax credit don’t exist in the manufacturing tax credits—there’s little in the law on the manufacturing tax credits or in Department of Energy loans to automakers that encourages prevailing wage or any labor standards. 

DD: It is a split-screen situation with labor and the IRA/IIJA because on the one hand, you have this recent huge win by the steel workers at Blue Bird electric bus factory in Georgia, which unionized thanks to the EPA’s rule for their clean school bus program—which states that recipients of funds must agree to union neutrality and bars the use of federal funds for anti union activity—something that the steel workers used to their advantage, and won a very notable victory in the South.

On the other hand, the UAW just released statement from the new militant leadership of their union, attacking this DOE plan to lend $9 billion to Ford to build three battery plants with no labor strings attached. It’s part of this more general concern from the UAW that the move to EVs will accelerate, rather than reverse the decline of union density in auto manufacturing. 

What sort of terrain has Bidenomics created for labor?

DG: A 24 percent tax credit is a lot more than 6 percent, and so Ted’s case sounds persuasive. One of the difficulties with the Biden administration is that it is like an onion with an outside layer of progressive politics but with a hard inner core of pro-capital distributional politics. 

I want to see the data as to the extent to which the announced IRA private investments are really using the 24 percent tax credit. Is the only possible way to achieve better working conditions to bribe private capital? I have some doubts about that. 

But I also know being in Europe, that our trade unions were looking enviously at the Biden administration process of working with unions saying “in Europe, nobody involves us to the same extent.” 

On the one hand, you can look at the glass half full and say, “this is the best that we could do.” But if you look at the glass half empty, in the end, this process leaves the extent to which labor rules will be adopted at the discretion of private capital. The big green state could say to a company: “you must have this level of wages, if you don’t want to come under very strict provisions for decarbonization.”

DD: I would add to that that whether the glass is half full or half empty probably depends on what corner of the labor movement you’re looking at that glass from. The building trades have done well, while from the manufacturing side, whereas UAW has a lot less leverage provided by the IRA to unionize manufacturing workers once the facilities are built. 

TF: I think the question about the terrain of labor struggle post Bidenomics legislative package is an interesting one. You have had episodes about the Protecting the Right to Organize (PRO act) which would have substantially increased penalties on employers and made illegal anti-union practices. But we couldn’t win it. The votes were not there to force it through in reconciliation, despite 90 percent of the Democratic caucus supporting it. 

The IRA does absolutely encode protectionism in the form of critical minerals provisions for batteries and final assembly requirements. This creates a really significant incentive to locate production of all aspects of the auto supply chain in the US or in North America. These elements have been the source of immense controversy between the US and its trading partners. So to the extent that you have trapped private capital in the US you could say that will help union density in the auto sector by reducing the threat of offshoring, which has hung over so much of auto unionism for the past fifty years. Not just offshoring abroad, but also the even more important movement of production from union to nonunion states. 

On the other hand, the absence of the big green state type provisions that Daniela was talking about means that so far this investment is happening in right-to-work states. Georgia has probably been the most sophisticated and aggressive in its policy of attracting those investments with subsidies, a classic Southern economic development strategy. These states are the most militantly anti-union and will fight any beachheads of UAW or other industrial unions with every tool at their disposal. 

Still, it’s hard for me to see how labor is in a worse position within the auto sector post-IRA than it was before. I completely understand Shawn Fain criticizing the Biden administration for a $9 billion loan to Ford that has very few strings attached and withholding endorsement. That’s probably just the way that these fights are gonna play out. The UAW has to figure out a strategy for getting in there and organizing those workers and they’ll find, I think, so long as you have the Biden administration, there’s a supportive National Labor Relations Board that’s willing to really go after companies for unfair labor practices. 

TS: The Biden administration says it will use grantmaking discretion to encourage higher labor standards. But they are not trying very hard. As Lee Harris at the American Prospect has reported, jobs in the solar industry are currently pretty crap jobs. Workers are hired mostly through temporary staffing contractors—insecurity, harassment, and abuse are rampant. Another example is TSMC, one of the big beneficiaries of CHIPS act $52 billion, which refused to sign a project labor agreement with local unions, and employed mostly nonunion labor. Can the Department of Commerce really play hardball when the US needs TSMC more than TSMC needs the US?

DG: That anti-labor stance of the derisking state is not a specific US dimension. European private capital has fought very hard at home as well to make sure that it minimizes any progressive disposition of any of the return of the state in industrial policy or climate policy. 

I think there is a geopolitical angle to discuss here, about why Europeans activated all their misgivings when the US started doing large-scale derisking of the climate transition, but not when China did it. China has done this for much longer. And in many ways Europeans were much more relaxed about creating markets for Chinese solar manufacturing, than they have been about creating markets for US solar or car manufacturing. It has to do with geopolitical tensions within the US-EU alliance. 

Politics

DD: I think that all this really gets us to the real theory of politics behind the IRA and Bidenomics more generally. Bidenomics recognizes historically that the New Deal order created a material basis for a mass political constituency for New Deal coalition politics, namely through unionization and labor winning this historically high share of the national income. It recognizes that neoliberalism—which the Biden administration refers to pretty consistently in with the phrase “trickle-down economics”—was geographically uneven, created an extremely unequal distribution of income, and that this created the material basis for reactionary populism. 

Are the investments of Bidenomics creating a new material basis for liberal democratic politics?

DG: From the discussion that we’ve had so far my takeaway is that, like neoliberalism, Bidenomics presents workers with the same choice: either you’re excluded or exploited. So it doesn’t seem to me that it really kind of amplifies or creates a terrain for some really radical reorganization. 

As a European who lives in the UK and who was born in another country where the state played a much more important role in the public provision of public goods it’s hard for me to imagine, as a US worker, how much of a change I will see in my daily life from Bidenomics. The concern is we get worse jobs and a lot of the fiscal resources go into profit for private capital, and we get the same financialization of public goods that we’ve had so far. So what is it that we’re really getting? I’m not claiming to have an answer, but I don’t think the answer is “everything will be better.”

TS: The Bidenomics idea was not only to increase union density through a legislative push, but also to structurally improve the bargaining conditions for labor by running a full employment macroeconomic policy. Biden, in a budget speech in 2021 said “instead of workers competing with each other for jobs that are scarce, we want employers to compete with each other to attract workers with higher wages.” It is a conscious push to increase employment and reduce the reserve army of labor. 

Full employment policy was complemented fiscally by the American Rescue Plan’s generous unemployment insurance of $400 per unemployed worker per week, which allowed people to leave crappy jobs and move to higher productivity and better jobs. So structurally labor is in a much better bargaining position with some of the lowest rates of unemployment in fifty years. 

TF: There’s a couple of distinct theories of politics that you hear articulated and I’m not sure which one the Biden people subscribe to. One theory is the “deliverism” theory of Democratic Party majorities: you deliver investments, you deliver jobs, people credit you with improvements in their lives, and they vote for you. Another theory is the political opposite of that, which is about “locking in” the policy, but not necessarily focusing on the electoral outcomes. That theory says that whether or not Republican voters continue to vote for Republicans, the flow of benefits and investments into those districts will make it awkward for Republican officials to try and eliminate the policy. This is why Biden-adjacent people celebrate the large investments in red districts which they have no hope of flipping.

Then there is a broader theory here that goes to Daniela’s core point about derisking, which is that the left always thought that locking in climate policy would require the building up of a green capital sector, which would be able to exercise political power, at least partially, to offset the power of fossil capital within the US political economy. This will require beneficiaries of climate policy to exist—as it does for, e.g. defense policy—in every congressional district in the country.

DD: I’m skeptical that a new material basis for a new Democratic majority will be built through investment. Consider the New Deal, where objective economic growth or rising wages didn’t build that coalition, but rather unions—intermediary organizations that help people make collective political sense of the economic situation. 

DG: I am further skeptical of the theory that you can build up green capital, particularly in Republican states, to create political lock-in. The experience of Spain in the 2000s derisking solar industries with feed-in tariffs provides evidence against that argument. The carrots for private investment were so attractive that Spain found itself with a disorderly expansion of green solar capital. When the political cycle turned, and macrofinancial conditions turned, a new government stopped those carrots, which led to a severe crash. And the experience we have had in Europe of using these kinds of derisking approaches to building private solar capital is that it can very quickly run into fiscal constraints.

Fossil capital

DD: We keep touching on fossil capital, and the rollout of green energy, which is only half the energy transition, we must also just stop burning fossil fuels as soon as possible. But the Biden administration including through the IRA has, in many cases ramped up fossil fuel production. What are the Bidenomics tools, if any, for ending fossil fuel production?

DG: In Europe from around 2017, the strategy was to explicitly combine carrots for sustainable activities with penalties on fossil capital, particularly through the European Central Bank and the Bank of England. The approach acknowledged that we cannot wait for this logic of derisking that simply waits for market processes to drive fossil fuels out. This was rather revolutionary for central banks that usually don’t want to intervene or don’t want to be seen as intervening in the allocation of capital. 

Central banks designed “sustainable taxonomy” frameworks, to penalize dirty capital. And the European Central Bank said that climate is within our mandate of price stability, because the climate crisis can have financial stability aspects, and also because the financial sector can amplify the climate crisis by lending to fossil fuels. The logic of the approach was that if a financial entity has fossil fuel bonds in their portfolio, the central bank will penalize the holding of these bonds, driving up the price of their credit, thus eliminating subsidies to carbon capital. 

DD: How did Bidenomics disrupt that trend in European policy making?

DG: The carrots of Bidenomics gave more momentum to the lobbyists opposing the penalty based on regulation in Europe, because every company that was being penalized said they would move to the US! It became much more difficult politically to stay on course with Europe’s much stronger decarbonization framework that penalizes private capital. 

TS: Fossil fuels continue to receive the lion’s share of government subsidies. Fossil fuels are extremely expensive for not just the planet but for governments to maintain, fiscally speaking. European governments did a massive amount of deficit spending after the Ukraine war began, to put money into company’s pockets and into people’s pockets to defray their energy bills. Researchers have estimated more than 800 billion euros of subsidies were given to fossil capital in just one calendar year since the Ukraine war! Compare that 800 billion euro figure with the congressional green spending from the IRA, that amounts to, according to the CBO, about $40 billion a year. 

DD: Melanie Brusseler writes: “private asset ownership and market coordination cannot perform the synchronized dance of investment and divestment, nor bear the cost of maintaining excess capacity… a boom in private renewable projects will not on its own orchestrate a planned build out.” Why is public ownership important for achieving decarbonization? 

TF: The part of the IRA that can contribute to public ownership are the direct pay provisions that we spoke about earlier, which many local and state officials around the country are taking advantage of. That’s one of the exciting post-IRA terrains of struggle—to build those institutions and that capacity to increase the role of public ownership.

But that alone is not going to move us fast enough. There are the Paris goals, and there’s the reality of the acceleration of the climate crisis. Without a public balance sheet playing a bigger and more aggressive role, we are not going to tackle things like the flood exposure of so many communities, and what that does to insurance markets, and what that does to home prices—much less than we are able to gradually decommission fossil infrastructure that we have in this country and around the world.

Without more assertive public ownership and a big green state with sticks, there is a real fear that the public just ends up absorbing the costs of the climate crisis as companies go bankrupt, as homeowners lose their shirts, and the public sector just picks up the mess in the worst kind of derisking way: the socialization of all the losses. We have to find ways to bring in the public sector more proactively, in a manner that costs less and is more equitable, and less reactive. 

DG: A recent Common Wealth report makes a persuasive case even for fiscal hawks that public ownership, particularly of the energy sector, is cheaper than derisking private renewables. 

There is also the long-term, orderly decarbonization case, not just for public ownership, but for a wholesale change in the current macrofinancial regime. I don’t think public ownership is enough, though it’s necessary. We also need a change in the way that we think about the state’s balance sheet in the climate crisis. At the moment we have a disorderly expansion in both green and fossil capital. We have to remind ourselves that we need to shrink certain sectors. The state will by necessity have to have a much larger balance sheet that it has at the moment. And for that, it will need a central bank that works with a very different logic of coordination with the state to support a big green state. 

What we don’t have enough of is building institutional capacity of the state to discipline private capital into climate strategies. In my paper that informs my arguments about Bidenomics, I write about the use of monetary derisking by central banks to intervene in government bond markets, which at the moment basically preserves their stability for private finance.

New Cold War

DD: Let’s talk in some detail about China and what many are calling a “new Cold War.” Bidenenomics seeks to deny certain advanced semiconductor technology to China, to exclude Chinese source components and critical minerals from supply chains, and more generally, to check China’s economic development and military power. Jake Sillivan, in a much noted “new Washington Consensus” speech described this new approach as a departure from optimistic assumptions of a rules-based global order. 

But the real US problem with China is not illiberalism—Saudi Arabia and Israel don’t bother the US. When did it become such a bipartisan norm to perceive China’s rise as an almost existential threat to the US? And lastly, what sort of state is China? Is it a derisking state, a big green state, or something else entirely?

Tf: The first thing to note is that there is a very significant element of self-critique among the US policy making elite when it comes to how they talk about China. There was an optimism, a popular theory of “convergence,” around China’s integration into the global economic order, especially upon its entrance into the WTO in 2001. That theory said that as China liberalized economically, its political system would also liberalize. (Jake Werner and Toby Chow, for example, argue that this was actually happening for a period of time in the 2000s and early 2010s.) 

China became much more geopolitically and militarily assertive in the wake of the 2008 crisis. While the US was rather hobbled by the collapse of the housing market, China pulled off a world-historic stimulus program and mass-building program. The investment of the Chinese state basically floated the entire world economy for about a decade. Some people see this as the moment when Xi Jinping consolidated power within the Chinese political system and began to author a much more statist economic policy, with documented cases of economic coercion. There’s a perception across the US political elite by 2018 that China had changed—they flipped positions, from seeing China as a benign partner to an active threat.  

The self-critique then runs on two levels. Firstly on the economic level, one cannot overstate the significance that the China shock literature has had on policymakers; they cite David Autor’s articles by name, which is otherwise unheard of. Of particular impact has been the work of economists who documented how the economic opening to China, starting in 2001, led to the decimation of American manufacturing. In a paper published after the 2016 election, they showed that counties and metropolitan statistical areas that had seen the heaviest import penetration from China were those that flipped towards the Republicans. Opening up to China seemed to have had more significant domestic economic consequences than anybody had anticipated in the 90s and early 2000s. 

Second, on a climate level, by 2021, US policymakers had woken up to the realization that China was absolutely dominant in key green manufacturing sectors, where previously it was believed that China mainly focused on “ low end assembly stuff,” while all the cutting edge, high value added stuff was still located in the global North. But suddenly, they had to admit that China controls 90 percent of the market for solar panels, controls critical minerals, dominates the battery supply chain, and so forth. As it became clear that an energy transition was necessary—that, one way or another, there is going to be a massive replacement of machines across the globe—policymakers came to fear that China was going to dominate those industries, which they would prefer to be located within the US, and producing for the domestic markets, but also competing with China in what they anticipate to be the booming export markets of the future. 

Lastly, there are genuine conflicts of interest between the US and China when you look at Taiwan, and the broader East Asia security questions and military alliances. 

DG: Europe faced the same concern for longer. In the 2000s, solar industries in Germany and Spain were affected quite significantly by the Chinese state’s ability to scale up manufacturing of clean tech. The response used to be, “It doesn’t matter, because we want the market to work.” There was a powerful ideological commitment to globalization. If you look at recent attempts to emulate Bidenomics in the US, there has been a shift. There’s an understanding that markets used to work well, but massive Chinese industrial policy has distorted market signals in clean tech. They now are looking to do the distortions themselves. 

For the moment, I think there is a combination of the big green state and derisking in China. The Chinese state and the internal market allows for scaling up, and one can do many things that are not possible in smaller countries. It’s important to remember that this isn’t just a story of states, but also of financial globalization. There are lots of European companies in China, it does not simply erupt on the international scene to threaten US hegemony in isolation. Significant profits were to be made by locating in China for a long time—European and US corporations defended that arrangement, which they cannot do now for political reasons. 

DD: What should we make of the role played by this New Cold War in motivating US green industrial policy? What does this new industrial policy represent, given the serious threat of escalation? What might a stable geo-economic and geopolitical settlement with China look like?

TF: It is disquieting, and it should trouble us very deeply. There is a tendency among some progressive forces to want to see this geopolitical aspect as ancillary to industrial policy, but I’m not sure that’s true precisely because the shift in the US policy elite’s attitudes towards China is one of the preconditions for everything that we’ve seen. We must stay focused on these dynamics, on how industrial policy tools might get deployed to ratchet up geopolitical and military tensions. We should oppose escalatory moves, forcefully and forthrightly. And I do think it is important to oppose the semiconductor export bans, which are not an indispensable part of the overall package, and which none of the forces that came together to pass the legislation signed off on necessarily. There is less attention to these dynamics than there were, for example, to the question of how US global power manifested itself in the 2000s. 

In my view, we need to start talking intentionally about “order building”: the institutions of international relations, security, and cooperation, especially around development and finance. This includes the idea that one can’t imagine a global political or economic order or a security order without a significant role for China. Coexistence must be the name of the game. We have to work to develop these institutional frameworks on the baseline conviction that war would be an absolute apocalyptic endpoint, that we have to do everything in our human power to avoid.

Ts: The US policy-making elite’s theory of how to contain China is based on two premises. The first is that technology is driving China’s economic growth, and the second is that China doesn’t know how to make innovative new technology—they can only copy, acquire, or steal. Following from these premises, the containment of China is taking the form of preventing access to high-end technology. This is what Jake Sullivan means when he talks about “building high walls around a narrow yard” of AI, biotech, green tech, and so on.

I’m not so sure that new technology is the engine behind Chinese economic growth. Chinese growth has been powered by domestic investment largely in the technologies of the second industrial revolution, together with a gigantic real estate boom, and a logistics boom that created a vast internal market. 

As for innovation, the Chinese state has been investing heavily in R&D for at least ten to fifteen years now—tens of thousands of Chinese engineers and scientists and doctors have trained at the MITs and Stanfords of the world. They are as close to the technological frontier in many sectors, if not further ahead, than the US. Therefore, even if one believes that it is necessary to contain China, it’s unclear to me that technological decoupling can succeed on its own terms. Obviously, there is a massive risk of backlash too: it could drive away American allies, slow down innovation, slow down climate investments, increase the prices of goods, and lead to domestic inflation.

dg: I also want to consider the possibility that China is a kind of a strawman, or a useful Trojan Horse that provides a way out of this crisis of capital accumulation. To put it another way, the Chinese threat—which is real in that it challenges US hegemony—offers a political narrative that allows for the reimagination of the role of the state, which can now become engaged in climate politics. Even in countries like the US, you can build an infrastructure or an architecture of derisking which, as it becomes bigger and bigger, can create profit and opportunities for private capital. You need a straw man, an adversary for these political forces to come together. But our planet doesn’t care about the China-US conflict. 

dD: The climate crisis is global in scope. Do the IRA and Bidenomics point toward any sort of more internationalist approach to fighting climate change? 

ts: The IRA doesn’t have any explicit provisions for countries in the developing world. There’s no transfer of American taxpayer dollars or cheap money. Rather, the Biden administration argues that anything the US does to accelerate production of green goods will lead to a drop in prices, allowing for cheaper exports to developing countries. That theory then requires a policy agenda of IP-free green technology transfer to developing countries that the administration is currently not pursuing.  

The broader issue is that developing countries have a much narrower fiscal space, and much smaller tax bases from which to give out tax subsidies. Their fiscal space is very constrained by dollar debt crises, and structurally higher interest rates. For a successful global energy transition, the IMF and the World Bank would have to be reformed to make the cost of financing cheaper and not police their debt-to-GDP ratio. But that’s not been the Biden administration’s international agenda.

DD: If the global South is not provided with an economically viable path to do green development, why would they stop burning coal?

Dg: The progressive rhetoric of the Biden administration is at its thinnest when it comes to the “New Washington Consensus” for countries in the global South—behind which the Wall Street Consensus is very much hardwired. The derisking development paradigm recommends that global South countries need to blend a little public money with a lot of private finance to kick-start investment in the energy transition and public goods. A great irony that I see is that the US is protesting the fact that countries consume cheap, renewable tech from China—but then it turns around and says, ah, the global South should be happy the US IRA is going to reduce the cost of cleantech imports.

The Biden administration is not supporting a mandatory involvement of private creditors in debt-ridden countries in the global South, or pushing for more grants or more concessional finance to go into public goods, or supporting technology transfers, the last of which China is doing. For example, a Ugandan state-owned company is producing electric buses for public transport with Chinese technology—this is what technology transfer looks like in a revamped, post-neoliberal framework. Such an arrangement does not exist in Bidenomics. Instead, the US and Europe are singing from the same hymnsheet—you want green industrial policy, do it through derisking—which then puts pressure on global South countries to hand more and more of the fiscal and regulatory reins to private capital to, say, make green hydrogen competitive.

Tf: To the extent that things can change, it seems to me likely that they will be driven by geopolitical developments, much more than any enlightenment on the part of the US government or financial apparatus. Some negotiated packages, as in the case of Indonesia, have involved aspects of technology transfer, but it’s coerced. The US is making concessions because they are seeking the alignment of strategically positioned states. We’re likely to see more of these geopolitical gradients on deals relating to international development and finance, with states leveraging their relative positions. The double-edged sword is that this is feeding into dangerous escalatory dynamics. 

The Polycrisis is a publication focusing on macro-economics, energy security & geopolitics.

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