Last year’s colossal Inflation Reduction Act [IRA] and its hundreds of billions of dollars in cleantech subsidies are designed to spur private-sector investment and accelerate the country’s decarbonization effort. All told, the IRA offers $369bn of tax credits, grants, loans, and subsidies, many of them guaranteed past 2030. The credits can be sold, too, allowing deep-pocketed investors with enough tax liability to buy the credit — a way to get more capital to developers, quickly. Credit Suisse thinks the public spending enabled by the IRA could eventually reach $800bn, and $1.7tn once the private spending generated by the loans and grants is included.
- Date Posted:
- February 16, 2023
While there are many reasons for the surge in US debt over the past four decades, one of the main reasons has to do with the economic impact of the rise in US income inequality during this period. Rising debt was the nearly automatic consequence of rising income inequality. Because the rich save a larger share of their income, rising income inequality tends to force up ex-ante savings. But this increase in the savings of the rich must be balanced. Today what mainly drives investment are increases in expected demand, and rising income inequality normally reduces expected demand by reducing the share of income that goes to consumption (all income is either consumed or saved). If the higher savings of the rich cannot be balanced by higher investment or lower trade deficits, they must be balanced by lower savings elsewhere in the economy. Policymakers don't want to see higher unemployment, so either the Fed will respond by encouraging a surge in household borrowing, or Washington will respond by increasing the fiscal deficit.