Washington is again backing war in the Middle East. Universities are consumed with debates about political correctness and free speech. The liberal intelligentsia can scarcely contain its hope that war will reinvigorate worn-out Western democracies. It could be 2003, were it not that today, the U.S. has outstripped all other countries to become the world’s biggest producer of both oil and gas.
In 2023, America’s blundering through a world economy organized around fossil fuels may seem like it is only an intensification of trends under way a quarter-century ago. There is little chance of slowing the feverishly extractive metabolism of modern life. But it is at least plausible that we are entering a new era for state-led investment, including in a greener, more resilient economy.
After decades of glacial wage growth for most Americans, and following a pandemic that did not spare the rich world, it seems possible that the United States is exiting market-mania and adopting a new mode of more explicitly interventionist, and protectionist, economic governance.
COVID-19 was the immediate trigger, spurring lawmakers to revive old crisis management tools. Though broad stimulus packages and the Fed’s emergency lending initiatives did most of the heavy lifting, the administration also used an arsenal of more targeted measures, from the Defense Production Act to first-loss guarantees and advance market commitments, to encourage investment and innovation and to stabilize demand. These tools will be used to manage future environmental and health crises for which COVID-19 was just a dress rehearsal.
President Joe Biden’s economic-planning agenda, including the Inflation Reduction Act, the CHIPS and Science Act, the bipartisan infrastructure bill, and several juggernaut defense spending packages, signals a new willingness to set explicit goals for national investment. Over more than a year, the administration hammered together a coalition to back the IRA. This alliance contained groups ranging from climate advocates bent on accelerating the deployment of green technology, to supply-chain hawks concerned about the risky sourcing of critical goods, to New Hamiltonians committed to strategic investment, who lament the Cold War error of splitting the world into “developing” countries and “developed” or “advanced” ones, idling at the end of history.
Observing the first grants made from these pots of money, though, it’s hard not to conclude that the national-security wing of the planning coalition is first among equals—even that the vogue for economic complexity and manufacturing may be little more than a baroque rationalization for military and defense goals.
The CHIPS Act, for example, was sold as a measure to avoid the widespread semiconductor shortages we saw during the pandemic, which delayed the manufacturing of everything from cars to computers. But if the U.S. is going to exorbitant lengths to produce chips domestically, and imposing sweeping export controls, it is likely for the narrower objective of ensuring U.S. nuclear cybersecurity. It seems no accident that the first CHIPS Act grant was to a (U.K.-based) defense contractor (which hardly seems to have needed the subsidy).
This is not to suggest that the clean-energy transition and competitiveness drive is all spin. We are well into the “mid-transition,” as environmental engineer Emily Grubert calls it. There is growing demand for private and public green goods, from electric vehicles to denser cities. But as a very rich country, we have opted to create new sectors without destroying the incumbents—the only politically feasible path, perhaps, but a risky one.
And, for the handful of regions left behind by the transition, as climate policy expert Tim Sahay has argued, the IRA was designed to compensate the losers. That can mean investments in blighted areas (it’s worth watching whether an electric-vehicle plant in West Virginia attracts clustering and growth, or if it remains a largely symbolic achievement). It can also mean extending existing boondoggles, by giving new life, for example, to the notoriously wasteful corn ethanol industry, and standing up new ones, like a deliberately oversized tax credit for hydrogen.
You go to war with the army you have, not the one you want. The U.S. is embarking on this new economic-planning drive using a bureaucracy gutted and stigmatized by 50 years of market-fetishism, and privatized, at great public expense, by contracting core functions out to consultants.
It’s easier to complain about the lack of state capacity than to say how to rebuild it. Low trust in institutions, from government to media to higher education, continues to poison good policy. One etiolated institution that is making at least a rhetorical comeback is the labor union, with recent smashing wins for the Teamsters and United Auto Workers.
I wrote about many of these themes this year, cautioning in January against the new mercantilism that seems to underpin so much domestic development strategy.
In the spring, I went to visit the nerve center of American reindustrialization efforts, which sits on a dusty road in the Sonoran Desert. TSMC, the world’s largest semiconductor manufacturer, is building a fab in North Phoenix, where Washington hopes it will produce chips for use in drones and missiles, as well as cutting-edge technology for commercial clients like Apple.
The CHIPS Act did not require grantees to employ union workers, and the site was a microcosm of America’s grossly unequal, two-tier workforce. After snubbing requests for a project labor agreement from local unions, TSMC opted to use mostly non-union workers. In interviews, workers told me about dizzyingly unsafe work conditions, which many blamed on the use of poorly trained, often temporarily employed non-union contractors. My investigation exposed dozens of injuries, accidents, and alleged wage theft at the site.
A month after my story was published, TSMC announced that the opening of the fab would be delayed by a year due to a lack of skilled workers. The company said that it would seek visas to bring in as many as 500 or more Taiwanese construction workers. It is notable that it has faced these labor problems even in raising the four walls of the fab. Once the plant is built, staffing it with skilled engineers could prove even harder. These bottlenecks are just a glimpse of how workforce hurdles could constrain industrial policy.
In another pair of investigations, I examined BlocPower, a green loan provider that promises to be a one-stop shop for decarbonizing low-income homes. Beyond originating loans and scaling up financing for green equipment like heat pumps and solar panels, the company also has ambitions to train a workforce of clean-energy technicians drawn from marginalized communities.
BlocPower’s mission to deliver the energy transition to the working class has earned its charismatic founder influential posts advising policymakers. But my reporting revealed basic flaws in that commendable business model, including challenges achieving scale and clients who complained of quality concerns and cost overruns. In Ithaca, New York, where BlocPower won a flagship contract and international acclaim for a pledge to decarbonize the city’s entire stock of 6,000 buildings, BlocPower had completed just a single heat pump conversion as of my September investigation.
The energy transition will require Americans to overhaul the way they heat and cool their homes—ideally, improving air quality, ventilation, and resistance to airborne disease along the way. But my reporting suggests that the economics, the politics, and the workforce demands of that national home-rehab drive are far from solved. The persistence of cheap gas makes it hard, in many places, for heat pump conversions to pencil out—despite the dreamcasting of climate nonprofits. The fight over gas stoves, manufactured by the fossil fuel industry, is just a preview of the culture wars that will be deliberately ignited in order to keep Americans burning pollutants in their homes.
The moralizing attitude of early adopters hasn’t helped, either. For the energy transition to work, it needs to make sense at the kitchen table. I interviewed a conservative HVAC contractor and advocate for heat pumps about why he actually prefers to “pull up at a McMansion with a Trump sign” than to work with more climate-focused clients.
And the clean-energy bonanza has attracted plenty of attention from business interests who could create as much drag as momentum. The coming HVAC boom, for example, is well anticipated by the private equity industry, which is rolling up local installers.
Now comes the hard part of the energy transition and industrial-planning agenda. As the administration rediscovers old tools of economic statecraft, it should not fall in love with its own narrative. Instead, it should remain rigorous in assessing whether its economic policy is more effective than what would have happened anyway. The early signs are not particularly positive. New data from the Rhodium Group and MIT’s Clean Investment Monitor shows that the IRA may not have caused much of a spike in clean-energy investment, which had already been climbing steadily for the past five years. Perhaps the law was more symptomatic than causal.
There is equally a risk, amid the jubilation of evicting the neoliberals from the halls of power, of getting punch-drunk on the new planning paradigm. A new tendency has emerged to deny the existence of trade-offs altogether, rather than doing the hard work of politics and brokering between competing public goods and investment priorities.
To an extent, this is overdue. For decades, conservative economists used cost-benefit analysis to thwart safety regulations and social spending. A younger generation of policymakers is fed up with being told that we can’t afford nice things. And anyway, trade-offs bite less in an environment of faster growth.
But there is a risk of overcorrecting for the ideological commitments that had lashed us to a zero-sum economy, assuming that America can still have it all, and failing to prioritize among public goods. We risk the same overextension overseas, as we sink deeper into a regional conflict that is not only politically unpopular, but represents the utter failure of national-security hawks’ long-hoped-for pivot to the Pacific.
