It has doubtless occurred to Elon Musk and Vivek Ramaswamy, co-leaders of President-elect Trump’s Department of Government Efficiency, that the quickest route to finding a big chunk of the DOGE’s promised $2 trillion in savings is the Inflation Reduction Act. The problematic features of the IRA go much deeper than the “mere” billions of dollars in green loans, electric car subsidies, grants, and giveaways that have made the news in recent months. In its full panoply, the IRA’s prospective spending totals somewhere between $1 trillion and $4 trillion. In the spirit of joining the deluge of advice-giving at year’s end, here’s a simple framing of the economic realities and a suggestion about how one might unwind or repurpose the IRA’s wasteful and inflationary spending.
It’s no secret that the IRA was designed to achieve an “energy transition”—after passage, it was proudly hailed as the Green New Deal. According to the Biden administration, the law is “the single largest investment in climate and energy in American history.” True: in inflation-adjusted terms, it will cost more than it did to prosecute World War II.
It’s hard to overstate the inflationary impact of such a staggering scale of government spending, not to mention the massive opportunities for waste and fraud. And, in no small irony, the IRA promotes and subsidizes technologies and programs that will make energy more expensive, which will also fuel inflation. For evidence that such efforts radically raise energy costs, look across the Atlantic, to Germany and the United Kingdom, both further down the “transition” path the IRA envisions. High-cost energy in both countries has caused consumers to suffer and businesses to flee, with Germany in particular undergoing de-industrialization.
The question on the table isn’t whether the IRA was a good idea—it was not—but whether, in its ambitious scope, it might contain some projects that have inherent economic merit.
Because Congress enacted the IRA in 2022 under reconciliation rules—and without a single Republican vote—the legislation could also be repealed with a simple majority vote of the House and Senate. The jury is out on whether the new Congress will pursue a repeal, or whether that’s even politically possible given that this past August some 18 House Republicans said they would oppose such an effort. Defenders of the IRA point out that the money goes to all 50 states, with “red” states being the biggest beneficiaries of the government gusher. So much money spread so widely is the very definition of moral hazard, thus the political challenge. But this is not the first time that policymakers have had to trim federal largesse marbled into every state.
In 1988, President Ronald Reagan signed a law that created the Base Realignment and Closure (BRAC) Commission, an independent review board tasked with reducing wasteful Defense Department spending by identifying excess military bases for closure. This job seemed politically impossible, because every state had numerous bases, nearly all protected by one or more members of Congress in one or both parties. The BRAC Commission—with independent members appointed by the president—reviewed and finalized target closures under full public scrutiny. Each group of closures was sent to Congress for an all-or-none, up-or-down vote; no cherry-picking or amendments were permitted under the legislated structure. The BRAC mechanism worked, solving a thorny political problem.
One could imagine the DOGE working with Congress to create a BRAC-like entity to identify quickly and apolitically the most wasteful IRA programs for “closure,” because there’s only so much pruning that’s possible by administrative fiat. But today’s energy challenge is different than closing excess military bases.
Even as the government reduces wasteful (energy) spending, the nation will need to meet “unexpected” growth in domestic demand. In recent months, many have rediscovered that bringing factories back to U.S. soil creates new energy needs, as does the furious build-out of data centers, increasingly infused with power-hungry artificial intelligence. It doesn’t take a degree in economics or science to know that all this leads to greater demand for both low-cost energy and far more energy.
Since World War II, no U.S. president has left office with the country using less energy than when he was inaugurated, including President Biden, whose tenure ends before the debilitating features of the IRA will take full effect. Energy-demand growth is a barometer for economic growth, and the cost of energy is the leading indicator of whether either can happen.
If the DOGE team can radically restrain, or repeal, IRA spending while Congress and the Trump administration bring regulatory relief to U.S. industries—as did President Reagan, and as President Trump did in his first term—the combination would accelerate domestic growth and also stimulate a boom in foreign direct investment in domestic energyinfrastructure. The rest of the world has even greater need for low-cost energy than Americans do, and few places are safer and more productive for such investments than the United States.
This all distills to a generational opportunity for the U.S. not only to continue as the world’s biggest energy producer but also to become the dominant supplier to world markets. That would be a true “energy transition”—with profound geopolitical and economic consequences.
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