“Do I contradict myself? Very well then … I contradict myself; I am large … I contain multitudes,” wrote Walt Whitman. Good enough for the great American poet 170 years ago, surely good enough for an American president now. The result is a hodge-podge of contradictory policies.
The Biden administration’s Infrastructure Investment and Jobs Act, its (misnamed) Inflation Reduction Act and its Chips for America Act are ladling out tax credits and subsidies that have created a factory construction boom and are funding infrastructure projects ranging from highways to “cleaner buses”. The factories will consume enormous amounts of electricity, as will massive investments in artificial intelligence. Virginia’s Dominion Energy ran so short of electricity last year that it halted connections to new data centres and announced it might be unable to supply new projects until 2026. Sam Altman, chief executive of OpenAI, said: “We still don’t appreciate the energy needs of this technology.”
One project encapsulates the many policy contradictions. A Panasonic battery factory is to be built in Kansas with a $6.8 billion (£5.4 billion) federal subsidy. The subsidised batteries are to be used in subsidised electric vehicles that are a centrepiece of Joe Biden’s war on climate change. To provide power for the factory, the local utility has postponed the planned retirement of an emissions-spewing coal plant. Result: policies favouring the production of batteries to reduce emissions are increasing the burning of coal that increases those emissions. Eventual disposal of the batteries, which contain troublesome metals, will create serious environmental problems.
That’s not all. The news agency Reuters reports that the government has earmarked $30 billion in subsidies “to bring cutting-edge AI chip development and manufacturing to American soil”. Lauren Leffer, writing in Scientific American magazine, reckons that if Google converts its search engine to an AI chatbot, it might need as much electric power annually as Ireland merely to run Google Search. This would result in a big increase in carbon emissions. Add the of millions of gallons of cooling water used by the data centres. It’s not the intended outcome.
The difficulty of meeting the demand for electricity created by these and other government policies is compounded by government regulations making the construction of natural-gas-fired generators difficult to impossible — and by confining reforms aimed at accelerating permission for transmission lines to renewables. That leaves environmental groups free to stall construction of transmission lines from generating stations on which utilities can depend when the sun don’t shine and the wind don’t blow. Result: policies that create huge demand for baseload generation, while other policies make it difficult to meet this demand.
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Enter trade policy. The administration recently raised Donald Trump’s 25 per cent tariff on Chinese electric vehicles to 100 per cent. Result: one policy will be making EVs cheaper for consumers by subsiding their purchase, while another policy will be making the vehicles more expensive by raising tariffs. One policy giveth, the other policy taketh away.
Then there is the war on inflation. Here, too, we have a man of many contradictions. Biden wants consumer prices rolled back, but tilts the regulatory playing field to encourage the growth of trade unions and the proliferation of regulations that raise the cost of doing business. He is spending money the government does not have, forcing the Treasury to print dollars that are the inflation genie’s best friend. He is preparing a tax credit to stimulate a housing market that the Federal Reserve is counting on its monetary policy to slow down. He is trying to hold petrol prices down by depleting the Strategic Petroleum Reserve, while restricting the domestic drilling that would add to oil supply.
Incoherence is not confined to purely domestic matters. Although Vladimir Putin’s pipelines are turned off, more than 16 per cent of the gas that Europe buys continues to come from Russia, in the form of liquefied natural gas (LNG). That’s a 38 per cent increase over 2021. Biden has decided to “pause” approvals of six applications to construct LNG export terminals. European buyers who rely on a steady flow of LNG from America know these projects cannot be turned off and on with the stroke of a regulatory pen, as do allies in Asia who want to reduce coal consumption. Some Russian gas will have to do — the proceeds to feed Putin’s war machine. A policy that pleases the Left’s greens by curtailing use of a fossil fuel undermines policies aimed at starving Putin of cash, and meeting the energy needs of allies and nations eager to end reliance on coal.
There is more, much more. Encourage American companies to “come home”, while announcing plans to raise their taxes. Confront the new axis of evil while shrinking the military budget. Promise to unify a fractured America while calling opponents racists and fascists.
There are good reasons for many of these policies. There is no good reason for all of them. As one astute observer of the Washington policy scene told me: “This is without doubt the least policy-co-ordinated administration in my lifetime. It is amazing how no one thinks through unintended consequences of policy.”
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Or about setting priorities. These policymakers come to a fork in the road and they take it.
Irwin Stelzer is a business adviser
