New Climate, Tech Bills Expand Role of Government in Private Markets

After two decades of crises, the muscular arm of Washington replaces Adam Smith’s invisible hand 

By Jon Hilsenrath of The WSJ. Excerpts:

"While Republicans have embraced tariffs and an active national stance against China, Democrats are embracing the use of the tax code to advance their economic agenda. The new health and climate law, for example, includes $161 billion worth of credits for private-sector investment in non-carbon electricity sources such as solar and wind, $36 billion in credits for electric cars, and $37 billion in credits for manufacturing plants that run on green energy sources.

Economists call such credits “tax expenditures,” in that they are employed the way federal spending is used to shape economic activity.

These breaks were worth $729.5 billion in 1996, adjusted for inflation, according to the Government Accountability Office. Last year, they surpassed $1.4 trillion, and the number of individual breaks had grown from 121 to 165.

President Biden’s two new signature programs add $351 billion in tax expenditures over the next decade, according to Kent Smetters, director of the Penn Wharton Budget Model, which tracks the impact of budget decisions."

"The regulatory state has grown as well. The federal government wrote 701 economically significant rules from 1981 through 2000, according to the George Washington University Regulatory Studies Center. That increased to 1,170 between 2001 and 2021. New rule-writing tumbled in Donald Trump’s first year as president to Reagan-era levels, then grew each year after that and hit an annual record in 2020, according to the center."

"As Washington’s sway has grown, so has the amount of money that the private sector spends to influence Washington decisions.

The sectors that have spent the most are those most heavily touched by government policies, $10.8 billion between 1998 and June 2022 by the healthcare industry, $10.2 billion by finance, $8.4 billion by communications and electronics, and $6.9 billion by the energy sector, according to OpenSecrets.org, a nonprofit that tracks lobbying spending."

The part at the end about lobbying reminds me of a theory of regulation. 

Capture Hypothesis-A theory of regulatory behavior that predicts that regulators will eventually be captured by special interests of the industry being regulated. Then the agency will serve the needs of the industry instead of society. This happens for two reasons:

1. The government has to hire people who understand the industry and they end up hiring people who used to work for the industry that is supposed to be regulated.

2. Most citizens will not care what they agency does because they are too busy with their own lives. But the companies will lobby and try to influence the agency because it is worth their time.

Related post:

Government Employees Trade Favors To The Oil Industry For Sex (and they got an ethics award from the government) (2008)