Ep. 1558 - The Inflation Reduction Act That Doesn’t Reduce Inflation

Episode Summary

Executive Summary: The episode argues that the Inflation Reduction Act is misnamed, claiming it will not reduce inflation or meaningfully address climate change, while the Federal Reserve warns inflation will remain high and interest rates will keep rising. Shapiro also criticizes elite influence from Bill Gates, media/Democratic messaging, and the political strategy of Liz Cheney and Democrats in keeping Trump central to the 2024 race.

Main Topics: Inflation Reduction Act as political branding (Priority: 5/5): Shapiro frames the law as a marketing exercise: Democrats and media allegedly sold a large spending/climate package as an inflation-fighting bill despite no evidence it would lower prices. Federal Reserve outlook on inflation and rates (Priority: 5/5): He highlights Fed minutes and reporting showing inflation is still elevated, rates are likely to rise further, and policymakers are balancing inflation control against recession risk. Government intervention, spending, and market distortion (Priority: 4/5): The episode argues that expanding federal involvement in markets, energy, health, and semiconductors worsens inefficiency and contributes to long-run economic instability. Climate policy critique and limited impact (Priority: 4/5): Shapiro contends the climate provisions are expensive, heavily subsidized, and produce negligible temperature benefits while imposing costs on consumers and businesses. Bill Gates and elite influence over policy (Priority: 4/5): He criticizes Bill Gates for lobbying behind the scenes for the bill, portraying him as an out-of-touch billionaire shaping policy for symbolic climate goals. Trump, Liz Cheney, and reactionary politics (Priority: 4/5): Shapiro says Democratic and anti-Trump messaging, including Liz Cheney’s new super PAC, is likely to strengthen Trump rather than weaken him by making him the center of attention.

Key Arguments: The Inflation Reduction Act is primarily a label and not a true inflation-fighting policy; the Federal Reserve’s own outlook suggests inflation will stay high. The Fed is likely to keep raising interest rates, but cautiously, because policymakers fear causing unnecessary economic weakness. Shapiro argues the correct anti-inflation approach would be a sharper, Volcker-style rate shock rather than gradual tightening. The federal government has been growing more interventionist for decades, and recent crises were either caused or worsened by government action. Climate spending in the bill is portrayed as economically costly and environmentally trivial, with negligible impact on global temperatures. Bill Gates is presented as an influential but detached billionaire whose lobbying helps drive policies that ordinary Americans will pay for. Democrats and the media are accused of acting as a coordinated messaging arm, especially on bill naming and political narratives. Anti-Trump efforts by Liz Cheney and others are framed as politically counterproductive because they keep Trump dominant in the news cycle.

Data Points: Fed benchmark rate increase: 0.75 percentage points - Described as the largest increase since 1994 in June, followed by another equally large hike last month. Expected Fed action: Another rate hike at the September 20-21 meeting - Shapiro cites near certainty that the Fed will raise rates again. Job losses vs. inflation control: Possible smaller hike if labor market weakens - He says the Fed may taper the pace if job losses rise, rather than stopping hikes. Biden approval rating spread: -16 points - He cites RealClearPolitics to argue Biden has not gained politically from the bill. Reuters/Ipsos approval rating: 38% - Used to show Biden’s approval remained weak after passage of the bill. Health care premium reduction claim: 13 million Americans - Brian Deese is quoted saying the bill will lower premiums for this many people. Climate spending/tax credits: Nearly $375 billion - Associated Press report cited on incentives for renewable energy and related climate measures. Climate policy impact estimate: 0.0009°F to 0.028°F by 2100 - Shapiro cites Bjorn Lomborg to argue the bill’s temperature effect is effectively imperceptible. Government tax expenditures: $729.5 billion in 1996; over $1.4 trillion last year - Used to show the growth in tax breaks and subsidies over time. Regulatory rules: 701 economically significant rules (1981-2000) vs. 1,170 (2001-2021) - Cited to argue the regulatory state has expanded sharply. Energy and climate credits: $161 billion - Tax credits for non-carbon electricity sources like solar and wind. Electric vehicle credits: $36 billion - Referenced as part of the law’s green subsidy structure. Green manufacturing credits: $37 billion - Credits for plants using green energy sources.

Pivotal Quotes: "Inflation is going to remain uncomfortably high." — Federal Reserve (via New York Times report cited by Shapiro): Used to rebut claims that the bill and current policy environment will quickly bring inflation down. "This is completely marketing tool." — Jeffrey Sachs: His view on whether the Inflation Reduction Act actually reduces inflation. "The notion that they can magically tailor their rate increases to prevent recession, but also to quash inflation seems pie in the sky." — Mohammed El-Erian: Cited to criticize the Fed’s attempt to fine-tune policy without causing a recession.

Implications: Listeners are told to expect persistent inflation, more rate hikes, and continued political theater around climate and anti-Trump messaging. The broader warning is that elite-driven, heavily subsidized policy may raise costs while delivering little measurable benefit.