When Ideology Trumps Economic Interests

[Celerity]

Last edited Mon Jul 14, 2025, 01:37 PM - Edit history (1)

The fall of Biden’s green subsidies reveals ideology, not economics, as the true force in US politics.

https://www.socialeurope.eu/when-ideology-trumps-economic-interests



Among the disasters of US President Donald Trump’s “One Big Beautiful Bill,” one is particularly stinging for political economists. The bill radically phases out the clean-energy subsidies introduced during President Joe Biden’s administration three years ago. These subsidies were considered by many as immune to a change of presidents since they created new jobs and profit opportunities for firms in traditionally Republican-voting “red” states. As allergic as the Trump-controlled Republican Party is to green policies, conventional wisdom went, it would not dare take away these benefits. But then it did. Where did the conventional wisdom go wrong?

Scholars who study how political decisions are made tend to focus on economic costs and benefits. They reason that legislation that creates material gains for organized, well-connected groups at the expense of diffuse losses to the rest of society are more likely to be passed. Many elements of Trump’s bill are indeed well explained by this perspective: in particular, it engineers a dramatic transfer of income to the wealthy at the expense of the poor. By the same token, legislation that creates concentrated losses for powerful economic interests is unlikely to make much headway. This explains, for example, why raising the price of carbon, a requirement for fighting climate change but a big hit to fossil-fuel interests, has been a politically toxic non-starter in the US.

Biden’s green-energy program, the so-called Inflation Reduction Act (IRA), was designed to overcome this political obstacle. Instead of wielding a stick – carbon taxation – it offered carrots in the form of subsidies for solar, wind, and other renewables. These incentives not only made the IRA possible; they were expected to prove durable. Even if Republicans regained power, the subsidies’ beneficiaries would resist their removal. In time, as the green lobbies strengthened, perhaps even a direct push against fossil fuels would become politically feasible.

These hopes have been shattered. The green lobbies did try to soften the bill’s anti-IRA provisions, and they managed to delay the phasing out of wind and solar tax credits until mid-2026. But while the IRA has not been repealed in full, the Democrats’ anticipated green transition now lies in tatters. Those who subscribe to the materialist version of political economy will find ways to rationalize the reversal. The regressive tax cuts for the rich required that revenues be found elsewhere. So perhaps a less influential interest group was sacrificed for a more powerful one, or maybe three years were not enough for IRA subsidies to create a strong enough lobby in their favour. As one advocate put it: “We’ll never know, but if we’d had another four years for these manufacturing investments to take hold, it would be a lot harder for lawmakers to undo them.”

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