But the Inflation Reduction Act isn’t just misnamed because it won’t do what its title promises — it will likely make inflation worse by raising the cost of producing goods and services and lowering their overall supply. The higher cost and consequent lower supply of goods means that money circulating in the economy is used to purchase fewer goods, thereby pushing up the price of goods, leading to higher inflation.
For instance, the push to remove carbon from production specified by the act is exactly the type of wasteful spending that raises the cost of producing goods. And while receiving the bill’s subsidies for green-related spending will lower the cost of purchasing these types of goods, the rise in demand will likely push the price back up.
It’s difficult to understand why Congress thinks this would reduce inflation. What’s needed is more supply or less demand, not higher demand. The act seems to get this point exactly wrong.
Join the conversation as a VIP Member