It's not very effective because the sum difference is barely a drop in the bucket. It's not enough to significantly impact inflation at the scale of the US economy. Only the Fed's rate hiking is going to do that at this point, as they intentionally attempt to cause a recession to destroy demand.
Compare just the annual US Govt debt accumulation versus the difference between spending increase & tax increase in the act. How much new debt is the US going to take on this year? The Inflation Reduction Act, like so many government programs, warns you that it's a lie and a joke right in the title. The moment they chose that name, they were telling you everything about it: it wasn't an inflation reduction act.
They championed it also as though it was a huge deal for climate change, it's not, that's a lie as well. Climate change is overwhelmingly global as an issue, there's absolutely nothing they can do to meaningfully offset the expansion of emissions elsewhere around the world. If they were serious about climate change, they'd have named the act: Stop China From Building Another Hundred New Coal Power Plants Act.
10s of billions of dollars have been announced for new battery plants to be built in the US and Canada since the announcement of the IRA. It's already having a massive effect.
Taxation should be thought of separately from monetary policy. To put this into perspective, M2 money supply grew from 15.33T on Dec 31 2019 to 21.71T on July 31 2022, a growth of 41% in two years ($6.38T). In 2019 it grew 6.6%. The net revenue of the Inflation Reduction Act is 324 billion over over ten years. It's just not in the same ballpark
> OTOH, it encourages investments in green energy, likely leading to a substantial reduction in the cost of energy in the long term.
Subsidies and investments don't necessarily lead to a reduction in costs. Think about the sectors that have the most public spending in the US (health care through medicare and medicaid, education, real estate via fannie/freddie, etc). These are the fastest growing industries in terms of prices
I disagree. Healthcare isn't necessarily labor intensive. New technologies should make care cheaper. If anything labor efficiencies have made the actual labor required of medical care a lot less. Doctors used to make house calls and spend more time with you. Now you go into a doctor's office, wait up to an hour sometimes, sit in a room, have some lower paid aids take your vitals, get your information, etc and you end up seeing the doctor for 15 min. Doctors see about 20 patients a day and spend normally 15 minutes per patient. Compare that to 50 years ago and you can bet that there have been "labor efficiencies" since that time. That doesn't even account for tele-medicine for routine stuff like getting ear drops for a sick child.
As for education, teachers aren't paid a lot, all the new costs are administration. Education expenses did not grow proportionally to educator's salaries, but far exceeded them, so your theory doesn't hold up.
https://www.excel-medical.com/a-typical-primary-care-physici...
And Baumol doesn't require salaries going up, it works just fine if salaries stay constant while the price of consumer goods goes down.
In both health care and education, the final customer often does not pay. When I go to a doctor and ask them how much something will cost, I get bewildered looks. They rarely hear that question. I don't pay, my insurance pays and I pay some co-pay. Same thing for education. I'm pretty much stuck with my local school district, or if its college, I get subsidized no questions asked student loans.
But compare that to something that's paid out of pocket by the consumer. Consider something like Lasik surgery. It costs about $2-3k per eye an. Pretty incredible considering its relatively new procedure. I can't find a single outpatient surgery covered by insurance that costs that little. Cosmetic surgery is similarly cheap. And the difference is that the Lasik surgery is paid by the consumer and most people would shop around, ask about prices, etc. No subsidized Lasik loans, no insurance coverage, just straight forward pricing.
The CBO only measured the first effect, but the second is much more important, IMO.
It doesn't do much for housing, but that's mostly a local issue (aka zoning).