President Biden came to New Mexico this week on a quick three-state junket to try to make voters care about the Inflation Reduction Act which is really about climate change. 70% of us know next to nothing about the IRA, according to The Economist. The President might be better off if things stayed that way.

The IRA is a trimmed-down compromise salvaged out of the Build Back Better behemoth which would have been our eleventy-seventh ginormous pandemic stimulus. Because Congressional Republicans and Joe Manchin bravely took a stand against wasteful government spending, it's merely a $391 billion boondoggle to nowhere.

But Merritt, I hear your cry. The IRA not only pays for itself, it reduces the deficit by over $300 billion over the next decade!

Let me tell you, dear reader, there are no more disingenuous words out of Washington than "over the next decade." "Over the next decade" means "ten years is so many election cycles far away you will never remember what we promised you back in 2022." And the IRA is already falling apart just a year after its passage.

$96 billion in savings is to come from allowing Medicare to negotiate drug prices for certain medications. NOPE. Big Pharma don't play that way. As of this writing, four pharmaceutical companies have filed lawsuits citing First and Fifth Amendment violations with the drug price negotiation program: Merck, Bristol Myers Squibb, Johnson & Johnson and Astellas. The price of Eliquis, Xarelto, or Viagra are not going down anytime soon.

The much bigger unplanned cost is going to come from green corporate tax credits, especially for green vehicles. Goldman Sachs estimates electric vehicles alone will exceed Congressional Budget Office estimates by nearly $379 billion, more than half of which will come from battery production alone. The Goldman report estimates a further $381 billion overrun in the areas of green energy manufacturing, renewable electricity production, energy efficiency, hydrogen, biofuels, and carbon capture.

Combined with the loss of Medicare savings, presuming Big Pharma doesn't negotiate drug prices (they won't), the projected cost overrun of the IRA is $856 billion. The CBO estimate was $391 billion. That brings the total cost of the IRA to just over $1.2 trillion.

Are Goldman's numbers perfect? Perhaps not. It's a fair bet, however, that companies will do whatever it takes to pull whatever tax credit they can from this program, given the new 15% corporate minimum tax that comes with the IRA.

And we're not even sure we have the supply chain to build EVs at a level to meet California's 100%-of-all-cars-sold-by-2035 regulation anyway.

All this spending is good for the economy anyway, right? Puts more money out there and all. But running a federal deficit creates a sort of triangle trade: Congress overspends, so the Treasury must cover the debt, requiring the Federal Reserve to borrow, or buy debt. In the post-pandemic era, the Fed has notably used U.S. Treasury securities ("Treasurys") to finance the debt.

One of the oldest economic feuds – liberal fiscal policy versus conservative monetary policy – received a major jolt this summer with the publication of a fascinating paper, The Fiscal Transmission of Inflation. Authors Dr. Robert Gmeiner and Dr. Sven Larsen have for the first time linked Fed purchases of Treasurys to inflation. I've had the pleasure of meeting both Robert and Sven, and the modeling they have done is extraordinary. They have traced a hundred years of Treasury security purchases and their mathematical model predicts 2022 inflation levels nearly perfectly.

The best thing about their paper is the clear language throughout (if you only get this column in print, just do an online search for the title or message me). They've done the math so you and I don't have to! Their bottom line is this: creating new money to finance a deficit with Treasury securities will create inflation. During the Great Recession in 2008, the Fed was actively buying assets to cover deficits, but not U.S. Treasurys. This prevented significant inflation.

In other words, the Inflation Reduction Act? Well, if we are expecting the Fed to continue buying Treasurys to pay for it, expect more inflation. Is the IRA really a climate change bill, or just more corporate welfare, like the airline bailout? Fly anywhere this summer and see where that government investment has gotten us. But know the airlines are probably planting trees somewhere to get carbon offset tax breaks.

In happier news, New Mexican political blogger Joe Monahan reports that President Biden netted about $750,000 at a fundraiser in Albuquerque Tuesday night as he celebrated the success of the IRA with local Democratic luminaries. Congratulations, Mr. President.

Merritt Hamilton Allen is a PR executive and former Navy officer. She appears regularly as a panelist on NM PBS and is a frequent guest on News Radio KKOB. A Republican, she lives amicably with her Democratic husband north of I-40 where they run one head of dog, and two of cat. She can be reached at news.ind.merritt@gmail.com.