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Americans still have a gigantic task ahead in forcing the federal government on to a diet. Still, taxpayers might want to take a moment to savor the recent progress reflected in Washington’s latest political kerfuffle. President Donald Trump and entrepreneur Elon Musk are arguing about how much lawmakers should restrain taxes and spending. This column would prefer deeper cuts to both, but let’s all appreciate the difference between the current debate and the last time Washington enacted a budget reconciliation bill. Three summers ago, the only questions involved how much higher taxes and spending would rise, how many hundreds of billions of additional dollars would be sucked out of the private economy and channelled into unproductive
boondoggles. Stephen Moore of the Committee to Unleash Prosperity and the University of Chicago’s Tomas Philipson wrote in the Journal during that inflation-ravaged summer of 2022: The so-called Inflation Reduction Act will be one of the greatest misallocations of federal resources in American history. The bill has many moving parts, but here’s a simple way to sum up its macroeconomic impact: It would transfer about a quarter of a trillion dollars from America’s pharmaceutical industry, which saves and
extends lives, to the climate-change industrial complex, which makes energy more expensive. In 2021 Mr. Philipson and Troy Durie had written about the bill that became the dark heart of the Inflation Reduction Act: A large academic literature estimates the effect of future drug revenues on R&D spending and finds that on average that a 1 percent reduction in revenue leads to a 1.5 percent reduction in R&D activity. We find that HR 5376 will reduce revenues by 12.0 percent through 2039 and therefore that the
evidence base predicts that R&D spending will fall about 18.5 percent, amounting to $663 billion. We find that this cut in R&D activity leads to 135 fewer new drugs. This drop in new drugs is predicted to generate a loss of 331.5 million life years in the US, 31 times as large as the 10.7 million life years lost from COVID-19 in the US to date. What a terrible trade for the country. Whoever signed that disaster into law should have had his head examined.
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