Energy and the Economics of Affordability

Affordability has become one of the defining issues in American politics. Rising costs for housing, healthcare, groceries, and energy continue to strain household budgets. But economist Heather Boushey argues that affordability runs much deeper than prices alone. It reflects how the economy is structured, the kinds of jobs and opportunities the economy creates, and how the benefits of economic growth are shared.

Boushey, a professor of practice with the Kleinman Center for Energy Policy and head of the EconClimate Lab, discusses the relationship between affordability, energy, and economic opportunity. Drawing on decades of work at the intersection of economics and public policy, as well as her experience as Chief Economist for the White House Invest in America Cabinet during the Biden administration, she explains why energy plays a central role in economic growth and competitiveness, why she believes that “what we make here matters,” and how investments in domestic industries can shape long-term economic opportunity.

Boushey also reflects on what the Inflation Reduction Act set in motion, what may endure from the law, and what its implementation reveals about the challenge of sustaining long-term economic strategies in a short-term political environment.

Full Transcript

Andy Stone: Welcome to the Energy Policy Now podcast, from the Kleinman Center for Energy Policy at the University of Pennsylvania. I’m Andy Stone.

Few issues have loomed larger in American politics in recent years than affordability. The cost of housing, healthcare and groceries are, among others, defining concerns for households across the country. And energy, which is quite literally the fuel that drives much of our economy, is a foundational part of the affordability conversation. But affordability itself is about more than just the price of any basket of commodities, energy included. It’s a broader question about how the economy is structured, the types of industries and jobs that are created, and how economic growth is shared. Increasingly, our conversations on affordability intersect with debates over our energy system, over our ability to compete globally, and around whether building industries at home can create lasting economic opportunity.   

On today’s podcast, I’ll be talking with someone whose work focuses on the question of affordability in America, and on the role that energy and energy policy play in shaping economic growth and prosperity. Heather Boushey is an economist and professor of practice with the Kleinman Center, where she leads the EconClimate Lab. During the Biden Administration, she served as chief economist for the White House Investing in America cabinet, and was a member of the President’s Council of Economic Advisors. She also played a leading role in shaping the administration’s approach to industrial policy, and the economic strategy behind landmark legislation, including the Inflation Reduction Act.

She’ll discuss how she thinks about affordability, and the role energy plays in shaping it. And, as an architect of the IRA, she’ll talk about what that legislation set in motion, and what lessons can be drawn from it. Heather, welcome to the podcast.

Heather Boushey: Oh, thank you. It’s just really a pleasure to finally get to be on this amazing podcast you’ve been doing for so long, Andy.

Stone: Well, thank you. It’s great to have you. So, you are an economist with quite a resume. You worked in the White House. And now, you work with the Kleinman Center, where you head the EconClimate Lab. And it’s very interesting, because the lab really focuses I think at least in part on this intersection of energy and affordability that we’ll be talking about today. But tell us more about that lab.

Boushey: Yeah. So, it’s EconClimate, one word, Lab. I’m so thrilled to be able to do it at the Kleinman Center. They have been just the most incredible team, Sanya Carley and Cory and the team. It’s just been so incredible to have joined, after my time at the White House. Our goal is to understand what the implications are, from how we as a country answer whether and how we will embark on clean energy technologies across the United States.

So fundamentally, it is trying to understand what the economic implications are of how we think about this clean energy transition. Do we build it here? Do we import everything? Do we move to clean energy at all? And all of that has economic implications across a variety of different portfolios. It affects what the Treasury Department does and thinks about in terms of financial risk. It affects affordability. It affects what kinds of industries we have in the United States, what kind of jobs we have. It affects trade.

And so what we’re trying to do is to unpack those questions, so that folks who are thinking about the economic side understand what the implications are for whether and how we embark on clean energy across the United States mean for their portfolios. And I will say from the outset that we embrace decarbonization at the Lab as a strategic opportunity for the United States and for our economy. But we are also just trying to figure out what all of the different questions mean for economic policy making.

Stone: Well, as you’ve mentioned it, as we said in the intro to this episode, we’re going to be talking a lot today about affordability specifically. And I think to start this conversation, maybe it’s a good idea to define, actually, how you think about affordability, right? From your writing and the work you’ve done, it’s clear that it’s not just an issue of the price of goods, but it is a broader structural economic issue. Can you talk about that? How do you define it?

Boushey: Yeah. I’m so glad that we’re starting here. You know, we’ve been having this conversation in the United States around affordability. It’s become this buzzword. And I think if you just hear it, you think, “Oh, well, things might be too expensive.” But you have to take a bit of a step back and understand that we live in a country that has been marked by over a half-century of rising economic inequality. And it doesn’t just mean that we have seen, you know, changes in poverty, although that is important. What this means is that we’ve seen increasingly this pulling away of the top of the income distribution, where those at the top have been getting more and more of the economic gains, more and more of the wages, the income. We’ve seen wealth calcify at the very top. We have the first trillionaire, at least on paper, in the world now.

And this has really serious implications across our economy. It’s affected how families engage in the labor market, what kinds of incomes they have, what kinds of savings they have. And all of that affects our concepts of affordability. So as you’ve seen the top pull away, you’ve seen, for example, in the United States this has been associated with less public resources for things like healthcare and education across our economy. Right? We saw changes in recent tax legislation that then make it harder for families to afford getting higher education for their kids, or being able to afford to go to the doctor. Which then cuts out other kinds of spending. We’ve been shifting— and we’ll talk about energy a lot— but we’ve been shifting the ways that we invest in energy, which affects how much money people have for other things.  

But affordability starts with how much money you have, and then what kind of goods and services the economy is producing, and at what price points? And so it isn’t just that eggs are too expensive, even if they are too expensive, or that education is too expensive. But that how we’re using our resources, and where that money is going.

So for me, it always starts with the fact that we have lived through a half-century of the top pulling apart, and rising concentration across firms. And it means that our economy is performing in different ways and all of this is affecting family budgets and their bottom lines.

Stone: Well, it’s fundamentally about employment as well, right, and the quality of employment?

Boushey: And the quality of jobs. You know, one thing that we’ve seen is, as America’s become more unequal, and as we’ve seen rising concentration across firms— and by that I mean that in a lot of industries, there’s fewer and fewer firms. So it’s just a couple of firms that are employing all the people in that sector. What you’ve seen is that it affects what kind of prices people pay, so you end up paying more and more. It affects what kinds of jobs people are offered. We know that when industries are more concentrated, the job quality goes down, the wages goes down.

And you know, I often think, too, just to use hospitals as an example— you know, in a lot of communities now, there may be a number of hospitals. But now, they’re all owned by the same company. And what that means is that if you’re a worker, and let’s say you get in an argument with your boss, or you want to switch hospitals and you want a fresh start, or you want to be able to bargain over higher pay, your HR files may follow you from hospital to hospital, because they’re all owned by the same company. And that really limits your opportunity. But it also means that employers have more and more power over us. So these are just some of the ways that inequality plays their way out across the economy.

Stone: It’s very interesting that you say that, because in your writing you’ve also framed affordability as a question of economic security. So you’ve got affordability, economic security. Are the two the same thing or are they different concepts that somehow converge?

Boushey: Oh, that’s such a great question. I probably, a lot of times, use those interchangeably. But let’s just break that down for a moment. Because I think it is a really great definition to think about. Economic security I often think of as the twin to economic opportunity. They’re looking for— as policy makers, we want to foster an economy where people have a lot of opportunity, where people can choose what kind of job they want to enter, where there isn’t discrimination, where anyone can take any kind of job that they want, and that they have the ability to get training for.

But those jobs provide security, and enough income. And in the United States, you need health insurance from your job. You need your retirement from your job. That they provide that foundation of your economic security, so that you in turn can provide those kinds of opportunities to the next generation and all of that.

Affordability is, again, that combination of how much you’re bringing in, and how much things are costing, especially the really important things. And so where those overlap is, economic security I often think of as being able to have that safe and decent standard of living, that ability to afford education and healthcare and retirement and those really so important human fundamentals. And affordability is about whether or not you can actually access them.

And so much of what we’ve seen over the past half century is that those costs, especially for those basics, have become out of reach. We talk a lot about housing, but education and healthcare are things that are so bifurcated by where you sit on the income spectrum. Whether or not you can afford them, whether or not you can access them.

Stone: So let’s talk about how energy fits into all this, right? We’ve already talked about energy underpinning the whole economy. So energy really weaves its way into this whole affordability question. Tell us generally, just to introduce it, the role of energy as foundational to when we talk about affordability.

Boushey: You know, I’m going to just take us one step back even further. Because you asked me about the lab at the beginning. And you know, one of my goals at the lab is to speak to economists like myself a decade ago, who hadn’t really thought about energy. And to be like, “Hey, there are these really big questions coming down the pipeline about whether and how we build a clean energy economy, that will affect all of economics.”

But to get to that point to even ask those questions, you have to remember how important energy is to economic growth. And it feels, sometimes, so pedantic to even bring up. But it’s like, energy is everywhere. And you think about American history. And you did, by the way, just an amazing podcast— and I can’t remember the name of the guest, but I use it in my class. It was a number of years ago— tracing out the importance of energy for the economy.

And, you know, you think about the fact that the United States has had such abundant access to coal, and then to fossil fuels, and now fracking, that has created this abundance that has made it affordable for us to be an industrial superpower. And how important that is for our economic growth as a country, and the kinds of jobs that we’ve been able to create across our economy in a variety of industries.

And when we think about different industries— whatever industry you work in is obviously the most important to you. But all of those industries really do depend on having affordable and abundant energy. And so this question of affordability for families across the country, and for businesses across the country— energy is this really important good. And it’s special, because you need it to do everything else.

So this question of affordability so often hinges on where we’re getting energy and at what price point. And so of course we’ve seen, with Russia’s unprovoked invasion of Ukraine, and then President Trump’s war in Iran, over the past few years it’s really been this heightened sense of, “Wow. We get oil from these other countries. And even though the United States is an oil exporter, those global prices affect the prices that we all pay across our economy for oil. And so what’s happening in the global world— if you care about what’s happening at the gas station, you have to care about both.        

So that’s where I start this question about the interplay between energy and family affordability. But it is also about businesses. You know, can you produce the things that your economy needs? You want to buy a car? Well, that’s made with steel. It’s made with all these inputs. It runs on electricity or it runs on fossil fuels. All of those decisions will affect the cost of what it is that you’re getting. And so energy is just woven into everyday affordability not just at the gas station, but across our economy.

Stone: I want to talk about fossil energy to start here for just a moment. Talk about energy prices. But there’s also the industry around the energy sector. Industry around the energy industry, let’s just call it that, that is also very important. It’s a source of jobs, it’s a source of economic growth generally, et cetera. And there is an argument that has been embraced by the current administration that abundant domestic fossil fuels provide a path to affordability, to industrial strength, and economic competitiveness. And I want to ask you as an open question how you think about that standpoint or argument.

Boushey: The reason that I have been focused on energy for the past number of years now is because fundamentally, what I care about is what happens to America’s middle class. And so the research questions that I’ve asked myself over my entire career have been, “Hey, what’s going on with the middle class? What is going to create that economic security, that economic opportunity?”

And about a decade ago, I realized that the most important questions for that security and opportunity for the American economy would come from whether and how we embark on a clean energy transition. It is very difficult to imagine looking down 20, 30, 40 years down the road, that the United States retains our place in the world as I’ve known it over my lifetime, if we decide that we’re just going to be like, “Yeah, no,” to clean energy. That we are going to double down on fossil fuels.

And there’s a whole bunch of reasons why it seems like our standard of living as a country will decline, and that will have an impact for families all across the country. And so we can unpack that. First, there’s climate change. So us deciding not to embark on that has implications for the world and the level of greenhouse gas emissions that the United States is emitting, but also our place as a leader in the global conversation about what to do about climate change .Let me just go over the top lines. So, one is climate change. And there’s huge economic implications for America’s middle class, for whether or not we deal with climate change. So that’s its own whole podcast, right?

But then there are all of the competitiveness questions. Even if we decide, “Yeah, we’re not that into thinking about climate change. We don’t believe it’s true. We’re not going to do anything.” What you see is other countries see what is happening and they’re like, “You know what? We need to change the kinds of energy that we’re going to be using. We need to move to cleaner energy sources.”

And so what you’re seeing is that other countries are making that technological shift to using new, different energy systems, different energy sources, and they’re produced in very different ways. And if that’s where the global economy is going, if you’re just going to produce this thing that we used in earlier centuries— I mean, use beginning of 20^th century technologies — other countries aren’t going to want to buy it. So where are you in this global economic order, if you’re producing last century’s technologies? That will define the kinds of jobs we have here in this country. The kinds of industries that can thrive.

So there’s a climate change reason to do it, but there’s also this looking forward competitiveness reason. I look at what this administration is doing. And if this was a talk I was giving, I would show the following slide, which I have done a number of times. It’s available on the internet, is what I’m sort of implying. But I show this slide where I have two visuals. And one is a story about the current administration, the Trump Administration, cutting support for huge solar farms across the United States, saying, “We don’t want these solar farms.” Cutting them. “No. Get rid of them.” And at the same time, China is investing in the larger solar farms on the planet.

And the thing is that once you put those solar panels in place, once you’ve taken on that cost, that energy that they are pulling from the sky, from the sun, is so cheap. And you look at that and you say, “Wow. Who’s going to have abundant energy decades into the future? It’s not going to be the country that is rejecting 21^st century technologies.” It’s not going to be the country that it’s saying, “We’re not going to make that capital investment now. We’re just going to sidestep that.” And you’re looking at this other country, China, and saying, “Wow.” In this case China, but it’s also countries around the world. “Wow, they’re going to have abundant, cheap, clean energy.” And those are the technologies  of the future. And we’re just saying no, we don’t want any of that. I don’t see how that is good for our economy moving forward. And ultimately, then, that is not good for having a thriving middle class.

Stone: Let me frame this a little bit differently. First off, one of the arguments here— and you’ve already addressed it as well— is that we do have abundant fossil fuels in this country. They are relatively low-cost. They’re secure, because they’re our own. So that does create, in the near term, a solid foundation. A secure foundation. In the long term, it would seem to as well. But you’re arguing that there are efficiencies, new technologies, that are not enabled. That are overlooked. Thet are stepped aside from in that longer process.

And there’s another issue here. I’d like to get your comments on that a little bit further. But also, there’s the idea of volatility. The sun is always free. The wind is always free. You may have to balance wind, right, if you’re talking about an electric grid. There are some costs that are associated with that. But you’re not subject to price spikes that happen when you have geopolitical conflict or anything else that may be tied into the connection to the global market. So I want to hear what you think about that security that clean energy can provide.

Boushey: Yeah. Well, I’ll do the volatility one second. Let me go to the first question first.

Stone: And again, also, the tie-in to affordability, which is critical.

Boushey: Yeah. So, I mean, to make it a little bit more concrete, 150 years ago people were traveling around in horsedrawn carriages, right, with all these horses. And I feel a little bit with the fossil fuels, it’s like America right now is saying, “We like the horse and carriage. We like the horses. We’re going to keep those. We’re not going to invest in making assembly lines for cars, because we don’t want to do that. We love our horses.” And that’s not a bad thing. Maybe we’re really efficient at that, and we’re wanting to do that.

But the world is moving on, and it’s going to leave us behind. And so I think that as an economic policy question is a first-order question. What are the technologies of the future, and where do you want to be in that future?

So I think that a piece of that that we often miss is that these technologies of the future with energy are very different than the ones of the past, kind of like the horse and buggy example. Fossil fuels are pulled out of the ground. They are in particular places, and it’s based on having access to— there’s drilling and the technology to get those fossil fuels. But it’s place-based. It is wherever that oil can be.

A lot of the clean energy technologies are based on manufacturing prowess and new technology frontiers, right? And when you start to look at those technologies, they’re using the cutting edge of digital, AI, semiconductors. All of this new technology is going into the production of many of these clean energy technologies. So we talk about what we’re missing out on. It isn’t just that we’re missing out on the clean. You’re also missing out on being on the cutting edge of a variety of new industrial techniques and manufacturing that can produce a whole bunch of other things.

So just to contextualize that for a moment, on this volatility question and the affordability— let’s start with affordability. Right? Once you build those technologies— you build the wind turbine. You build the solar panels. You have this huge capital expenditure. You are learning these new manufacturing techniques that are often times, again, on the cutting edge of where different industries are. But once you build them, the energy that you are then gaining day in and day out is relatively cheap.

So that is a very different financing mechanism. You need to have the financing and the capital up front. But once you do it, you’re going to have this relatively cheap and stable and affordable energy coming to you year after year after year. And so that will help us reduce volatility just because of the kind of energy that you’re using. And will make it cheaper. But you have to get over that hump, that first hump of making those capital investments. But once you do it, it creates two kinds of price stability. One is just the varying nature of how you’re producing the energy, is based on this capital expenditure and this low cost. But then you’re not going to be importing it in the same way. So you are no longer going to be subject to global prices for oil.

And you’re not going to be beholden to the countries that have abundant oil in the way that we have been over all of the 20^th century, where we have fought wars, we have had geopolitics that have really been defined by where the oil is and the leadership of those countries. And that has really— you know, you think of the 20^th century and the wars that we’ve fought, and the geopolitics. And so much of it is about access to oil.

That will shift with this move to clean energy. And the thing is, when you start thinking about it that way, you realize the enormous economic and geoeconomic consequences of this shift. And you start to be like, “Oh, wow. This is why this is so hard.” It isn’t just that the technologies are difficult, or getting enough capital to build the wind turbine is difficult, but that there’s a whole bunch of embedded systems and stakeholders in the old system, who were the winners, that is creating opportunity. And you see globally that the countries that seem really interested in being on the cutting edge of these new technologies are ones that aren’t the ones that have all the oil. Because that wouldn’t make a lot of sense. But are the ones that are really thinking, “How can we win this technology race, rather than just focusing on holding onto this natural resource that we have?” And making the most of it, even if it is poisoning our planet.

Stone: Well, necessity is the mother of invention, right?

Boushey: Yeah.

Stone: That’s kind of what we’re talking about here. Okay. You mentioned a few moments ago this consequence of “what we make here matters.” I think that’s very important. Obviously, the more we make here, the more jobs. But it’s not just as simple as having jobs. It’s the quality of jobs. It’s the future growth that are based on those jobs. And clean energy is about supply chains, right? Building supply chains, if we choose to do them here. I think that was a central tenet of the industrial policy in the IRA under Biden. But talk about this concept of, again, “What we make here matters,” and how that ties into affordability. Again, it’s not just making any old thing. It’s being strategic about that. Tell us what that means.

Boushey: A hundred percent. So I was on a call earlier this morning with some industrial experts in clean energy. And one of them had just been in Europe. One of the things they were talking about— and you hear this time again. But just to open up this conversation, China and South Korea in particular have done an incredible job moving to the cutting edge of a variety of clean energy technologies. In batteries and in cars, the electric vehicles. And what we hear— being an American, I haven’t driven one of the Chinese electric cars yet. But you hear about this, the incredible technology that they’ve been able to deploy at a very low price point.

Stone: I have to say, just as an interjection, last year I was in Mexico for a period of time. And I was surprised how many Chinese EVs were running around. Didn’t expect that, yeah.

Boushey: Yeah. Well, because they’re cheap and they are— they’re efficient. But one of the things that you hear people say time and again— and I was reminded, I was talking with this friend this morning— is, we’ve missed the boat. The ship has already sailed. The technologies have already moved forward.

And I listen to that, and I’m like, “Well, that may be true for today.” The thing about technology— and I’ve been an economist for a long time now. And the thing that keeps coming is that technologies change. And so firms are always looking to be on that cutting edge, and to invent new things. But if you accept the idea, “Oh, that ship has sailed. The United States just isn’t going to make these things,” you are conceding a future where some of the most important things, the things that provide you energy— which as we talked about at the very beginning of this call, you know— how you heat and cool your homes. How you power your vehicles. How you do your other industries. Everything that is made uses up energy in some way. If you are conceding that you are not going to be a part of those technologies, you’re not just conceding one technology. You’re conceding so many aspects of your entire economy.

I mean, to me, it is mind-boggling that you could just— again, I worked in a White House. And I think that my mindset is very much now, “Well, how could I tell the President of the United States to stand on a podium and say that?” And I find it laughable that I could tell a President, “Oh, yeah. We don’t care about whether or not we produce energy anymore.” That seems to be conceding America’s place in the world. And we could have long conversations about what that should be, and how we should use our power. All of those are super important and contested, right? But to say that we don’t want to be competitive in what, arguably, are the most important technologies because they power everything else, and because the innovation that we derive from them will affect a variety of different technology systems— I can’t imagine that we would voluntarily do that.

That gets to the core of this question. What we make in our country truly matters for the economic security and the church opportunity that we offer to families. But also, to the other industries that are all the different kinds of jobs that we have across our economy. So we live in a global economy . We’re going to continue, I’m guessing, to have global supply chains. But what place the United States will have in those supply chains, where in the value chain we will be, will be really important.

And one other point, Andy, I want to make here that I think was a big lesson learned over the past few years— and certainly  many people have been talking about this for a long time. But for a long time, there was this idea that the United States could focus on the ideas, and everything could be made somewhere else. This idea that we could have the engineers and the smart people, and they could go to college, but that we didn’t need to actually make things in America, we could outsource all of that— and that is certainly  true. It is possible to do that. But there’s a lack of resilience there.

And, you know, there are so many examples from the last few years that are so evocative. But let me just point to one that has just really stuck in my mind, which is drones. I’m actually here in Seattle, visiting my family. And many years ago, maybe over a decade ago, I bought my niece a toy drone. And we went out in a parking lot, and she’s playing with this drone. And it was a long time ago. It was before drones were— it was my first experience with one. I was like, “Wow.” And I was like, “Oh, this is so weird, that we’re putting this camera on it, and it’s flying.” And I was like, “This is a very strange thing.”

Well, that drone was a toy drone. And now I know, because I’ve done a little bit of research into it, that the technology for those drones was invented in the United States and Japan and Europe. But then there was this Chinese company that began to commercialize those drones as toys. And by the time Russia invaded Ukraine, virtually all the drones around the world were made in China, and mostly by this one company. And they were selling them as toys. You know, that’s how they commercialized them. So that’s the important thing. They made a lot of money by selling toys to children. Well, actually, this is a dual-use technology. We now have seen, over the past few years, that drones are the most important technology in the war that the Ukrainians have been fighting against Russia. But at the beginning of the war, they couldn’t get any parts. And of course, China was not taking the Ukrainians side in the war, and that created a supply chain lack of resiliency. A challenge.

Well, now, Ukraine has been developing the technology. They have all these people across the country that actually are very good at connecting the dots between the engineering and the manufacturing. So they have all these firms. And now Ukraine is becoming a global powerhouse in drone technology.

But it is an example that, yes, you can import things. And it was fine to import that toy for my niece. But there’s a lack of resiliency in so many of these technologies that are dual use. You have to think about them, and be forward-thinking. So if we say, “It’s great that we’re going to have one country produce all of the parts of our clean energy supply chain,” which is— you know, China has been dominating upwards of 80 to 90 percent of key parts of the clean energy supply chain. That’s great for them. They’re making a lot of money. They’re learning a lot, they’re pushing the boundaries of the technology. But that’s a monopoly. And I’m an economist. I don’t like monopolies, right? Monopolies create a lack of resilience. They’re anticompetitive. They eventually stymie innovation.

And so we want to break that up. We don’t need to make everything in America, but we don’t want to make everything in any one country. And so as we’re thinking about what we make, we need to be thoughtful and strategic about making sure that we’re creating resilient supply chains, so that in our hour of need, when we— we saw this in Covid with not just personal protective gear, but with ventilators. We didn’t have enough of them. We couldn’t make them. We need to make sure that we can be resilient. And energy is something that you sure as heck want to be resilient in, and you want to have that technological capacity, both to manufacture it, and you want to be on that innovation frontier. So energy is just something that you can’t pretend is not important for us to develop and nurture that domestic capacity in.   

Stone: Well, that brings up two thoughts. One, you talk about the fact that technologies have tended to be developed here, and then built and commercialized elsewhere. That gets into the issue of implementation, right? Implementing those technologies, making them here. Which I want to ask you about in a moment. And you’ve actually focused on quite a lot recently. Because there’s also the issue of resilience that you just talked about, right? And this brings to mind the idea of China shock, the China shock that you’ve also written about, where a lot of the actual industry went overseas. I think we’re talking about something maybe a little different here, about building these industries. But maybe not, because we have forfeited a lot of these industries, and they’ve ended up in China. Tell us a little bit about the history of China shock, that goes back to the TWO and China’s entry into that in 2001, the lessons learned, and how that also tied into the Biden era IRA and related policies to build that manufacturing infrastructure here.

Boushey: So, here’s the thing. In the year 2000, the United States brought China into the global trading system on friendly and equal terms. And one of the things that happened after that was that— because this was done, essentially, very rapidly. It was this shock to the global economy, because China was developing this manufacturing prowess. They were trying to be the workshop of the world. And that was very strategic on their part. They were trying to move up the value chain.

But what it meant for the United States was that all of a sudden, the combination of this new trade regime with digitization— that it made it possible. And the decade before that, you had computers. And all of a sudden, you could have an engineer sitting in Silicon Valley, and they could just, via the internet, send their plans for how to make the widget over to any country in the world. And, you know, with lower airfare and all the different things, it made it possible to invent it here and make it there.  

And while many people were saying, “Hey, this may have deep implications for US industry,” those calls were largely unheeded in terms of the policy. And what we saw over the 2000s was that there were communities that were reliant on manufacturing that just very quickly lost those industries. The US lost that capacity in manufacturing, and those communities lost those jobs. But those jobs weren’t lost randomly. They were concentrated in particular places. And that meant that when that one factory left, and 500 or 1000 or 10,000— however many workers lost their jobs— all of a sudden they all lost them at the same time. And no small training program that gives you six to eight weeks of retraining is going to retrain you for jobs that aren’t there. Because now that factory’s gone. And there wasn’t a plan for something to come in and take its place. So you had these communities that lost a lot of jobs over a fairly short period of time. Estimates are that there were somewhere between two and 2 ½ million jobs lost across the United States, but they were concentrated.

Here’s the thing. The United States is a fossil fuel exporter. Many of those jobs are also spatially concentrated. And we have, in the United States, about that many people employed directly in fossil fuel sectors of the US economy. And the numbers that we calculated a couple of years ago, that is probably a low bound estimate. So if we were to just say, “You know what? We’re going to do a carbon tax tomorrow, and we’re going to make it so high that we’re no longer going to have fossil fuels produced in this country,” that would be a shock. And we should think of that akin to what we’ve learned from the China shock.

So there were so many policies that were put in place during the Biden Administration, and so many people have been thinking about this deeply. So actually, I’m excited to see how the economics professionals learn from this moment, that are saying, “Hey, we need to plan for this. We need to help communities think about how they’re going to come up with a new economic purpose in this new world.”

And it doesn’t have to be that, “Oh, if you were a fossil fuel community, now you have to be a clean energy community.” Maybe you will, maybe you won’t. But that community still needs a purpose. And there was a lot of work that we did. The President, in a day one executive order, set out a task force to think about energy communities, and then there was funding for it through the bipartisan infrastructure law. And a lot of on-the-ground work. A lot of time that my colleagues spent flying to fossil fuel communities across the country to really think about and work with them to say, “Hey, this is coming. What are we going to do? How do we come up with new economic development strategies that engage the community, and how they’re visioning their future?”

So this can’t be a reason that we continue to pollute our world. But it also can’t be something that we ignore. We cannot have communities be left behind in the way that they were in the wake of the China shock. It was wrong them, and it’s wrong moving forward. But that doesn’t mean the technology isn’t going to change, or the world isn’t going to move forward. We all have to adapt. But we need to do that in a collaborative way.

Stone: There’s an interesting parallel that I hadn’t thought about that you just kind of drew my attention to. And that is, with the China shock, we saw manufacturing go overseas because the Chinese were simply lower cost, more competitive. But you’re also saying here that if you have policies that may disincentivize fossil fuels, you’re also being very specific about the communities that you’re potentially damaging. Right? So manufacturing communities suffered due to the China shock. Those are very specific places in America where different products were manufactured. And the same thing with energy. Fossil energy communities are in very specific locations in the United States, and they would be suffering from that. So policy has to address that.

And it’s very interesting, because you are very into— we’ve already started to talk about this concept of place-based economic opportunity. So we’re talking about making things here matters, it’s not just here in the United States versus in some other country. But it’s about where we do that manufacturing in the US as well.

Boushey: Yeah. And let me give you an example of one of the things that I’ve got to watch a fellow economist work on in the White House, that I was so proud that I got to participate in, that is just to this point. It isn’t just fossil fuel extraction. It’s all the industries that use those fossil fuels. And so in my lifetime, we have bailed out the auto industry not once but twice. And I find it very difficult to believe that the United States will accept not being able to produce vehicles that move across the ground. Right? We need to produce automobiles. Just like we need to produce airplanes. And again, these seem like very basic national security questions to me. If you can’t produce airplanes, and if you can’t go to the moon, then you’re not really an economic superpower. What kind of country do we want to be?

Cars. There’s a lot of people employed all across the country in cars. They use a lot of different inputs from other sectors. Steel, among other things, which goes into buildings and planes and all this. So if you don’t have the auto sector that is creating that commercialization of those industries, it becomes very difficult to imagine that the industries that you just need for the military could be commercially viable. And it is a huge consumer purchase. It makes us a lot of money. And it helps us be on the cutting edge of industry, right? Engineering is mostly for things that are either built or transported. Things that move around our economy. So it helps us maintain our innovation edge to have those industries.

Okay. That was a long leadup to the fact that as the world moves to electric vehicles, is the United States going to follow suit? What is going to happen to the US auto industry? Is it going to continue to produce just fossil-fuel-based cars? That was a big question during the Biden years, and will be an ongoing question moving forward. If the Chinese are producing very cheap electric vehicles that are efficient and cheap to use, consumers are going to buy them, not just in the United States, but around the world. What kind of industry are we having?

So my colleague worked with a number of people to produce this— I don’t remember exactly what it was, but it was a 97-part slide deck, showing that the US auto industry could transition to electric vehicles at a pace of shifting to about half of its production by 2030, being for electric vehicles, through a variety of steps. And that those steps were doable and actionable. And that led to an event at the White House with the President and the big three auto makers and the union saying, “Yeah. Here’s a plan. We can commit to half of our new cars being electric by 2030.”

And that is a way of avoiding the kind of China shock in US auto production. That is a plan to say, “Instead of thinking about bailing out the US auto industry in 2030 because they didn’t have the resources or the planning or the wherewithal to make that transition and make it smooth, and think about how we were going to transform factories and build batter plants and all the like, we can either do that in 2030 on the back end, or we can plan for it and work together on the front end. It’s a way of thinking. But, okay, this is what industrial strategy is. We have a vision for what kind of economy we want, what industries we think are really absolutely important, and how we’re going to work with the private sector to make that happen and to make sure that throughout, we’re creating good jobs and we’re thinking about what kinds of communities people are living in, and how all these pieces work together. And using markets to the best of— markets are amazing. But also making sure that it’s meeting the human needs. Because news flash— that’s what the economy is for. It is about meeting the needs of the humans in our society.

So when we talk about the China shock, for me, I always think of this moment as I was looking through this slide deck and just thinking, “This is incredible, because this is an action plan to not have that kind of shock moving forward.” In the auto industry. But we were doing that across different kinds of sectors.

Stone: We had an episode on this podcast  six or seven months ago, where we talked about the risk of the United States becoming a tailpipe island, where we produce fossil-fuel-powered cars for us, nobody else really wants them, and we can’t compete on the electric cars that the rest of the world is increasingly buying, right? So that’s almost a China shock in an industry that is so iconically American, the auto industry. I mean, we’re so tied to mobility in our culture, in everything, beyond basic mobility itself.

Boushey: If you were alive during the ’70s and ’80s, you remember that part of the problem with the US auto industry is that they did not get on the bus— it’s a terrible metaphor— fast enough to make more fuel-efficient cars. Americans, at the end of the 1970s oil crisis, were like, “We can’t afford these cars. Oh, we can import these cars from Japan that are cheaper.”

Stone: Well, who makes the cars even to this day that most of us buy if we’re not buying big trucks? It’s Honda and Toyota, that really got their leg in in the 1970s. And that hasn’t changed.

Boushey: Right.

Stone: That hasn’t changed in 50 years.

Boushey: And they do make them here, right? It will require policy to encourage those to go clean. But the reason that we originally had to bail out the auto industry was because they couldn’t compete globally. And if we think that we will be okay without competing globally, that’s crazy. That’s wackadoodle.

Stone: You were instrumental in the development of the Inflation Reduction Act. You had a role in that. I’d love to hear specifically what you did on that. But also, I’d like to hear, from your view, what that set in motion. What changed in terms of investment, manufacturing, economic activity? And much of that has been rolled back, or there’s been an attempt to roll it back. What will endure, in your mind, most significantly, from that legislation?

Boushey: Three points here. So, I’m an economist. So mostly what I did was go to meetings and ask questions about what this was going to mean for US industry or US workers. And it was, I mean, just the best job I’ve ever had. But to be able to work with these people with decades of experience in actually making and implementing policy, and being able to— at that time, of course, because of the pandemic, a lot of our original early discussions were on Zoom. Having these discussions about what the policy would look like, and being able to weigh in on, “Okay. Well, what is this going to mean for workers? What will this mean for communities? What kinds of industries? What market failure are we solving for? Where are markets going to work? How are we ensuring that we’re thinking about the competitiveness of US industry moving forward?” So that was just incredible.

And then after the legislation passed, the President appointed me to be the Chief Economist for the Invest in America Cabinet. And what that meant is, I was doing a number of things. One, I was tracking the economics of what we were doing and helping my colleagues, who were— everyone was giving a lot of speeches, and talking about what we were doing. And also, all the people working on implementation. But really helping to track that and say, “Okay. Here’s the economics of this. Here’s where we’re seeing success or failure. Where are we moving forward?”

And then I traveled the country. I went to 19 states in 2024 to see what it looked like on the ground, and to talk to people and to hear from them. And I went to a lot of mostly red and purple places, to speak politically. I went to a lot of places that didn’t get the grant. So they might have applied for this program, and they were the runner up. And so the President went to the places, or the Vice President went to the places where they got the grant. And then I got to go to the places where I was like, “Okay. So.”

And so I got to see, though, a lot of communities who have worked really hard to say, “Well, we’ve got this new investment. We have this new private sector investment.” I went, for example, to Syracuse, where Micron, making this huge investment in semiconductors. And I visited a factory that was producing fiberoptic cable. And I met with the local people. A round table with business leaders and local leaders. And got to hear about how the community— they’re like, “Oh, we’d applied for some federal funding, but we didn’t get this one, but we got this other one. And here’s how we’re trying to cope with—” You know, Syracuse is a community, high poverty rate. It has experienced decades of deindustrialization. All the things we were talking about with the China shock. And yet here, they were on the cusp of seeing this new industrial development. What would it mean for their community?

Well, what it meant was that the person from the local hospital was talking about how they didn’t have enough nurses, and they were relying on traveling nurses who are much more expensive. But they didn’t have the resources yet to figure that out. And how were they going to fix that problem?

And someone from the local education system— I think he was a professor at the community college— was talking about how the local primary and secondary schools didn’t have enough classroom space for all the new kids from all the new factory workers and engineers and folks who were moving to town. And so they were teaching the kids in trailers. The temporary buildings. Because they didn’t know they needed to build out the community. Talked to a lot of people at public utilities that were trying to figure out how to build out the transmission lines to the new manufacturing, and the new needs, you know? New homes and all that.

So it was a lot of understanding how that economics is playing out on the ground. And, I mean, people talk about this as placed-based economics. I would like to rebrand this as economics. Just economics. Economics is what is happening in your local community. It is, are there good jobs? Is there enough housing? Is there a hospital?

Stone: Economists seem to focus on high-level GDP members, right? You’re saying, bring it down to the level of the community, right?

Boushey: Well, and especially with the trend we’ve been talking about. In a world marked by 50 years of rising inequality, by higher economic concentration, by deindustrialization, our national metrics— GDP, case in point— no longer reflects our own lived experience.

So, just to make that concrete. GPD, gross domestic product. It’s how much output our economy  is producing a month or a quarter a year. The next time that data comes out, if it’s 3 percent, what we know now, from the data, is that it used to be the case that if the US output was growing by 3 percent, everybody across America was seeing their income also grow by about 3 percent. That those things were moving in tandem.

That, since the 1980s, has been pulling apart. And it’s now the case that if the national number is 3 percent, rich people are seeing their incomes grow by a lot more, maybe 6 percent or something. Everybody else, the bottom 80 to 90 percent, are seeing their incomes grow by a lot less. So when I get on TV and I talk about the national numbers, I’m actually not reflecting what’s happening in places. So we, as economists, we need to connect the dots.

Stone: It’s a tale of two economies. You’ve written about that.

Boushey: Yeah. But it’s also acknowledging that so much of our economy narrative is happening at a level that— well, okay. Let me tell you a joke. This is going to be a terrible joke, because I’m an economist. But here’s an economist joke. You’ve got a group of people in a bar. They’re doing whatever. Maybe they’re celebrating the Knicks. And let’s say Elon Musk walks into the room. And all of a sudden the whole room erupts in cheers. Because now, they’re all maybe— I can’t do the math that quickly, but they’re all at least millionaires, on average. Right? But in fact, nothing has changed for them.

Stone: Nothing’s changed.

Boushey: But that is what has happened to our GDP. You’ve got one trillionaire, and he’s pulling everything up in terms of the aggregate statistics. I digress. But I think we need to start remembering that the economy is about, how is it delivering for me, for my family, for my community? Is it offering me the things that I need at a price point I can afford? Do I have good jobs? Do I want to have time? And if our national metrics aren’t consistent with that, then we shouldn’t start naming it place-based economics. We should just rethink how we’re talking about the economy more generally.

Stone: Talking about the IRA again here for a moment. Is there a particular product or something that was launched by the IRA that you are particularly proud of?

Boushey: I want to talk about what endures and what doesn’t. There was so much investment that happened in clean energy technologies  over the course of the Biden years, that it has transformed our economy  in profound and fundamental ways. And yes. We have seen the Trump Administration— Donald Trump does not like wind turbines. He doesn’t like wind power, so he’s cut back much of that. He’s cut back the credits for clean automobiles and a variety of things. And it sounds terrible. And let’s be clear. It’s not great. It’s not the direction that we would want to go in.

But that does not change the fact that we are way ahead of where we were in 2020. That that investment in clean energy technologies has been catalyzed across the country, and most of the money— most of the investment in clean energy— is going to come from the private sector. What the private sector needs is that clarity of direction. They need consistency. They’re not getting that in the same— right, we are seeing this shift. But we are not back to where we were. And we certainly have not moved backwards.

And so I showed this slide from the Clean Investment Monitor of how much investment we’ve seen in clean energy technologies. And you can see, it goes up, up, up, up, up. It’s like a big mountain. It’s like Mount Fuji. It goes up. And then I’ll often cover the data since 2025, since President Trump took office, and ask the audience to imagine, “Okay. Well, what do you think the numbers look like now?” And it’s like, I know everybody is imagining that it’s right back. It’s like, you’ve gone to the other side of the mountain. But it’s not true. You’re still fairly near the top, right?

Because these things have legs. And because industry— most people that go into industry, they want to make money. And they want to compete. And they know they have to compete in a global marketplace. And so using technologies of the past is not the way to do that. So you are seeing this forward momentum.

So what I am most proud of is that we helped catalyze that. But I’m truly most proud of the fact that we did it while making sure that we were creating good jobs in communities across the country. The tax credits. You got more money with the tax credit if you created a better job. The department of energy did a lot of work to make sure that they were encouraging private sector investment.

They were encouraging firms to do what are called community benefit plans. Other tools, but that one in particular to say, “Hey. You’re going to go to a community, you’re going to make a new investment. You’re going to make a bunch of decisions. You’ve got an HR team. You’ve got a siting team. Make those decisions in a way that’s going to be good for the community, and talk to them about it first. And news flash. That’s going to make your process go smoother, because people aren’t going to be cranky with you. And they’re going to be excited to have you in their community.” And that’s what research is now starting to show, that’s been studying what that looks like.

People want vibrant industries in their community. But they don’t want them to pollute their communities. And they don’t want them to offer bad jobs. They want good jobs, and they want them to be good community actors.

Stone: As you’ve just pointed out, going into any community with a project is complicated, right? You have to get buy-in from the community, and that takes time. And this goes back to when we touched on the idea of implementation. And you have focused more on implementation in your recent work as well. And in the context of the IRA, there was some criticism— you can tell me if you think it’s well-founded or not— that programs took too long to get going. It took too long for people to see the jobs, and too long for some of the infrastructure to be built on the ground, such that when the administration changed, it made it easier without those things being in place to just kind of go ahead and pull the plug. What lessons may have been learned from that process about implementation? And how does that tie in— and this is so critical in the whiplash environment in which all this operates— what are the lessons learned that create durable forward progress going forward?

Boushey: I would say that the first lesson I learned is that if you’re going to do big things, do them very early in your administration. And, you know, I was not a part of the leg team, so I have no— I understand that it was complicated to get these things across the finish line with Congress. But that’s on them, right? I mean, that was like— Congress slowed this down. Particular Senators slowed this down, and that created a delay of a year, when all of this stuff should have happened earlier in the first year. And that would have helped.

Because the reality is— and this is something that, I probably didn’t scream it loud enough to my colleagues in the White House. But our analysis at the Council of Economic Advisors was that it’s about two years from when you see the data show up as a new investment in the construction of a new manufacturing facility. So, I see the data show up in January of 2025. “Oh, we’re investing in a new factory.” But two years before the jobs show up. Because I don’t know how many of your listeners have ever tried to build anything with a contractor. But it takes so long. Because you have to hire people. You’ve got to get the permitting, you’ve got to get the plans. But it’s not just any specific project. In general, looking back over 40 years of data, or however many years we had of data, that is just the trend.

So as I was telling my colleagues in the White House, I was like, “So, given the fact that the bill didn’t pass until August of 2022, and the investments then didn’t start— we started to see the runup in the investment and the construction of new facilities that December-January. If you do the math, that meant that the jobs weren’t going to show up until after the 2024 election.” That’s just reality.

And one of the biggest criticisms of industrial strategy is that there are boondoggles to business, and they build bridges to nowhere, and they don’t turn into anything. So one of the biggest tensions that you are struggling with here is, you want to do things smart and sensibly. And you want it built to last. You don’t want to unduly rush that. You don’t want to slow walk it. But why would you go faster than normal? There’s a tension there. So let’s acknowledge that. So I think my first lesson is, if I could wave a magic wand, I think we all should have been putting a lot more pressure— if we’re going to do this, we’ve really got to do this.            

Stone: You’re saying that industrial policy takes time and the political cycles move much faster.

Boushey: Yes. Yeah. A colleague said to me, early on in the Biden years, “You know,” Andy, “how many years do you think it was between when Franklin Delano Roosevelt signed the Social Security Act into law, and benefits first started flowing to people?”

Stone: Good question. No idea.

Boushey: Eight years.

Stone: Eight years.

Boushey: Eight years. Right?

Stone: Wow.

Boushey: Uh-huh. Exactly. And we look at that as one of the most— it’s the third rail of American politics. One of the most important policies we’ve ever done. And it took time. And so I think that one of the lessons here is, I want to get back on your podcast five years from now. And let’s talk about— like, I am writing a book. I’m going back to talking to the places that I visited, watching how those investments are playing out. And so far, what I’ve been seeing is that those communities are continuing to invest. Durable foundations were laid. Private actors are investing. That creates stakeholders, that creates new industries. There’s a lot that I wish had been done faster. But I’ve interviewed a number of my colleagues as a part of this project. And one of the things that I just am still stunned by is, all the regs got done for the clean energy investments. Those all got across the finish line. That gave clarity. It takes a long time to undo those. Most of that is still there, right?

I think that the expectation that this would happen overnight— any time I read that, I wanted to go and ask that author, “Have you ever built anything? Did you talk to people that have built things? What’s your counterfactual here?” And again, you want to build things in communities where people want them. Right? And where you’re not going to, again, create more problems down the line. You don’t want more pollution, whatever form that takes. Or more degradation of natural resources— all the problems that can come with site selection that goes wrong.

I’m very proud of what my colleagues did. And the last thing I will say on this is that federal policy works through state and local entities. Federal government doesn’t build things. The federal government gave tax credits to private sector actors to build things. Gave grants and loans to private actor to do things. Gave grants and supports to state and local governments to build things. And if you want to do that right, it does take time. I don’t think that two years is a reasonable amount  of time to expect this game-changing shift in the US economy  to a new set of industrial strategies that we hadn’t been doing before. I mean, it was a big lift. But those pieces are there. They’re still in place.

And importantly, as I mentioned, most of the places I visited were red and purple places. And that was in large part because most of the private sector investment was going to places that didn’t vote for Joe Biden in 2020, and didn’t vote for Kamala Harris in 2024. But as it turns out, those investments went to the places across the country that had been economically left behind. The places with lower average income. The places where fewer people on average have a college degree. The places that, quite frankly, need the infusions of new private capital, new investment. And I still think that from the perspective of the US economy, that was the right thing to do.

It’s important that we start growing together. Because if we think that the political polarization that is why we’re having this conversation because we’re shifting our vision so quickly, that is because we’ve been growing apart. And until we reshape that and say, “You know what? No. Let’s stay growing together,” I don’t think we’re going to come up with different answers. But I think it is really important that we address that inequality in opportunity.

Stone: Heather, if the goal here is ultimately long-term affordability and economic opportunity, in the current political environment, what should policymakers be prioritizing? What’s feasible, reasonable, right now?

Boushey: Well, that’s a tough question, because the political environment is really tricky. But just stepping back, I think that we need to be focused on thinking about what industries we’re going to want moving towards the future, what kinds of jobs we want to create all across the country, and making sure that we’re directing policy towards those ends. And that isn’t just at the federal level. That’s state and local level. There’s a lot of folks thinking about economic development in their communities. And they are thinking about those industries and the kinds of jobs and the kinds of benefits that they have for the people that live in those communities.

I think the extent to which the federal government is hearing from those state and local actors and saying, “Hey. This is really important to us. This kind of economic opportunity, fitting into these new global supply chains in these new ways,” I think that can help break up some of the log jams. We were very helpful before the election when 19 Republican Members of Congress wrote a letter to the Republican Speaker of the House, Johnson, saying, “Hey. The Inflation Reduction Act is really important for jobs in our communities.” Now, that didn’t help us much during the One Big Beautiful Bill conversations as we would have hoped. But that is important, because it signals that this isn’t about politics. This is about the kind of economy that can create a thriving middle class all across these United States. And so I think the extent to which we are connecting those dots, we will be more successful.    

Stone: Heather, thank you very much for talking.

Boushey: Thank you so much. It’s been so fun.