The American Prospect #330

IMPLEMENTATION: POLICY MADE CONCRETE

KRISTA BROWN & MOE TKACIK THE TICKETMASTER SAGA

HAROLD MEYERSON WORKER FREEDOM

David Dayen | Robert Kuttner | Jarod Facundo | Lee Harris

Made in America is a Progressive Value

Over the past two years, progressives have helped build new economic policy centered on American workers, U.S. factories, and a clean energy future. In 2023, it’s time to make it real by:

• Building upon industrial policy like the CHIPS and Science Act and Inflation Reduction Act

• Making good on clean energy investments like domestic solar production and electric vehicles

• Fully implementing infrastructure investment

• Enforcing Buy America laws to ensure our future in Made in America

• Making sure the jobs created are good-paying, familysupporting jobs

Let’s keep the work going.

americanmanufacturing.org

Features

14 A Pitched Battle on Corporate Power

Biden’s expansive executive order seeks to restore competition in the economy. It’s been a long, slow road to get the whole government on board—but there are some formidable gains. By David Dayen

24

Reclaiming U.S. Industry

Biden’s industrial policies represent a stunning ideological reversal. The harder part will be making them work.

By Robert Kuttner

34 Reanimating the Taxman

The impossible task ahead for the newly flush Internal Revenue Service By Jarod Facundo

42 Wall Street’s Big Bet on Rewiring America

Ithaca has put its Green New Deal in the hands of a green private equity fund, a private foundation, and a Goldman Sachs–backed software company. By Lee Harris

48

Ticketmaster’s Dark History

A 40-year saga of kickbacks, threats, political maneuvering, and the humiliation of Pearl Jam

By Maureen Tkacik and Krista Brown

By

By Joan Fitzgerald 10

Green Public Power By Ryan Cooper 12 The Slow Extraction of Lead Water Pipes By Ramenda Cyrus

Culture

57 Gabrielle Gurley on The Great Displacement: Climate Change and the Next American Migration 60 Blaise Malley on Pacific Power Paradox: American Statecraft and the Fate of the Asian Peace 64 Parting Shot: Human Intelligence By Francesca Fiorentini

Cover art by Alex Eben

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The Great Inflation Myths

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2023 will be a year of executive action to implement the Biden agenda, and the Prospect has all the details.

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Restoring Workers’ Freedoms

Left

es, capitalism invariably demands a reversion to the mean—and by “mean,” I mean cruel, abusive, proprietary treatment of its workers.

Time was when American capitalism wasn’t left entirely to its own devices. During the three decades when the New Deal social contract was in place and fully a third of the nation’s workforce was unionized, the power that owners and employers wielded over those who did their work was partially reined in. By the mid-1970s, those constraints began to give way to the forces of business and finance; and with the coming of Reagan Republicanism to American governance a few years later, the modest countervailing power that workers had once exercised, with the government’s backing, to control aspects of their work lives was radically diminished.

The workers’ loss was threefold. They lost power, provision, and freedom.

The loss in power was chiefly the result of deunionization. In the half-century since corporate America ended its semi-toleration of unions, the share of private-sector workers who could bargain collectively for wages and benefits has declined from a quarter of the workforce to a bare 6 percent. Years of anti-labor court decisions hollowed out the National Labor Relations Act, whose threadbare remnants no lon-

ger offered any protections to workers who sought to unionize.

The loss of power was accompanied by a loss of provision. The federal minimum wage lagged further and further behind the cost of even penurious living. Save for brief intervals when the economy was close to full employment, workers’ wages stagnated in the absence of any way for workers to effectively bargain with management and in the presence of increasing low-wage competition from the low-wage employees and contract workers of multinational corporations—many of them American—in the developing world. Workers’ incomes also stagnated as companies labeled them independent contractors and gig workers rather than employees, not subject to minimumwage laws or employer provisions for Social Security, nor the other social contracts of the New Deal.

And third, beginning in the 1990s, came the loss even of economic freedoms. Emboldened by relentlessly anti-worker court decisions, and by even more antiworker Republicans and by too many complaisant Democrats, employers clamped down on two sets of freedoms that most American workers had assumed were theirs simply by dint of their rights as citizens.

Previously, if they had a grievance at work or had suffered damages in the work-

place, assuming they had no union, they could always take their employer to court. But after a 1991 court decision effectively stripped them of that right by giving employers the right to subject those workers to a mandatory arbitration process—most often, as a condition of employment—workers lost their right to have their day in court. According to a 2018 study for the Economic Policy Institute by Alexander J.S. Colvin, just 2 percent of workers were contractually subjected to forced arbitration in 1992. By 2018, however, that number had risen to 56.2 percent of private-sector non-union workers, or roughly 60 million.

The other freedom workers have lost is even more elemental, and fundamental: the right to leave one job to take another. A large number of American workers are compelled to sign noncompete agreements, with which their employers forbid them from taking a job at a rival firm or leaving their job to start a business of their own in the same field. In recent decades, emboldened by the courts’ attitude—ranging from indifference to hostility to worker rights—employers have expanded this practice from the relatively small number of professional workers privy to proprietary trade secrets to any workers who may at some point want to move from the burger joint they’re working at to the burger joint across the street.

Which is one reason why the Bidenappointed majority on the Federal Trade Commission announced in January that it was beginning a process to abolish noncompete agreements. “Economic liberty, not just political liberty, is at the heart of the American experiment,” FTC Chair Lina Khan wrote in a New York Times op-ed , explaining the proposal. “You’re not really free if you don’t have the right to switch jobs or choose what to do with your labor. But millions of American workers can’t fully exercise that choice because of a provision that bosses put into their contracts: a noncompete clause.”

The two means of dealing with an institution that’s not meeting your needs, the economist Albert O. Hirschman wrote, are voice and exit. For millions, perhaps a majority, of American workers, the extirpation of unions and the rise of forced arbitration have eliminated the possibility of voice, while the spread of noncompetes has blocked the possibility of exit.

It’s these erosions of worker power and freedom that Biden-age Democrats in Con-

to its own devic-

Harold Meyerson

gress (when they have the votes), in blue states, and at federal agencies have been working to reverse.

Biden himself is no Johnny-come-lately to the fight against noncompetes. In a 2018 talk at the Brookings Institution, he called them a significant cause of wage stagnation. (Indeed, the FTC ’s fact sheet on its proposed rule change estimates that it could increase workers’ yearly earnings by between $250 billion and $296 billion.) Once in the White House, Biden cited the need to scrap noncompetes as a centerpiece of his administration’s policy to create a more competitive economy.

In appointing Khan to head the FTC , Biden was entrusting what has often been a somnolent agency to one of the most intellectually and legally adept critics of the monopolies and monopsonies that dominate our economy. Khan’s proposal to strike down noncompetes provided ample testimony to her chops. Rather than continuing to document individual cases of employers’ use of noncompetes that ran afoul of restraint-of-trade laws, and ordering those employers to cease and desist, Khan argued instead that the FTC could proactively ban the practice under the longneglected, often-forgotten Section 5 of the act that created the FTC, which empowers the Commission to curtail “unfair methods of competition.” For the past half-century, court decisions have largely limited the FTC to dealing with individual cases, but Section 5 is still on the books.

When the FTC passes such a rule (it is now just beginning the lengthy rulemaking process), it will doubtless be challenged by various business organizations in the courts. By choosing noncompetes as the battlefield on which she’ll fight, Khan has selected the one kind of restraint of trade on which the trustbusters can gain the most public support. The episodes in which employers have wielded noncompetes outrageously are legion. In announcing its proposed rule-setting, the FTC cited one recently settled case in which a Michigan security guard company used a noncompete clause to forbid its employees, who were working at or near the minimum wage, from going to work for any other guard companies within 100 miles of their employer, and when some did, charging them the $100,000 that the fine print of their employment agreement said would be the penalty.

How many low-paid workers with no proprietary knowledge are covered by these agreements? One study, headed by University of Maryland economist Evan Starr, that’s based on a 2014 survey of 11,505 workers found that roughly 18 percent of workers are bound by noncompetes, and while the rate was higher among higher-paid employees, it was still considerable among those who did more routine work. Among those making more than $40,000 annually, the rate was 25 percent; among those making less, the rate was 13 percent.

Another study, this from the Economic Policy Institute, of 634 businesses found that 49 percent said that some of their employees had been required to work under noncompetes and about 32 percent said that all their employees were. Based on that methodology, the EPI survey concluded that anywhere between a little over one-quarter and a little less than one-half of American workers had noncompete requirement in their contracts. The EPI authors believed that large numbers of employees didn’t know that they fell under noncompete restrictions, while all the employers in their survey knew perfectly well when they did. Starr’s survey bears out EPI’s assumption that many workers may not even know that they’re covered. Only 10 percent of the workers he surveyed had actually negotiated with their employer over a noncompete; for the remaining 90 percent, their coverage was a fait accompli, usually buried in the fine print, upon their hiring. Only three states ban noncompete agreements, all of them with laws passed in the 19th century: California, North Dakota, and Oklahoma. In recent years, as awareness of noncompetes has spread, a number of blue states (and one purple state: New Hampshire) have banned them for low-paid or low-skilled workers, while some red states (Georgia most particularly) have passed laws making noncompetes more enforceable. One of the blue states that came late to limiting the scope and enforceability of noncompetes was Massachusetts. Some economic analysts have

attributed the rise of California’s Silicon Valley and the decline of Massachusetts Route 128 as the hubs of tech innovation to the fact that California’s ban on noncompetes led to the proliferation of startups by young techies who left their previous employers, while Massachusetts’s ban on such job-switching, which wasn’t repealed until 2010, prevented a similar dynamic.

As with noncompetes, so with forced arbitration. In 2019, California became the only state to ban the practice outright, but California’s law is on hold awaiting a likely hostile ruling in the federal courts.

It’s not just culture-war issues like abortion rights, then, that are completely at variance from state to state. In the absence of federal lawmaking, it’s also issues of workers’ power (public employees can unionize in blue states and can’t in the red ones) and workers’ provision (minimum wages are higher in blue states than red) and workers’ freedoms.

An FTC ban on noncompetes would at least end this one crazy-quilt approach to what most Americans surely believe to be one of their most basic rights.

With Congress gridlocked, it falls to Biden’s appointees in various regulatory agencies to assert—in some cases, bring back from the dead— the legal basis for restoring some of the power and freedoms that American workers once had. Khan’s resurrection of Section 5 is of a piece with National Labor Relations Board General Counsel Jennifer Abruzzo’s resurrection of long-forgotten Board rulings , like the one in the Joy Silk Mills decision, that once gave workers the legal assurance that they could unionize.

At a time when more than 70 percent of Americans have a favorable opinion of unions, a government structured to reflect the public will would legislate changes to empower the nation’s workers. That path is currently blocked by the divided Congress, but our government has latent executive power that it has not used—until lately. So keep an eye on the Biden agencies and the blue states. For now, at least, that’s where the changes will come. n

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What Could Chill Heat Pumps

The obstacles to installing a transformative technology

By Joan Fitzgerald

Many cities and states are banning or restricting fossil fuel hookups in new buildings as part of a broader strategy to reduce carbon emissions from buildings. Electrification of buildings is a key climate strategy because space heating, cooling, and water heating comprise 46 percent of residential and commercial building emissions and more than 40 percent of the primary energy used. In addition, getting fossil fuels out of buildings has health and equity benefits.

Heat pumps could accelerate electrification. The story of why heat pump adoption is going so slowly reveals what a complex policy environment surrounds a simple technology.

Heat pumps take heat from outside and move it into your home in the winter and take heat from inside in hot weather and move it outside. Some systems use ducts like hot-air furnaces and some are ductless— you’ve probably seen these on a restaurant wall. Heat pumps offer considerable energy savings because the quantity of heat and cooling brought into your home is considerably greater than the quantity of electricity used to power the system. Households that go all-electric by installing heat pumps for space and water heating, adding rooftop solar, and using an electric car will save an average of $1,800 annually.

A recent study by University of Texas at Austin professor Thomas A. Deetjen estimated that 32 percent of U.S. houses would benefit economically from installing a heat pump, and 70 percent of U.S. houses could reduce greenhouse gas emissions. Added to the 8.7 million homes that have heat pumps already, these new installations would create an economic benefit of about $7.1 billion annually and an 8.3 percent drop in carbon emissions annually, which would avoid $1.7 billion in climate damages annually.

Some 15 states and almost 100 cities and counties have policies to promote heat pump adoption. Only four of them—Cali-

fornia, Massachusetts, Maine, and New York—have set targets for the number of heat pumps to be installed, and meeting the targets will be difficult.

Regulatory and Permitting Obstacles. Local regulations and the permitting process are often confusing and difficult to navigate for both installers and customers. Heat pumps can violate local noise ordinances, particularly in cities with small lots. If the heat pump makes noise beyond the legal level, the contractor usually is responsible for rectifying it.

In most states, each city and town has specific regulations that contractors have to take the time to master before starting a job. One contractor told me of a recent job he completed that required multiple permits. After the assessment of the home’s heating and cooling needs (referred to as a Manual J) specific to town inspector’s requirements, the permitting required sign-off from the home insurance company and a certified plot plan (cost of $2,000) for placement of the condensing units. If the requirements are not adhered to, there are fines and costs to reconfiguring and changing equipment.

Heat pumps pull hot air into homes in the winter, and push out hot air in the summer.

NOTEBOOK

He decided not to work in that town again.

Confusing Rebate Programs. In addition to local regulations, the requirements of rebate and subsidy programs are often confusing and contradictory to state climate goals. Some rebates require that homes be weatherized first—an expensive undertaking even with rebates.

Most states offer rebates that require the customer to pay for the system up front. A lot of people can’t afford the up-front payment and for many the rebate isn’t enough incentive. The Inflation Reduction Act’s heat pump incentive program will help by offering point-of-sale rebates of up to $8,000 for purchasing a heat pump. The amount of subsidy depends on household income.

Supply Chain Delays. It is not uncommon for the ideal unit for a particular home to be unavailable. The chip shortage is partly responsible for limiting production, but there is almost no manufacturing of heat pumps in the U.S. Most heat pumps are made by Japanese or German producers. The Department of Energy investment of $250 million to promote domestic heat pump manufacturing is much needed.

Inadequate Workforce. In many states, there are not enough contractors with the skills to install heat pumps. We need to build more green-technology career ladder programs in our high schools, community colleges, and universities. At the federal level, the DOE is exploring additional investment in workforce development for heat pump manufacturing and installation. The Massachusetts Clean Energy Center is investing in training programs to bring underrepresented populations into the clean-energy trades, including heat pump installation. New York City’s Precision Employment Initiative seeks racial and climate justice through job training in the green economy for youth in areas of poverty and high levels of gun violence.

As Goes Maine. The national leader in promoting wide installation of heat pumps is Maine. With 62 percent of its households heated by highly polluting fuel oil in 2019, Maine offi-

cials knew that heat pumps would have to be a big part of reaching the state’s goal of cutting greenhouse gas emissions 45 percent by 2030. And they’re not a hard sell—every heat pump installed saves consumers $300 to $600 in heating costs annually. The Efficiency Maine Trust, the administrative unit charged with overseeing funds for energy efficiency improvement and greenhouse gas reduction, coordinates all the policy supports needed to ensure widespread heat pump adoption: offering information, advice, and rebate and loan programs. Most importantly, the Maine legislature has taken action to require utilities to do the grid improvement planning needed for a more electrified future.

Efficiency Maine started offering rebates for air-source heat pumps in 2013 and accelerated the program in 2019 when Gov. Janet Mills set a goal, and the legislature then passed a bill to install 100,000 heat pumps in residences and commercial buildings by 2025. An online dashboard shows that 82,326 heat pumps have been installed since 2019, with roughly 7 percent of these in low-income homes.

Easy Rebates. Several factors drive this success. Easy-to-apply-for rebates are part of the story. The first hurdle to be overcome

was creating consumer confidence in the product. Maine has long, cold winters that first-generation heat pumps couldn’t handle. Efficiency Maine examined the capabilities of heat pumps on the market and chose to offer higher rebates for those with a minimum Heating System Performance Factor (HSPF) of 12.0, which is greater than the standard needed for achieving the federal government’s Energy Star certification. Units at this level can provide heat at temperatures as low as negative 15 degrees Fahrenheit.

It costs between $3,500 and $5,000 to install a single “mini split” heat pump in Maine. Rebates are between $400 and $800 for the first heat pump installed and $200 and $400 for the second, depending on the efficiency level installed. Staff at Efficiency Maine are considering different tiers of rebates to accelerate adoption even more. As Michael Stoddard, executive director of Efficiency Maine, told me, “When we started, our goal was to give as many residents as possible a taste of what it is like to heat with at least one heat pump. Now we want everyone to heat completely with heat pumps.”

Two programs help low- and moderateincome residents secure heat pumps. For residents who document their eligibility through the federal Low-Income Home

Maine has been a national leader in promoting wide installation of heat pumps.

Energy Assistance Program, or several income-dependent state programs, to receive rebates, the Maine State Housing Authority has dedicated some of its funds to pay for 100 percent of heat pump installation costs for the neediest households. Those customers, as well as anyone owning a home where the town’s tax-assessed property value for the home is in the bottom quartile in the county, can receive a $2,000 rebate from Efficiency Maine for the first heat pump and another $400 for a second.

About 40,000 eligible households in Maine have installed at least one heat pump. In April 2022, the Maine legislature passed a bill mandating that new affordable-housing projects funded by the Maine State Housing Authority use all-electric heating and cooling systems and must meet a recognized standard of high energy efficiency, such as Passive House.

The bulk of the funding for the rebates comes from Efficiency Maine’s participation in the ISO New England (the regional grid operator) Forward Capacity Market. Efficiency Maine receives between $5 million and $10 million annually for the reduced usage it can deliver, all of which is dedicated to heat pump rebates.

Getting Rates Right. Maine has taken action to ensure that the Maine Public Utilities Commission (PUC) is aligning its pricing and planning for grid upgrades that support state policy. The Governor’s Energy Office, Efficiency Maine, the Maine Office of the Public Advocate, and several industry and environmental groups negotiated with the utilities to establish rate discounts to encourage residents to electrify and adopt renewable energy. As a result, in December 2022, the Maine PUC ordered the state’s two largest utilities (Versant and Central Maine Power) to pilot reduced electric rates for customers adding solar panels with energy storage, switching to heat pumps, or purchasing electric-vehicle chargers.

Another rate strategy seeks to reduce peak demand. The Seasonal Heat Pump

rate has lower rates in cold-weather months and higher rates in summer. For households that have electric usage, the Electric Technology rate offers a higher fixed charge yearround, but a lower charge per kilowatt to encourage adoption of electric appliances. The time-of-use rate is being adapted to promote off-peak electric use (e.g., for charging cars, running dishwashers, etc.).

Stoddard comments that by switching to the new Electric Technology rate, consumers who are using more than 1,000 kWh per month should see savings of between $100 and $200 a year in electricity costs. These voluntary rates are being piloted for two years to assess how they influence demand. While critics point out that the rates should be lower and go into effect sooner, there is widespread agreement that these rates will motivate more electrification while spreading demand to help defer and reduce the need for expensive new grid additions.

Growing a Green Grid. In April 2022, the legislature passed a new law that requires the state’s utilities to engage in a transparent and integrated process to ensure the future readiness of the grid to support the increased electrification and renewable-energy adoption called for in the state’s climate plan. Dan Burgess, director of the Maine Governor’s Energy Office, explains that the Maine Climate Council estimated that the grid will need to at least double its current capacity by 2050 to meet this growth.

Further, the shape of the distribution peak will change over the course of the day and time of year. For example, the current summer peak will change to winter as more buildings are heated with electric systems. Managing and planning for changes such as these, as well as the integration of other distributed energy resources and loads like home battery storage, EV charging, and rooftop solar, is central to the legislation’s requirements. Thus, the key factors to be considered are the upgrades that need to happen in the distribution grid and how much of that can be avoided through rate design, and by leveraging other clean-energy technologies.

The for-profit utility model is to make capital expenditures on grid capacity and infrastructure and pass those costs along to ratepayers. An integrated planning process forces those investment decisions in the open, with improved transparency and public input. Jack Shapiro, the clean-

energy director at the Natural Resources Council of Maine, presents the example of a neighborhood served by a substation with a few thousand homes. The utility will present a scenario that every system is running at the same time and assume solar capacity is offline. Such a scenario would suggest a need to, say, triple the capacity of substation transformers to serve the neighborhood. Integrated grid planning challenges those assumptions.

If the sun is shining and there is rooftop or distributed solar in that area, it lowers demand from the broader grid. Smart devices can be programmed to respond to grid needs and avoid the highest annual or daily peaks. Contracts with battery operators can incentivize off-peak charging. All of these interventions can reduce the need for expanded grid capacity and could significantly lower the costs of the overall energy transition.

Creating a

New Skilled Trade. Efficiency

Maine has also acted to increase the supply of qualified installers. The number of companies has doubled since 2015, with more than 700 qualified installers listed on the website—more per capita than any other state, according to Burgess. This growth can be attributed to the Maine Clean Energy Partnership, which has released two reports that target the clean-energy industry, which includes energy efficiency contractors.

Kennebec Valley Community College opened a new heat pump training lab to support degree and certificate programs in plumbing; heating, ventilation, and air conditioning (HVAC); and sustainable-energy systems. Students can also take shorter-term heat pump installation and maintenance training courses. Efficiency Maine worked with the college in developing the programs.

In December 2022, Gov. Mills announced $2.5 million in new workforce grants to be awarded to nine organizations for training residents in weatherization, electric-vehicle repair, solar installation, and related careers.

Ideally, there will be a rendezvous between the new federal subsidies for clean energy and state-level policies to make maximum use of them. Maine’s success shows both the complexity and the possibility. n

Joan Fitzgerald is a professor of public policy and urban affairs at Northeastern University and the author of  Greenovation: Urban Leadership on Climate Change.

In many states, there are not enough contractors with the skills to install heat pumps.

Supercharging Green Public Power

The president’s signature climate bill is a huge deal for publicly owned electricity. But it will take work to unlock its potential.

By Ryan Cooper

The Inflation Reduction Act (IRA ) will certainly be remembered as a major accomplishment of the Biden administration and the Democratic Congress. One of its most significant parts is an innocuous-sounding provision called “direct pay.” This refers to a change in how renewable-energy tax credits are administered. Before the IRA , publicly owned utilities or nonprofit power cooperatives were not directly eligible for these credits, because they had no tax liability. The only way to get some of the benefit was to contract with private developers, which is both cumbersome and inefficient, since much of the value of the credits is then taken up by the developer. But now, public agen-

cies and nonprofits can get the credits essentially as grants—which makes new green investment and the resulting power considerably less expensive for those entities.

Public agencies and nonprofits generate about a quarter of American electricity, so this is a major upgrade to U.S. climate policy. But it’s also a major change in the policy landscape for these institutions, which will have to drastically change the way they operate. It’s an urgent priority to get direct pay flowing as fast as possible, so I spoke to several experts to investigate the state of the policy landscape—if anyone in this space is ready to start moving, what any obstacles might be, and how they might be removed.

The first thing that needs to happen is for the Treasury Department and the IRS

to release guidance on how exactly direct pay will work. Back in October, the IRS submitted a request for comment, and experts expect that the full guidance will probably come out around March this year.

The fact that the guidance is not out yet is probably why I could only find two institutions that are definitely planning to take advantage of the direct pay credits. The first is the Salt River Project, a nonprofit utility cooperative owned by the state of Arizona. SRP is in the process of building 55 megawatts of utility-scale solar owned by itself for the first time. “The recent passage of the Inflation Reduction Act allows notfor-profit public power utilities like SRP to directly receive federal incentive payments for renewable projects,” the agency said in a

Public utilities generate about a quarter of American electricity.

press release. The second is East Bay Community Energy, a public agency launched in 2018 by Alameda County, California, and several of its cities. CEO Nick Chaset posted a thread on Twitter about how the IRA will allow his agency to provide renewable power more cheaply “by allowing public sector and not for profit electricity suppliers to directly monetize these tax credits instead of relying on contracting with a privately owned company to realize the value of the tax credits.”

Everyone I spoke with agreed that the most obvious move here is for the administration to publish the guidance as quickly as possible. The sooner the rules are available, the sooner institutions can start investment, and once a few have demonstrated viable procedures, others will likely start to copy them. “Utilities by their nature are slow-moving companies,” Mike O’Boyle, a director at Energy Innovation, told the Prospect. “It takes utilities a while to fully digest any bigstep changes in technology costs, integrate into their plans, and then change course.”

“There is no time to waste,” said Uday Varadarajan, a principal at the Rocky Mountain Institute, in an interview.

The administration would also be well advised to make the application procedure simple. “Make it as easy as possible,” Desmarie Waterhouse, senior vice president at the American Public Power Association, told the Prospect. Many public utilities and rural co-ops are quite small, and so don’t have much staff available to start spinning up new projects. Even a lot of the big ones don’t have much experience with renewable-energy projects. If you’ve been running, say, a handful of gas and coal plants for 40 years, solar and wind are both more distributed and more erratic in their production—requiring new investment and different grid management to compensate for the changes.

By the same token, it would be wise for the administration, together with outside groups, to provide technical, contracting, and legal assistance for firms that might need it, especially rural cooperatives. If small institutions have to hire an accountant and a tax lawyer to get their direct pay, they might decide it’s not worth the headache.

The administration could also help by funding transmission upgrades. Renewables are more useful if the power can be transmitted over longer distances—for instance, from areas where the sun is shining or wind is blowing to dark or calm ones. “There are a lot of transmission upgrades

that need to be made in the system to enable the higher penetration of renewables,” said Varadarajan. “The federal government also has some authorities in the [Department of Energy] loan program that can be used for new interregional transmission lines,” as well as reducing the cost of upgrading existing lines. Doing so “could be a real important piece of that puzzle,” he added.

The Tennessee Valley Authority deserves special attention. This federal agency is the largest public utility in the country, serving all of Tennessee and parts of six other states (mainly with nuclear and natural gas), and also contracts with over 100 other utilities in the region. It would be an ideal choice to set an example for the rest of the country—indeed, it is specifically mentioned in the IRA as being eligible for direct pay credits. But a TVA representative told me that the agency doesn’t have anything in the works yet: “It is still too early to speculate on exactly how TVA would participate,” he said via e-mail.

The TVA is, however, rushing to replace much of its coal power capacity with even more gas. On December 2, it completed the environmental review of a planned decommissioning of the Cumberland Fossil Plant and its switch to the preferred alternative of a gas replacement. “Natural gas provides the flexibility needed to reliably integrate renewables,” Jacinda Woodward, a TVA senior vice president, said in a statement.

This is a bizarre argument. For one thing, the TVA already gets about 28 percent of its power from gas. For another, the intermittency problem that comes with solar and wind is well understood by now, and grid operators have largely figured out how to compensate. That, plus the fact that wind and solar are extremely cheap (and getting cheaper), is why private utilities are now stampeding into renewables—in 2021, solar

and wind made up about 83 percent of all new utility-scale power investment.

What’s more, while intermittency issues can become quite challenging when renewables make up a big share of total power, the TVA’s power mix includes just 3 percent from wind and solar. And even if it were a problem, unlike almost all utilities the TVA has significant hydropower assets—which are excellent backup for renewables because they are very easy to turn on and off. “TVA could absolutely manage its hydro system in such a way as to balance and complement resources like wind and solar,” Zachary Fabish, a senior attorney at the Sierra Club, told the Prospect. “That’s a huge advantage that TVA has that most other utilities in this country don’t have.”

More gas investment also carries a significant price risk. Thanks to Putin’s war in Ukraine, Europe is frantically trying to wean itself off Russian gas—and is filling that gap with liquefied natural gas exports from the United States. Multiple LNG terminals have been constructed in recent years on both sides of the Atlantic, and more are coming. It’s a safe bet that the dirt-cheap gas of the mid2010s is not ever coming back, and anyone reliant on gas power will be paying the price.

In short, the TVA’s decisions here don’t pass the smell test. Fortunately, in late December the Senate finally confirmed all six of Biden’s nominees to the nine-member agency board, where they now constitute the majority. The board has ultimate control over the agency, and they can and should replace CEO Jeff Lyash (a former private utility executive) with someone more favorable to renewables.

To end on a note of optimism, there’s one final aspect of direct pay that could help improve America’s electric grid. Previous renewable tax credits incentivized private utilities to invest in zero-carbon power, but only on the basis of whether each individual project made financial sense. Accordingly, few of those utilities have been paying attention to other crucial factors when taking on new projects, such as planning and “grid topology”—that is, where renewables, transmission upgrades, and so on would make the most sense in terms of regional needs or even the whole national grid. “Direct pay creates an opportunity for public agencies … to be project developers themselves,” Paul Williams, executive director of the Center for Public Enterprise, told the Prospect. It will “help move the energy transition forward in a more coordinated and thoughtful way.” n

Renewables are more useful if the power can be transmitted from areas where the sun is shining or wind is blowing to dark or calm ones.

The Slow Extraction of Lead Water Pipes

By Ramenda Cyrus

Denver Water had a problem. A water utility since 1918, the company provides water to the greater Denver area that is lead-free. In 1994, the utility adjusted its pH and alkalinity levels to meet standards set by the Colorado Department of Public Health and Environment’s Lead and Copper Rule.

Still, in 2012, Denver Water surpassed the lead action level, a threshold set federally by the Environmental Protection Agency (EPA). The problem was simple, in a way: Water delivered through service lines that contained lead would likely always have some level of lead in it. Lead exposure has numerous negative health outcomes associated, and it was important to manage and eliminate its levels in water.

But Denver Water didn’t own any water lead service lines. Those are laid by developers when a property is built, pumping water from the main that Denver Water owns.

“Those lead service lines are really the biggest source of lead entering drinking water to our community,” said Travis Thompson, spokesperson for Denver Water.

Lead service lines have been a major public-health concern, one that became especially salient during the Flint, Michigan, water crisis. President Biden has repeatedly promised to replace all lead service lines in the country, a promise that became part of the Infrastructure Investment and Jobs Act, which was passed in 2021. The IIJA designated $15 billion toward replacing lead service lines. Another $11.7 billion was granted to improve drinking water systems, some of which could go to lead pipe removal. In all, the bill earmarks $50 billion to water programs.

A year after the IIJA’s passage, the situation remains largely unchanged. The amount allocated is the largest investment in the removal of lead pipe in the history of the country, and the total water investment

package has been hailed as historic by the Biden administration. But $15 billion is not enough money to replace every lead service line in the country—estimates lie anywhere between $28 billion and $60 billion.

Moreover, the work of replacing these lines falls to water agencies like Denver Water, which face a fundamental challenge. Water agencies can only replace the lines they own; the rest of the responsibility falls on private owners, many of whom are less than keen given the logistics. To fulfill their mission, water agencies must persuade owners of the benefits of lead removal, and manage the costs. And that’s if the agencies can find all the lead service lines in the first place.

The majority of water funding in the IIJA is distributed through the Clean Water and Drinking Water State Revolving Funds (CWSRF and DWSRF), which have been addressing lead abatement in water since the late 1980s. Funds are to be distributed over a five-year period; the first $3 billion was announced in December 2021.

Any amount of lead exposure is dangerous, and its prevalence in everything from paint to gasoline means that millions of children have been exposed. Lead has been linked to learning problems and slowed growth in children, according to the EPA . Children exposed during pregnancy may underdevelop and even risk miscarriage. An article published in the journal Proceedings of the National Academy of Sciences estimated that over half of adults had elevated levels of lead exposure in early childhood.

The Flint water crisis revealed racial and economic disparities of lead exposure. The IIJA attempted to address this by earmarking at least $5 billion of the grants for disadvantaged communities. The IIJA also requires that almost half the funding distributed through the DWSRF go toward disadvantaged communities.

Before the IIJA passed, Denver Water proposed a solution for lead abatement. After receiving an exemption from the EPA , the utility instituted a five-point initiative to replace every lead water service line. This has led to the replacement of 15,000 lines as of December 2022. The plan includes replacing the lead pipes, mapping the lines, and installing lead removal filters, all at no cost to homeowners. It is funded through bonds, water rates, cash reserves, and hydropower generation, Thompson said.

The IIJA funding was a welcome addition that Denver Water was able to immediately put to use. It applied to access the first year of funding through Colorado’s state revolving fund and was granted a low-interest

President Biden has promised to replace all of the lead service lines in the country, but there’s not enough money and not enough time.

loan of $76 million. Denver Water estimates that the money will shave off more than a year from a 15-year plan.

While Denver Water could be seen as a model for lead pipe removal, it’s not a simple solution. The agency still has to coordinate with homeowners and obtain their permission to act. And not every utility is as far along as Denver Water to immediately utilize IIJA funds effectively.

Elin Betanzo of Safe Water Engineering points out how there is a spectrum among municipal water agencies’ willingness to replace lead service lines. Some agencies are reluctant to even acknowledge the issue.

“Most water systems don’t have a program already,” Betanzo said. And the money does not just appear one day for agencies to use: To be approved for IIJA funding, a utility must propose a plan “directly connected to the identification, planning, design, and replacement of lead service lines,” according to an EPA memorandum.

For some agencies, this means starting from scratch, while others like Denver Water are ready to jump into action. The Lead Service Line Replacement Collaborative, a coalition of organizations, works to “accelerate voluntary lead service line replacement in communities across the United States,” by closing the gap in preparedness. The organization provides resources for water agencies to create an action plan for service line replacement, and apply for federal funds.

“States are moving forward with putting the funds to use based on their assessment of the needs and their understanding of how many lead pipes they may have, where they are located, and whether some utilities are prepared to accelerate lead pipe replacement,” Tom Neltner, senior director of the Environmental Defense Fund’s Safer Chemicals initiative, said over email.

Agencies need to know where the lines are before meaningful action can be taken.

The Natural Resources Defense Council (NRDC) estimates between 9.7 million and 12.8 million lead service lines nationwide, but that’s not a precise figure and doesn’t identify the whereabouts of lead pipes in every community.

While some utilities operate mains that contain lead and are working to replace those, other utilities only know that their water flows through lead service lines, not where they are. Agencies need to map the lines to take action, adding time to the process.

“There’s certainly a benefit to being careful and using the data you have available [and] identifying where the lead lines are,” said Dan Hartnett of the Association of Metropolitan Water Agencies.

Usually, in order to receive money from the DWSRF, the state must provide a 20 percent match. The IIJA does not require a state match to access the $15 billion to replace service lines. For the nearly $12 billion that goes through the revolving fund, the IIJA

reduced the state match to 10 percent for the first two years.

Betanzo found that in the first allotment, states with the most lead lines received the least amount of money. Ohio, which has approximately 650,000 lead lines, received just about $100 per line. This is compared to Hawaii, which received $10,000 per line, despite only having about 3,000 lines. While there is time for this to be corrected within the five years, it’s another hurdle.

In response, the EPA points out that the Safe Drinking Water Act (SDWA) requires that funds from the DWSRF get distributed based on the Drinking Water Infrastructure Needs Survey and Assessment. The EPA expects to release the seventh assessment in 2023, and it will be the first to include information on lead service lines, which will be used for the next allotment.

The EPA also points out that the SDWA allows for funds to be reapportioned. “Under this reallotment process, EPA expects more lead service line funds to flow to states with more lead service line projects over time,” EPA spokesperson Robert Daguillard said over email.

As Denver Water’s story illustrates, replacing part of a water line that contains lead continues the contamination. The IIJA combats this by only allowing states to access the $15 billion if they have a plan to replace the entire lead pipe, unless a portion has already been replaced, or the utility is planning to replace it through other funding.

However, Neltner said that the EPA does not seem to be enforcing this requirement on the additional $12 million allocated for the state revolving funds, which are usually used to replace water mains. There is a concern that “some states are allowing utilities to conduct harmful partial lead service line replacements where the resident is unable to pay to replace the portion on their property,” Neltner said.

Bureaucracy moves slow, and change moves slower. Neltner sees the IIJA investment “as a critical down payment toward President Biden’s goal of eliminating lead service lines.”

It is not easy to appreciate the full suite of actions a utility has to take in order to replace a lead service line. From planning and mapping to replacing the lines, agencies and communities are being asked to take on a momentous task, one that will surely take more than five years. And if the money is not used efficiently, the progress that could be made may still fall short. n

Some utilities only know that their water flows through lead service lines, not where they are.

Biden’s expansive executive order seeks to restore competition in the economy. It’s been a long, slow road to get the whole government on board—but there are some formidable gains.

BY DAVID DAYEN

A PITCHED BATTLE ON CORPORATE POWER

On July 9, 2021, President Joe Biden signed one of the most sweeping changes to domestic policy since FDR . It was not legislation: His signature climate and health law would take another year to gestate. This was a request that the government get into the business of fostering competition in the U.S. economy again.

Flanked by Cabinet officials and agency heads, Biden condemned Robert Bork’s pro-corporate legal revolution in the 1980s, which destroyed antitrust, leading to concentrated markets, raised prices, suppressed wages, stifled innovation, weak-

ened growth, and robbing citizens of the liberty to pursue their talents. Competition policy, Biden said, “is how we ensure that our economy isn’t about people working for capitalism; it’s about capitalism working for people.”

The executive order outlines a whopping 72 different actions, but with a coherent objective. It seeks to revert government’s role back to that of the Progressive and New Deal eras. Breaking up monopolies was a priority then, complemented by numerous other initiatives—smarter military procurement, common-carrier requirements, banking regulations, public options—that centered competition as a counterweight to the industrial leviathan.

It’s been a year and a half since Biden signed the executive order; its architect, Tim Wu, has since rotated out of government. Not all of the 72 actions have been completed, though many have. Some were instituted rapidly; others have been agonizing. Some agencies have taken the president’s urging to heart; others haven’t. But the new mindset is apparent.

Seventeen federal agencies are named specifically, tasked with writing rules, tightening guidelines, and ramping up enforce -

ment. I wrote to each agency, asking how they have complied with the order; all of them answered but one (the Federal Deposit Insurance Corporation, whose role is admittedly tangential). Even Cabinet departments that weren’t mentioned wrote in to explain their approach to competition. Clearly, agencies are aware of the emphasis being put on reorienting their mission.

Bringing change to large bureaucracies is often likened to turning around a battleship. One way to get things moving is to have the captain inform every crew member of the intention to turn the battleship around,

counseling them to take every action from now on with that battleship-turning goal in mind. The small team that envisioned and executed the competition order put the weight of the presidency behind it, delivering a loud message to return to the fight against concentrations of power. It’s alarming and maybe a little disconcerting that you have to use a high-level form of peer pressure to flip the ship of state. But that battleship is starting to change course.

Tim Wu was the first of the triumvirate of Wu, Khan, and Kanter (a motto emblazoned on mugs by advocates) to actually get appointed in the Biden administration, joining the National Economic Council (NEC) to work on competition policy in early March 2021. Hiring the author of The Curse of Bigness signaled the administration’s strong anti-monopoly thrust. Khan (Lina, chair of the Federal Trade Commission) and Kanter (Jonathan, heading the Justice Department’s Antitrust Division) would arrive later.

The competition order was released four months after Wu’s appointment, but in reality, it was laid out over the previous five years. In that time, a collection of policymakers, journalists, lawyers, politicians, and experts, sometimes known as the New Brandeis movement , warned of the dangers of economic concentration. Wu, Khan, and Kanter were part of this crusade, and prior to the 2020 election, they and others strategized about how to reinvigorate competition policy if Democrats took the presidency.

In this magazine, Sandeep Vaheesan of the Open Markets Institute outlined an anti-monopoly framework for our Day One Agenda series. It included revitalizing rulemaking authority at the FTC, rewriting merger guidelines to reverse laissez-faire bias at the antitrust agencies, restoring consumer rights to repair their own electronic equipment, and completing rules that protect farmers and ranchers from agribusiness exploitation. But even Vaheesan was surprised that the Biden administration embraced all of his recommendations and much more. “I wasn’t really thinking of an executive order when I wrote the piece,” he told me.

Vaheesan mildly questioned the wisdom of including so many action items. “It tries to do everything and maybe ends up doing nothing,” he said. But in its breadth as much as its particulars, the order informed offi-

cials across agencies that the White House was supremely attentive on this issue, and would have their backs on the tough decisions. “When we were going around and talking to agency staff, I would say, ‘Why don’t you do this,’” Wu told me. “They’d say, ‘That’s a land mine.’ Our idea was, let’s step on all the land mines at once. We will take your land mines, we will stand on them for you. And if industry complains, we would say, ‘Get in line.’”

When Wu entered the White House, he had a basket of low-hanging fruit, which he supplemented by asking federal agencies what they could do on competition. One constraint was that some of the agencies named in the order are independent commissions outside the Cabinet. So the language had to downshift from ordering agencies to take action to terms like “con-

sider” or “encourage.” Still, the message was clear.

A new White House competition council, led by the NEC, was established to monitor implementation of the 72 actions, as well as legislative and administrative efforts outside the order. There are nine core agencies on the council, each with a senior-level designee on competition policy. The order requires regular council meetings for members and other invited agencies.

That created a kind of show-and-tell dynamic: Agencies needed to display some forward motion on competition at consistent intervals. Wu and his small team—mainly deputy NEC director Bharat Ramamurti, senior policy official Hannah Garden-Monheit (who will take over for Wu as he returns to teaching at Columbia), and a couple of others—created a workshop for designees

DOJ successfully blocked the Penguin Random House/Simon & Schuster merger on the grounds that authors would get smaller advances.

on how to best work together. There are regular check-ins and happy hours. A “happy news” email group has bred a kind of competition within the competition council, as designees fight to highlight their victories to the White House.

Perhaps most important, Biden has shown up to two of the three council meetings. Nobody wants to come to the chief executive empty-handed. “We wanted the president personally involved,” Wu said. “If you have an agency that feels all alone, their friends become industry. It’s about getting into the heads of agencies and making them feel supported to do things they might not like.”

The executive order’s preamble validates Khan and Kanter’s aggressive perspective on competition policy, hinting at the practices of previous reform eras. For example, antitrust enforcement since the Bork revolution of the 1980s has relied solely on one criterion: Does an anti-competitive action

explicitly harm consumer welfare, defined as higher prices. But the preamble to Biden’s order stresses the plight of workers in a concentrated economy, which impedes the ability “to bargain for higher wages and better work conditions.” Though the consequences of too few buyers in an economy (monopsony) had been the subject of numerous studies in recent years, presidential-level discussion of monopsony and monopoly in the same breath was novel.

The Justice Department centered worker harms in its biggest legal victory to date, a successful challenge to the merger between publishers Simon & Schuster and Penguin Random House. The deal would have narrowed major publishers in the U.S. from five to four, and the Antitrust Division argued that authors would suffer from fewer bidders and smaller advances for their work. The judge ruled in DOJ ’s favor, saying that the deal would “substantially lessen competition to acquire the publishing rights to

anticipated top-selling books.” For a judiciary that has focused primarily on consumers as defined by Bork in antitrust cases, it was a sea change and a model for the future.

Labor harms were also highlighted in a DOJ Antitrust lawsuit against three poultry processors who colluded to deny workers $84.8 million in wages and benefits. It followed an interagency report on labor market competition , showing that concentration can lower wages by as much as 20 percent. “I do think that the focus on competition is getting people to dig into the topic in a policy-relevant way,” said Joelle Gamble, chief economist at the Department of Labor.

For years, Biden has been emphasizing one vividly abusive aspect of monopsony: noncompete agreements, which prevent workers from switching jobs to competitors in the same industry. At least 1 in 3 businesses require noncompetes, including professions like fast-food preparation, dog grooming, and custodial work . At the executive order signing, Biden spent a long time condemning noncompetes and vowing to end them: “Let workers chose who they want to work for.”

An FTC proposed ban on noncompetes was finally issued in January. Getting the FTC to write rules at all was another priority of the competition order. Under Section 5 of the FTC Act, the agency has broad authority to make rules preventing “unfair methods of competition.” But this authority has languished for decades, and a 2015 policy statement constricted its use further. A new policy statement released in November verified that Section 5 rulemaking is allowable, citing voluminous case law in an attempt to fend off inevitable court challenges

The order actually called for a number of Section 5 rules, including on unfair competition in prescription drug patents, internet marketplaces, occupational licensing, and real estate listings. But FTC spokesperson Doug Farrar told me there’s nothing imminent in those areas. “If you asked me a year ago, I would have thought FTC would have done more by now,” Vaheesan said. One problem was that, having abandoned rulemaking long ago, the FTC had no staff with expertise. When commissioner Rebecca Kelly Slaughter was acting FTC chair before Khan’s appointment, she set up a rulemaking group in the general counsel’s office. But administrative procedure for new rules takes an eternity, especially if starting from scratch.

One rule the FTC has begun work on

FTC proposed a ban on noncompete agreements that prevent worker freedom of movement.

concerns personal data collection and surveillance , a sleeper competition issue highlighted in the order’s preamble. The preamble also included discussion of “serial mergers” of “nascent competitors,” which monopolists use to strangle competition before it starts. The FTC followed up on this when it sued Meta (formerly Facebook) for its acquisition of virtual reality startup Within, on the grounds that potential future competition may be harmed. That case went to trial in December, putting a little-used idea from anti-monopoly reformers to a real-world test.

Perhaps the most quietly radical passage of the preamble states that “the United States retains the authority to challenge transactions whose previous consummation was in violation” of the antitrust laws, citing the Standard Oil breakup of 1911 as an example. Retroactive merger review had essentially been abandoned since the Microsoft case in the late 1990s. “We wanted to bring it back to the mainstream of conversation,” Wu said. The FTC’s late-2020 lawsuit against Facebook , specifically over its acquisitions of Instagram and WhatsApp, is a recent example of retroactive review; DOJ Antitrust’s current investigation of the ruinous deal between Live Nation and Ticketmaster shows that breakups are being reestablished as a policy tool.

The culmination of these efforts are the new merger guidelines, co-authored by the FTC and DOJ’s Antitrust Division. The guidelines lay out the conditions by which the agencies will intervene to block mergers, and while they place no mandates on how judges follow the law, they do shape legal opinion. “These are layman judges, they can rely on precedent and case law or they can rely on expertise from the agencies,” said Ron Knox of the Institute for Local Self-Reliance. “And if the agencies say these are the kind of mergers that harm competition, judges will take it into account.” Knox added that the guidelines will create deterrents for companies that don’t want to be tied up in years of lawsuits.

The guidelines are expected in the first quarter of this year. In remarks at a Federalist Society event in December, challenging legal conservatives to acknowledge that efficient capitalism depends on genuine competition, Kanter said that “the first principles of antitrust shouldn’t be a book written by a professor, it should be the words of the statute,” which suggests a return to laws

that focus on threats to competition over consumer welfare. He added that the entire DOJ Antitrust staff has been consulted on the guidelines, which must incorporate the perspective of the FTC, as well as over 5,000 public comments.

The merger guidelines seek to change the entire focus of competition policy. Despite laying the groundwork for years, that’s ultimately a long-term struggle. “Eighteen months seems like a long time in terms of horse-race politics,” Knox said. “Eighteen months to turn around the philosophy of large federal agencies? That’s not a huge amount of time.”

While the FTC and DOJ Antitrust are America’s lead competition authorities, numerous other agencies have license to tame monopoly power. The executive order outlines a whole-of-government approach, targeting specific industries—tech, agriculture, pre -

scription drugs, hospitals, telecom, financial services, container shipping. “If you’re worried about the plight of farmers, the Department of Agriculture will have to take the lead,” said Spencer Weber Waller, a professor at Loyola University Chicago who served as a senior adviser to FTC chair Khan for one year. He added that the order “allows agencies to figure out what they’re trying to achieve in the real world and see which superheroes can do it.”

Of the 72 actions, 12 required reports to the competition council, on everything from concentration in retail food markets to procurement agreements on military equipment. Reports are traditionally a pretend accomplishment that get filed away, mostly unread. But the dynamic of reporting to a dedicated White House policy group has spawned a rare Washington sight: postreport action.

FDA finalized rules that allow hearing aids to be sold without a prescription, breaking up a cartel that artificially raised prices.

Last February, Lockheed Martin abandoned its proposed merger with Aerojet Rocketdyne, after an FTC lawsuit in consultation with the Pentagon. Strengthened merger oversight came directly out of a recommendation from the Defense Department’s review on competition in the military industrial base. The Treasury Department’s Alcohol and Tobacco Tax and Trade Bureau (TTB) led a report on market access in alcohol markets , showing that, despite the flourishing of small craft producers, consolidation in beer production remained (two brewers control 65 percent of the market by revenue, and own many “craft” beer makers themselves). Concentrated distributors often use market power to lock up independent producers and deny them retail space held for larger brands, a process known as “shelving.” In November, TTB issued an advance notice of proposed rulemaking (ANPR) to address this exclusionary conduct.

Other actions wouldn’t have to be articulated if government functioned properly. In 2017, bipartisan legislation from Sens. Elizabeth Warren (D-MA) and Chuck Grassley (R-IA) allowed patients to buy certified hearing aids without a prescription. That requirement created barriers for new market entrants, and allowed a small cartel to artificially raise prices so much ($4,700 in 2013) that only one-fifth of Americans with hearing loss managed to purchase auditory devices. But despite a statutory mandate to complete rules for the new market by 2020, Donald Trump’s Food and Drug Administration (FDA) simply didn’t follow through, amid cartel lobbying and an inattention to competition issues. Biden’s executive order set a 120-day deadline for establishing the market, spurring the FDA to propose new rules before the deadline. The final rule was issued in August; millions of hearingimpaired Americans now have access to affordable assistance. “If you talk about

revitalizing antitrust enforcement, that won’t get people’s attention,” said Waller. “If you can say, ‘I just saved $3,000 on hearing aids,’ that gets people’s attention.”

One problem in the hearing aid market is so-called “patent pooling,” where oligopolistic firms share essential patents and exclude rivals. There’s been a long-standing fight between patent holders and manufacturers over the key components they need to make products, which Wu described to me as “impossible to talk about without people shouting at each other.” The Trump administration had taken the side of patent holders in an interagency letter, effectively saying that violating commitments to license patents under fair, reasonable, and nondiscriminatory (F/RAND) commitments would never be an antitrust violation. Per the competition order’s urging, that letter was withdrawn in June , but the agencies replaced it with nothing, trashing a draft policy statement that was more neutral. “It ended in a tie,” Wu said.

The F/RAND battle reveals the occasional difficulties of reconciling administrative intentions with agency drift. The order urged cross-agency partnerships with the FTC and DOJ Antitrust on merger oversight, investigations, and remedies, and Khan and Kanter clearly wish to restore antimonopoly traditions. But not every agency agrees. On the F/RAND issue, the Commerce Department subagencies that regulate in this area have traditionally given more leeway to patent holders.

Another example is bank mergers. The Federal Reserve approved over 3,500 bank mergers from 2006 to 2021, with zero denials; the day of the executive order, the Fed approved another one. The controlling statute, the Bank Merger Act of 1960, actually created a higher merger standard than other industries, and DOJ Antitrust has been leading a review. But it must be coordinated with financial regulators. While Fed vice chair for financial supervision Michael Barr and FDIC chair Martin Gruenberg have called merger policy a priority, and the Office of the Comptroller of the Currency has planned a symposium for February, no changes have been announced, to the chagrin of advocates. (The Fed did finally deny one merger in 2022.)

DOJ Antitrust has signed memorandums of understanding (MOU s) with multiple agencies , lending investigators and legal analysis. But this doesn’t automatically con-

Treasury proposed rules to address exclusionary conduct among beer distributors.

fer a good working relationship. Take for example the MOU with the Federal Maritime Commission (FMC). In 2017, DOJ investigators raided a meeting of the largest ocean carriers, issuing subpoenas over alleged price-fixing involving shipping “alliances” that the FMC had previously approved. This generated lingering hostility, and while the FMC, alarmed by skyrocketing shipping rates after the pandemic, has diligently addressed high fees and implemented a new shipping reform law, nothing has emerged yet from the MOU. The FMC said that ongoing investigations “cannot be discussed publicly.”

Perhaps the most schizophrenic interagency relationship has been between DOJ Antitrust and the U.S. Department of Agriculture (USDA). On the positive side, the agencies created a joint portal to solve a simple problem: When farmers and ranchers faced unfair practices from agribusiness, they didn’t know where to file a complaint. FarmerFairness.gov became a one-stop shop, with over 80 submissions according to a USDA official. DOJ’s lawsuit on poultry processor collusion came out of this process.

Tom Vilsack, who ran USDA under Barack Obama, returned as secretary of agriculture. The Obama administration promised action to protect small farmers from Big Ag and failed to deliver. This time, Vilsack hired Andy Green, who is respected in anti-monopoly circles, to handle competition policy. USDA has made concerted efforts to fund new competitors, making $1 billion in grants to small meatpackers and putting $500 million into fertilizer capacity, along with supporting state and local government procurement of homegrown food. USDA is also enhancing greater transparency in cattle markets, where nearly all sales are spot sales, making it hard for ranchers to know the going rate.

But when DOJ Antitrust sued to block the merger of sugar giants U.S. Sugar and Imperial, USDA chief economist Barbara Fesco testified for the sugar industry in the case, stating that the merger would benefit consumers despite admitting to having no data confirming that. “Knowing these people as long as I have, ‘I had high faith that [the deal] was good,’” Fesco said at the trial. The judge ruled against DOJ last September, explicitly stating that Fesco was a credible witness.

The testimony seemed to violate USDA and DOJ’s shared commitment to promoting competition, even though Fesco stated that

she was operating in her “personal capacity.” USDA took no official position on the merger, and in a statement, a spokesperson said, “USDA remains committed to the vigorous application of the antitrust laws in every sector of agriculture, including sugar.” The agency also noted that Fesco was compelled to testify by a subpoena. Still, Fesco’s appearance angered lawmakers who saw an administration at odds with itself, and an agency bureaucratic structure still in thrall to big business.

Frustration has also arisen in USDA’s hesitations on rulemaking. One of Lina Khan’s first votes as FTC chair finalized a rule targeting imitation “Made in the USA” labeling on products made outside the country. But though the competition order called for a companion rule on food items with “Product of USA” labeling, a USDA official would only say it was engaged in a “comprehensive review,” seeking information on whether consumers are confused. Joe Maxwell of Family Farm Action, an anti-monopoly organization, said that officials have told him something I heard too, that USDA wants to tread carefully and make “legally durable” rules. “But FTC just did it,” Maxwell said. “We feel it’s delay, delay, delay.”

Delays have similarly plagued a desperately needed rewrite of Packers and Stockyards Act regulations, which outline anti-competitive violations. Under Obama, Vilsack failed to get the rules finalized after eight years; Trump’s USDA then threw them out. But instead of just picking up what was already written, Biden’s USDA is moving deliberately. Two rules have been proposed, one on discrimination, deception, and retaliation, and another to increase transparency in poultry contracting. The key rule would clarify that USDA doesn’t need to demonstrate harm to the entire industry to establish a violation, a hurdle for many Packers and Stockyards cases. That rule, though asked for in the executive order, has yet to be released.

The rule on poultry contracting is instructive. The notorious tournament system pits chicken farmers against one another, forcing them to work exclusively for and abide by the precise instructions of large processors. Farmers who grow the biggest chickens win, but their bonuses come out of the pay of their neighbors. The USDA rule only affords transparency to poultry farmers who already know they’re getting screwed. By contrast, the Justice Department paired approval of a merger between

chicken processor Cargill and Sanderson Farms with a consent decree that essentially banned the tournament system, by calling it a deceptive practice under the Packers and Stockyards Act.

The Cargill ban covers 15 percent of the poultry market, but USDA could apply similar treatment elsewhere. USDA issued a notice on fairness issues in poultry, which is under review. But Maxwell, whose organization has asked USDA to follow DOJ, believes the sense of urgency is not there. “As we say on the farm,” Maxwell said, “I’m not sure about their want-to.”

When partnerships among different agencies are successful, they can be powerful. The Surface Transportation Board (STB) is the chief regulator for freight rail, an industry that has narrowed from 40 Class I competitors to seven, which split up the country and don’t compete much. (A proposed merger would cut this to six.) “There certainly is a concentration problem,” STB chair Martin Oberman told the Prospect “As bad as services get or as bad as prices may rise, customers do not have an option.”

Despite being an independent agency, STB was asked to take several steps in the competition order, all of which are in some state of progress. This includes a “reciprocal switching” rule that has been pending for six years, which would allow a shipper served by only one railroad to get their freight carried to a nearby rail line, generating a legitimate choice. STB held hearings on reciprocal switching last spring, and a recent report projected further action in February.

STB also finalized rules on rate reasonableness in December, and formed a new office to enforce freight lines that hinder Amtrak’s on-time performance; Amtrak filed its first complaint against Union Pacific for a “pattern and practice” of not allow-

ing its passenger service on freight routes, as required by law. Railway Age called Oberman and his colleagues “the most active and intense crop of rail regulators” in U.S. history.

“Marty is the poster child for what we’re trying to inspire,” Wu said, noting that small agencies typically get overrun by industry. “He’s the best version of government working the way it should.”

Another surprisingly strong partner has been the Federal Communications Commission (FCC), despite not having a Democratic majority throughout Biden’s presidency. Industry lobbying has prevented the seating of Gigi Sohn as the fifth commissioner, creating a 2-2 partisan deadlock. This has made it impossible to restore controversial “net neutrality” rules for open access to the internet, one of Wu’s biggest priorities, or to fine telecom companies for violating privacy laws.

However, the FCC’s recent wireless spectrum auction mostly favored rural communities and small business, a shift away from Big Telecom. The agency has taken the lead on next-generation 5G Wi-Fi protocols. Broadband companies must now display simple consumer labels with charges, fees, and connection speeds, allowing for comparison shopping. Providers must also submit annual data to the FCC on price and subscription rates. And the agency adopted rules to prevent landlords from getting kickbacks to narrow tenant choices on cable and internet. That’s nearly everything else on the competition order’s list.

Consumer Financial Protection Bureau (CFPB) director Rohit Chopra, a former FTC commissioner, has placed competition atop his priority list. CFPB plans to issue a rule this year on financial data portability to make it easier to move bank accounts, which could diminish lock-in effects. It has punished companies for using captive markets (like prison financial services) to gouge consumers. And Chopra serves on the FDIC board, and has been active in pushing for bank merger reform.

CFPB has also led a government-wide initiative on so-called “ junk fees”—unexplained and deceptive charges from hotels, cable companies, ticket brokers, banks, and more. At last October’s competition council meeting, President Biden called on all agencies to target junk fees, which is starting to happen. CFPB effectively banned some bank-related junk fees; FTC proposed rules

to restrict add-on fees from auto dealers and launched a process to crack down on more; the Federal Maritime Commission is working on a rule to clarify practices for junk cargo fees.

More interestingly, the attack on junk fees is changing the market. Fifteen of the top 20 banks have stopped imposing nonsufficient funds fees on customers who overdraw accounts, and Citi and Capitol One eliminated overdraft protection charges. A similar dynamic led credit reporting bureaus to remove medical debt from consumer credit reports, after Chopra vowed to hold them accountable for numerous errors with that type of debt.

Apple and Microsoft also changed their policies on allowing consumers to repair their own electronic equipment, after the FTC voted to bolster enforcement . This shows how a strong stance against market power can prompt change all by itself.

Large and unwieldy agencies have been slower to accept a broad competition mandate, like the Department of Health and Human Services (HHS). In some areas, like finishing the hearing aid rules and requiring insurers to offer standardized plans on Obamacare exchanges, HHS has gotten the message. But progress has been much more scattered with the sprawling, government-granted monopolies of the prescription drug industry.

Some inaction can be chalked up to the fact that Congress was legislating on the same subject for the past two years. Democratic congressional leadership asked for a freeze on executive action on drug prices, to avoid upsetting Joe Manchin and toppling the delicate coalition needed to pass a bill. But the drug price reforms passed in the Inflation Reduction Act (IRA) in August, and despite a second executive order since then asking for additional steps, little has been achieved.

HHS released what it called a “comprehensive plan” last September on excessive drug prices, which was generally seen as unambitious. An HHS spokesperson, when asked what has been done since the report, primarily highlighted the IRA , and said the agency was working to implement it. The spokesperson added that HHS was writing a report for the second executive order, which would enable the Center for Medicare and Medicaid Innovation to test models to reduce drug spending. While the FDA and the U.S.

USDA proposed rules on chicken farmer exploitation that only address transparency, while DOJ banned deceptive practices by one company.

Patent and Trademark Office have discussed preventing drugmakers from gaming the patent system and extending monopoly time frames, the clearest example of a competition harm, the HHS spokesperson didn’t elaborate on specifics, outside of educational guidelines for generic producers.

Like at other agencies, there’s a deep aversion at HHS to being sued, or attacked by Congress. As a result, while the agency has made some progress on the executive order, its proposals are exceedingly mild, offering ideas that save millions on spending in the billions.

Two areas stand out. The executive order asked the FDA to work with states and tribes that apply to build drug importation programs from Canada. Since 2020, New Hampshire, Maine, New Mexico, and Colorado have applied. Outside of a couple of meetings and a PowerPoint , nothing has been done. Granted, there are clear challenges to raiding the drug supply of a small country to assist patients in a very large one.

A less understandable situation involves march-in rights. Since the Bayh-Dole Act of 1980, HHS has had the authority to seize patents on drugs developed with government funds, if they are not delivered to patients on “reasonable terms.” For decades, marchin supporters have said that high prices are unreasonable, but the National Institutes of Health, which funds a lot of drug development and whose senior officials often enjoy royalties from them, has never accepted this rationale.

Advocates have found a perfect example: a prostate cancer drug called Xtandi, invented with grants from the U.S. Army and NIH, that sells in the U.S. for three to five times higher than in other industrialized nations. There are two FDA-approved generic versions ready to go if the patent was seized. The maker of Xtandi, a Japanese company named Astellas, has already earned more than $20 billion in revenue from the drug. Marching in would not prevent Astellas from making its profits.

The competition order paved the way for action. The National Institute of Standards and Technology (NIST), a division of the pro-industry Commerce Department, was preparing a rulemaking that would have essentially blocked the use of march-in over high prices. The order asked NIST to reconsider that rule, and the agency complied.

In response to a petition from patients, NIH and HHS said last January that they would complete an initial review within

a month. After hearing no follow-up, the patients sent another letter in November; Tara Schwetz of NIH responded that “we are currently coordinating with HHS to review and assess the information submitted in the 2021 petition.” HHS told me that the matter “is still under internal deliberation.” The one-month review is now going on a year.

“We’re not asking [HHS] to resolve every issue about drug pricing in this case,” said Jamie Love of Knowledge Ecology International, an advocacy group. “This is an important case, and if you can’t do this it doesn’t bode well.”

There are rumors that NIST may return to finalize the rule that the executive order asked them to scrap. It’s a confounding and frankly anti-democratic situation. The administration has laid out clear priorities, and bureaucrats are either simply disinterested in them or sometimes willfully undermine them.

A meltdown of Southwest Airlines’ scheduling system over the Christmas holiday led to tens of thousands of canceled flights, and renewed attention on its chief regulator, the Department of Transportation, which has

been criticized for failing to protect travelers. Most of the competition order related to DOT had to do with airlines, a concentrated industry with four carriers controlling 80 percent of all domestic routes.

The order encouraged DOT to address the failure of airlines to provide refunds for canceled flights; develop rules on fee disclosure, deceptive marketing, and refunds for baggage fees when items are lost or delayed; coordinate with DOJ on competition issues in transportation; and support the opening up of gate slots at large airports. At a surface level, the agency can definitively say they’ve achieved all of it. “DOT is taking action like never before,” a spokesperson said, “helping hundreds of thousands of travelers get more than a billion dollars of refunds back, issuing the highest amount in fines for consumer protection violations in the Department’s history, and enhancing consumer protections with proposed rulemakings.”

But William McGee, a longtime consumer advocate and airline expert now with the American Economic Liberties Project, calls it all window dressing. “It’s as if you wouldn’t even know that Biden announced the competition order,” he told

me. In comments to DOT, McGee’s organization has noted that Americans faced the worst summer for customer service in history in 2022, with over 121,000 flights canceled in the first six months of the year. A lack of competition exacerbates cancellations and gives passengers no recourse but to fly the same inept airlines, and only the industry’s chief regulator can take action. “The agency’s lax regulatory approach has allowed and encouraged airlines to continue destabilizing the air travel industry,” the letter concludes.

Take DOT ’s enforcement order against six airlines for failing to deliver timely refunds for canceled flights, as required by law. Frontier, a low-cost carrier with 3.2 percent of the market, was the only U.S. airline fined; the other five were foreign. United, the airline with more than twice as many refund complaints as any other airline in 2020, was not fined, nor were the other major U.S. carriers. “We were told the window has closed on that,” McGee said. A DOT spokesperson said that was inaccurate and that additional orders against carriers would be issued soon; three domestic airlines, the spokesperson added, were being investigated for “unrealistic scheduling.”

In August, DOT issued a draft rule on refunds, even though the agency’s existing interpretation regards failing to refund canceled flights as an unfair practice. Rulemaking could keep airlines safe from more fines for up to two years before it’s finalized. DOT already has a rule on unfair and deceptive practices; accepting money for a flight without the staff to handle it, and later canceling it, fits the definition, and could be used today.

DOT did issue 16 peak slots at Newark Airport to low-cost carrier Spirit, adding routes to the airport. But that was after an appeals court required that the slots be given out in May 2021. No other action has been taken on slots, which large carriers often sit on to avoid having to compete.

Other actions have been similarly softtouch. Instead of a rule requiring airlines to seat children with their parents without an additional fee, DOT issued a notice encouraging them to do so. In October, DOT proposed a rule on fee transparency, so passengers would know how much a flight costs before making the sale. At an informal meeting with DOT officials last October, McGee asked why the department wasn’t looking to ban so-called junk fees, in line with the CFPB-led approach. McGee told me the response was “I am not aware of that and it would be a big departure for the department.”

The DOT spokesperson said this was false, though only could point to the transparency rule. The spokesperson added that the Airline Deregulation Act of 1978 restricts the ability to ban certain airline fees unilaterally. But advocates say that DOT has historically been hesitant to use its authority, regardless of party.

That could change quickly. Jen Howard, the former chief of staff to Lina Khan at the FTC, has moved to DOT to head up competition policy, with a particular focus on airlines. Perhaps a more aggressive impulse will spread across the government.

Despite disappointments with DOT, the agency is responsible for the action that gives White House officials the most hope for a new dawn on competition policy, one that wasn’t even in the executive order.

The bipartisan infrastructure law spends $7.5 billion on a nationwide electric-vehicle charging network. But current EV companies haven’t settled on a standard charging plug. Tesla’s fast Level 3 chargers had not been interoperable with other vehicles, and required specific software to use. A division of DOT proposed interoperability standards for all EV chargers that wanted to access federal funds. Tesla agreed to change their network and abide by the new rules. The carrot of federal money helped to prevent walled gardens in the EV industry. “My motto is, net neutrality for EV chargers,” Wu said. “I book that as a solid win.”

An even more outside-the-box action came in the obscure industry of fire retardants. Perimeter Solutions is a monopoly provider of retardant, the red gooey material dropped out of planes to combat big wildfires. Sometimes the word “monopoly” is thrown around cavalierly, but here it was

literally true: For two decades, Perimeter made the only retardant on the U.S. Forest Service’s “Qualified Product List” (QPL), which guides what federal, state, and local government agencies, the primary users of retardant, can purchase. Other countries use the QPL as well. That means Perimeter has absolute dominance of a growing industry amid more dangerous and frequent fire seasons.

But in December, Fortress, a startup firm, became the first new entry on the QPL in 22 years. This “brings sorely needed competition back to the market and marks the beginning of a new era of innovation,” Fortress CEO Robert Burnham said in a statement . In a response to the Prospect , the Department of Agriculture called the change “a hard-fought victory.”

Just about everything on competition has been hard-fought. But there’s plenty of evidence of real movement. Agencies like the Department of the Interior, Department of Education, and the Small Business Administration, none of which are mentioned in the order, told the Prospect about their efforts to maximize competition in procurement and support small business. The lead agencies have gone beyond the order, reinvigorating dormant anti-monopoly laws like the Robinson-Patman Act (which prevents chain retail stores from gaining unfair advantage) or Section 8 of the Clayton Act (which bars directors and officers from sitting on the corporate boards of multiple competitors). Congress chipped in with the first new antitrust law in nearly a half-century, which gives state attorneys general a better chance to win antitrust cases.

Mergers and acquisitions slowed sharply in the second half of 2022, and while a lack of cheap money from the Federal Reserve is partially responsible, so is an enforcement team that is more undaunted than it’s been in decades. And aggressive antitrust agencies translate across government. For example, the FTC ’s definition of unfair or deceptive acts and practices is used by other agencies; when the FTC tightens its guidelines, other agencies follow.

Corporate power won’t concede without a fight. And there are more hearts and minds to win inside the government. But once a course has been corrected, it’s hard to switch back. The engineers of this shift in competition policy have done more than change a policy; they’re changing the country’s direction. n

DOT fined six airlines for failing to refund passengers for canceled flights, but only one of the six was a U.S. carrier.

Reclaiming U.S. Industry

Biden’s industrial policies represent a stunning ideological reversal. The harder part will be making them work.

BY ROBERT KUTTNER

The future site of Intel’s semiconductor complex in Ohio, where they will spend up to $120 billion over a decade

Since the late 1970s, as the U.S. lost productive capacity in industry after industry, progressives have been calling for an industrial policy. This was mostly disdained by orthodox economists and rejected by the presidential wing of both parties in favor of global outsourcing.

The economy has paid dearly for this, with the loss of good jobs and industries that anchored entire regional economies. Democrats in turn have paid with the loss of working-class voters.

Now, under Joe Biden, we have a potentially transformational shift of ideology and policy. Stimulated by the COVID recession, the supply chain crisis, and the urgent need for renewable energy, Biden’s administration has sponsored an industrial policy, actually several industrial policies, intended to reclaim technological leadership and domestic manufacturing.

Jubilant liberals, who have long called for this, are now a little like the dog who

caught the car. Coordinating these diffuse policies into a coherent whole and enabling them to succeed is a staggeringly complex enterprise.

One marquee piece of legislation, the CHIPS and Science Act, will spend $13 billion to subsidize semiconductor research and another $39 billion to build more production facilities (known as fabs) in the U.S., using grants, loans, and tax credits. Spending $52 billion (over five years) sounds like a lot, but a single semiconductor fab can cost $5 billion or more, and Intel says that their new Ohio research and manufacturing complex will cost between $60 billion and $120 billion over a decade.

All told, chip manufacturers had planned to invest on the order of $200 billion in at least 23 new U.S. semiconductor factories, even before the new legislation passed. Government needs detailed performance standards for these subsidies for maximum public benefit.

The Inflation Reduction Act includes even more money for clean-energy security and climate change mitigation, $369 billion over a decade. Much of this is via tax credits to accelerate the shift from fossil fuels for heating and cooling to heat pumps and electricity generated by wind turbines and solar panels, as well some direct subsidies to promote domestic manufacture. There are also tax credits for the purchase of electric vehicles made in the USA .

And the bipartisan infrastructure law, with about $600 billion of new money beyond the usual appropriations for highways and public works, includes major outlays for green projects, including $73 billion to update the nation’s electricity grid to carry more renewable energy, $7.5 billion for electric-vehicle charging stations (on which accelerated EV sales depend), and $7.5 billion for clean buses and ferries. These outlays also promote domestic production and jobs.

In addition, the National Defense Authorization Act passed in December includes dozens of industrial-policy measures. This is on top of continuing outlays for the Department of Energy, the National Science Foundation, and the National Institutes of Health (NIH).

It’s hard enough to make industrial policy work in a single agency. The new enhanced industrial policies involve coordination across multiple federal agencies; several levels of government (federal, state, county, municipal); multiple technologies; and the intense involvement of the private sector. There is no single industrial-policy czar. Among top officials, John Podesta oversees outlays under the Inflation Reduction Act. Commerce Secretary Gina Raimondo is in charge of CHIPS and Science. Mitch Landrieu coordinates the bipartisan infrastructure law. Jake Sullivan deals with the foreign-policy cross-pressures of America’s new economic nationalism. Presumably, these people talk to each other, and to the leaders of dozens of other agencies with jurisdiction in these areas.

Among the challenges are:

• Making sure that different agencies and programs are not operating at crosspurposes and that it all adds up to a coherent whole;

• Engaging the private sector without producing windfall profits, gratuitous subsidies, or failed ventures that

become grist for Republican we-toldyou-so investigations (viz. Solyndra);

• Putting tough performance standards into these grants and loans to achieve other progressive goals, such as support for union labor and climate justice;

• Connecting industrial policy to workforce policy, so that there is a rendezvous between needed specialists at every level and newly created jobs;

• Streamlining permitting and environmental reviews, so planned facilities come to fruition without endless delays;

• Reconciling the bold climate goals in these several programs with the practical disruption of the environment caused by, say, solar farms and power lines; and

• Harmonizing our new industrial policy with foreign policy and trade policy, notably with our European allies, who see U.S. industrial subsidies as violating trade rules at their expense. In principle, it all adds up to reclaiming industrial and tech leadership, accelerating the post-carbon shift, and creating good domestic jobs. In practice, it’s potential chaos.

The Old Industrial Policy, and How We Lost It

Industrial policy in the U.S. dates to Alexander Hamilton’s 1791 Report on the Subject of Manufactures, Henry Clay’s American System of public improvements and high tariffs, and Lincoln’s support for public investments to enhance agriculture and manufacturing.

In World War I, the government organized several industries needed for the war effort, including radio and aircraft research and production. World War II was one massive industrial policy, creating new weapons systems, synthetic substitutes for supplies that the war had cut off, and the technologies to make them work.

After WWII , government continued to invest in science and technology, via the National Science Foundation, the National Institutes of Health, and the Cold War–era Defense Department. The Pentagon created the Advanced Research Projects Agency (later renamed DARPA) to fund “beyond the horizon” technologies, operating like a government venture capitalist. Specialized military procurement subsidized new processes and products, many with civilian spin-offs, from aircraft to computers. The U.S. also had the national laboratories and the great research universities, heavily underwritten

by government, which incubated new technologies and entire new industries. It was taken for granted that production would stay at home.

This was America’s national innovation system, and it worked. Despite protestations that we believed in free trade, it added up to a tacit form of economic nationalism.

But by the 1970s, while government-sponsored R&D continued, there was an increasing disconnect between U.S. technological leadership and domestic production. This was the era when the U.S. began losing industry, and good-paying unionized workforces.

The U.S. cemented the loyalty of Cold War allies by opening our borders to their exports without demanding reciprocity. The extreme disdain among economists for the survival of industry, much less industrial policy, was captured in a famous remark by Michael Boskin, chair of the Council of Economic Advisers under Bush I: “Potato chips, computer chips—what’s the difference? They’re all chips.” (Boskin has since denied saying this.)

By the early 1980s, for example, Japan was leading the U.S. in most categories of semiconductors. Japan’s targeted industrial policy and protectionism, its bank-industry interlocks and cartels, all orchestrated by the Ministry of Trade and Industry (MITI), became the model for the subsequent national innovation systems in China and elsewhere in Asia. Today, the U.S. share of global semiconductor production has fallen from 37 percent in 1990 to 12 percent, with heavy dependency on Taiwan and South Korea.

In the ’80s, the U.S. also lost most of its machine tool industry to Japan and Germany, autos and steel to multiple foreign competitors, and the entire consumer electronics industry, which domestic manufacturers had previously dominated. When the

America’s several industrial policies are intended to reclaim technological leadership and domestic manufacturing.

U.S. did regain some innovative leadership in microelectronics, via Apple computers and iPhones (using technologies partly developed thanks to DARPA), production was outsourced to Asia. The rupture between technical innovation and domestic manufacturing was complete.

Throughout this period, the U.S. did have several tacit mini-industrial policies. The 1980 Bayh-Dole Act allowed industry to exploit government-funded R&D. In 1984, Congress created a blanket antitrust exemption for private companies to engage in collaborative research. There were modest tech subsidy programs housed at NSF and the Commerce Department. NIH sponsored the Human Genome Project, which was a tacit industrial policy for biotech.

In 1987, the top 14 semiconductor makers persuaded Reagan’s administration to back a home-based consortium known as Sematech, with $100 million in DARPA funding matched by the industry. Robert Noyce, who had co-invented the integrated circuit and

co-founded Intel, was the industry leader of Sematech. Noyce was charismatic, widely admired, and well connected in both parties. “Semiconductors were sexy, machine tools were old economy,” says Clyde Prestowitz, one of the architects of Reagan’s trade policy with Japan.

But these policies lacked adequate scale, ideological approval, or an explicit national commitment to connect them to domestic manufacturing. The dominant ideological premise was that the location of production is the proper business of the market, not the government.

Industrial Policy for Corporate America

There was a logic and a discipline to wartime industrial planning because government was the customer. So government could dictate specifications as well as target applied research to focused goals, and build or requisition factories as necessary.

Today’s industrial policy is far more dif-

fuse. It’s more about developing new technologies and bringing production home, but without the discipline of government as customer, except in the case of some military hardware. It will require nothing less than a transformation in the logic of our entire economic system, making government’s role far more explicit and coherent.

The lead agency for CHIPS and Science is the Commerce Department, which has neither the experience nor the personnel to manage a government-wide industrial policy. The one part of Commerce with some related expertise is the National Institute of Standards and Technology (NIST), a billion-dollar agency that has sponsored small industrialpolicy initiatives in the past. But under previous administrations when NIST tried to play a government-wide coordinating role, “the big players, the Pentagon and the Department of Energy, basically told NIST to get lost,” says one former Commerce official.

Commerce simply doesn’t have enough people to process the various CHIPS sub -

President Biden speaking on the CHIPS and Science Act, which spends $52 billion to subsidize the semiconductor industry

sidy proposals that will come flooding in from corporations, universities, and other research centers after detailed criteria are published by the department in February. The bigger challenge is devising the terms of the Commerce Department’s contractual agreements with the semiconductor companies that will get its largesse. What kinds of chips will they commit to make, at what volume, and with what public input and public benefits, including for organized labor?

Commerce Secretary Gina Raimondo, who meets regularly with top executives , is among the most corporate of Biden’s appointees. And in many ways, that’s the point. Progressive enthusiasts of industrial policy need to reckon with the awkward fact that industrial policy, not surprisingly, is mostly carried out by industry.

The long-sought arrival of industrial policy comes at a time when the left is properly excoriating corporate America for everything from hyperconcentration and stock buybacks to grotesque pay gaps and union busting. Big Tech companies in particular are improbable partners because of the serial abuses of tech platform monopolies and the extreme outsourcing by the likes of Apple.

And yet, unless we are proposing industrial policy via socialized public enterprises, private corporations must be the instruments. The key question for progressives is: What does government (and the ideal of a just society) get in return, beyond returning more production and technical leadership to the U.S.?

Biden has done well in targeting new clean-energy outlays to poor and underserved communities, as well as rural areas and tribal reservations. His Justice40 Initiative commits to delivering 40 percent of the overall benefits of climate, clean-energy, and related federal investments to diverse low-income communities that are overburdened by pollution and underserved by infrastructure. He wins praise from advocates of climate justice.

But for the most part, Biden has chosen not to use these extensive industry subsidies and tax breaks as leverage to get corporate America to clean up its act in other respects. The CHIPS and Science Act does prohibit corporate beneficiaries from using government funds for stock buybacks. But as Sen. Elizabeth Warren has pointed out , since money is fungible there is nothing to prevent corporations from taking CHIPS money and using other money on buybacks.

That would be consistent with past prac-

The Many Industrial-Policy Chiefs

John Podesta: Senior adviser to the president, oversees implementation of the Inflation Reduction Act

Raimondo:

Mitch Landrieu: Senior adviser to the president, coordinates policy on the Infrastructure Investment and Jobs Act

Jake Sullivan: National security adviser, handles foreign-policy spillover effects from the focus on economic nationalism

tice. Five large U.S. semiconductor firms (Intel, IBM, Qualcomm, Texas Instruments, and Broadcom) spent $250 billion on buybacks from 2011 to 2020. That’s a whopping 70 percent of their net profits, and also more than five times the public funds spent in the CHIPS Act.

Raimondo has said she opposes buybacks. At a September 29 hearing, Sen. Warren called on Raimondo to set up tougher rules, like requiring companies to attest on the application form that they won’t engage in buybacks, and clawing back funds from companies that go back on their word. Raimondo took no further action.

Domestic Jobs, or Union Jobs?

Pre-existing Buy America requirements and the 1931 Davis-Bacon Act in effect require construction and transportation projects built with federal funds to use union labor, though labor still has to fight to make sure these commitments are honored, especially in right-to-work states. These new indus-

trial policies will still likely be bonanzas for the building trades, and several tax-credit provisions in the IRA do give extra credit to projects that pay prevailing wages. But the Biden administration has not used its potential leverage to require companies accepting federal subsidies to refrain from resisting union organizing drives for production jobs.

A White House 182-page Guidebook, released in December, detailing all the clean-energy subsidies and conditions of the Inflation Reduction Act, declares that “the Inflation Reduction Act is designed to ensure that these transformative investments create good-paying union jobs.” But as the Prospect has documented, that claim is grossly exaggerated. Neutrality requirements for companies receiving benefits under both the IRA and the bipartisan infrastructure law were stripped from the final legislation.

The tech industry is notoriously antiunion. It would be a huge breakthrough if production workers at semiconductor fabs

There is no single official responsible for industrial policy. Here are the major players:

Gina

Commerce secretary, point person for the CHIPS and Science Act

and other tech companies were unionized. Generally speaking, these companies pay decent wages but fiercely resist unions. Biden does have the power to change that by directing the Commerce Department to make union-friendliness an express criterion in the applications for subsidy that Commerce reviews.

The CHIPS and Science Act allocates $10 billion to develop “regional technology hubs.” The law mandates worker participation, but Republicans who supported the bill expect their share of the regional money, and several of these hubs will be in rightto-work states.

Government lawyers generally take the position that requiring companies taking subsidies to explicitly commit to “neutrality” in union organizing drives would invite lawsuits. The preferred language would have federal performance requirements refer to job quality and strategies such as community benefits agreements, which in turn involve unions and pave the way for organizing with de facto neutrality.

The CHIPS and Science Act gave all the power and most of the money to the Commerce Department. The National Science Foundation was given $200 million to promote training of tech workers through regional partnerships between educational institutes and employers. The Labor Department, the agency closest to the labor movement and traditionally its advocate, got nothing, not even money for apprenticeship. A $200 million grant for tech worker training through regional partnerships was instead routed through the National Science Foundation.

The New Republic, in a scathing article last September on Labor Secretary Marty Walsh’s policy disengagement, quoted congressional sources describing Walsh as absent from the legislative process when the CHIPS legislation was going through Congress, and getting outplayed by Raimondo. Labor later had to negotiate a memorandum of understanding with Commerce on its consultative role.

Commerce has no experience in workforce development. The Big Tech companies would like the government’s help in training production workers without the complication of a registered tech apprentice program on the model of the building trades, which might be union-friendly. Mike Russo, a onetime leader of a Steelworkers affiliate and a respected expert on workforce develop -

ment, has contracts with both the NSF and the Labor Department to develop one-stop models of training and apprenticeship for tech workers. Whether these are paths to union production jobs will depend on the rules written by other agencies.

In November, in response to a request for comment, the AFL- CIO sent Raimondo a 41-page memo on exactly how they would like to see the CHIPS process structured, to carry out the administration’s general commitment to good jobs, and ideally to unionized jobs. Among the key demands: “The Commerce Department must require CHIPS incentives applicants to submit a job quality and worker protection plan.” The federation also called on the Commerce Department to prioritize CHIPS incentives, grants, loans, and loan guarantees to applicants that affirmatively allow workers to join a union “without fear of intimidation or retaliation throughout the semiconductor industry and supply chain.”

Raimondo is extremely unlikely to agree to this de facto neutrality condition unless personally directed to do so by President Biden. One concern is that Commerce will be friendly to collective-bargaining agreements in blue states where strong unions do the heavy lifting, but do nothing to advance union successes in right-to-work states where a lot of federal money will subsidize fab construction, such as Arizona.

The Department of Energy has done somewhat better than Commerce. DOE ’s recent notice of funding availability for $3 billion in battery subsidies provides a 20 percent credit for manufacturers who commit to good jobs throughout the workforce (not just construction) and community benefits agreements. DOE still needs to draft strong, enforceable language for the actual contracts.

At the other extreme, the Environmental Protection Agency, which got $5 billion under the bipartisan infrastructure law to subsidize school districts to acquire electric buses, just shoveled out the first $1 billion to districts, with no labor standards of any kind. Of the four electric-bus manufacturers in the U.S., two are organized by the UAW. One other, Lion Electric, is currently the object of an intense campaign by Jobs to Move America and its union and community allies to accept a community benefits agreement, the precursor to unionization. EPA labor standards could have helped, and still could.

When the Community Benefits

More progress has been made at the state and local level. Since 2011, Jobs to Move America and its union and community allies have extracted community benefits agreements (CBA s), which they call a U.S. Employment Plan, from bus and railcar manufacturers in several states. The CBA commits employers to hire union workers as well as more minority and disadvantaged workers, using the leverage of local government procurement and pressure from organized labor, especially in areas with a strong union presence.

In Los Angeles, the Metro transit agency agreed to require that its new electric buses be manufactured with union labor. In Chicago, another strong union town, the local labor federation and JTMA, using a community benefits strategy, got the city to insist that the contractor, CSR, receiving a $1.3 billion contract for 846 railcars, will not only produce in Chicago but have a union contract.

In its extended memo to the Commerce Department, paralleling that of the AFL-CIO, JTMA called on Commerce to require all bidders to have a U.S. Employment Plan that enumerates how many domestic jobs will be created or supported, what the minimum wages will be, and how they will hire disadvantaged or underrepresented workers.

The JTMA strategy—CBA s leading to good union jobs—is the template for the leverage the labor movement wants the Biden administration to exert on the corporate beneficiaries of its trillions of dollars in industrial-policy spending. But even though the federal government is the ultimate source of much state and local transportation money, national Democratic administrations in Washington, despite friendly general commitments, have seldom been willing to get into the trenches on behalf of unions.

Until President Obama’s last year, when his Transportation Department issued a statement cautiously supporting CBA s, his administration was largely unhelpful to the JTMA strategy, raising legal concerns that they might be anti-competitive, and failing to use the leverage of federal funds to promote unionized production jobs except on traditional construction contracts.

It remains to be seen whether Biden’s administration will do any better. Biden does have the power to direct Cabinet secretaries to include explicit pro-labor language in their detailed performance standards.

Biden could also direct his secretaries to convene meetings between corporate CEOs seeking discretionary funding and leaders of unions seeing to organize their production workers, to pursue areas of common ground and report back before any government financing commitments are made.

The senior trade union leaders I spoke with view Biden as the best friend of the labor movement since FDR , but say he needs to play more of a hands-on role when it comes to the details of policy. Ribbon-cutting photo ops, like the recent one in Covington, Kentucky, are great politics, but no substitute for presidential engagement in the policy implementation process.

NIMBY on Steroids

The U.S. requires large projects to run a more complex gauntlet of permitting and environmental review requirements than any other large industrial nation. In 2020,

the White House Council on Environmental Quality compiled data on timelines for 1,276 environmental impact statements (EIS) filed between 2010 and 2018 and found that NEPA reviews averaged 4.5 years.

A detailed study done for the Center for Security and Emerging Technology, pointedly titled “No Permits, No Fabs,” looked at all the world’s semiconductor fabs built between 1990 and 2020. Not only did construction take longer in the U.S., but the delay increased over time, rising from an average of 665 days from 1990 to 2000 to 918 days between 2010 and 2020. The study contrasted the welcome mat rolled out for tech companies by Taiwan and Singapore with the serial obstacles facing them in the U.S.

In addition to legitimate environmental reviews, major new facilities sometimes attract local opposition from citizens and local governments that don’t want the additional traffic, noise, environmental risks,

toll on water and sewer systems, or newcomers. This was not the case in the last midcentury, when environmental reviews didn’t exist and Ford or GM plants were seen only as sources of badly needed new jobs.

An emblematic case is the story of the obstacles thrown in the path of New York state’s ultimately successful efforts, under eight governors (from Republican Nelson Rockefeller to Democrat Andrew Cuomo), to turn the Capital Region around Albany into a world center for nanotechnology. The motivation was the severe decline in manufacturing jobs and the shrinkage of the region’s anchor tech employer, IBM

This process was a surprising success of regional industrial policy for advanced tech. So far, it has created at least 10,000 direct production jobs and 50,000 secondary jobs, with more to come. But along the way, the effort was repeatedly stymied by small-town local governments.

The labor-community group Jobs to Move America signed an agreement in Los Angeles for Metro electric buses to be made with union labor.

In 1996, after extensive investment in area universities, the regional development authority began efforts to attract a major semiconductor fab. This was blocked when the first-choice location in North Greenbush (population at the time: around 10,000) was vetoed by the town council. Saratoga County, working with Advanced Micro Devices (AMD), then filed initial requests for approval of a new fab in the nearby towns of Malta and Stillwater in 2002.

Production finally began ten years later, in 2012. If this is the pace of approvals under Biden’s new industrial policies, we will all be wards of the Chinese by the time new fabs are actually built.

Beyond opposition that is arguably legitimate due to concerns about traffic and the toll on local public infrastructure, some county governments controlled by Republicans either oppose federally funded projects per se, or don’t want Biden-sponsored initiatives to succeed.

Semiconductor production is also cyclical, subject to periodic gluts; we’re seeing that right now, as consumers pull back after high pandemic-era spending. Yet it is part of a much broader revived national innovation system that anchors other good jobs. In upstate New York, GlobalFoundries and Micron are laying off hundreds of workers this year. But both companies say these layoffs are temporary, and both are doubling down on new plans for more longterm investments. Forecasting a doubling of demand for semiconductors by 2030, Micron is investing up to $100 billion in a new fab projected to create up to 9,000 jobs. The CHIPS and Science Act reinforces this commitment.

There is also the tricky question of what is a domestic company. Until its IPO in 2020, GlobalFoundries, though based in upstate New York, was financed and 100 percent owned by Abu Dhabi’s sovereign wealth

fund. And while GlobalFoundries has two major factories in the U.S., it also manufactures in Dresden, Germany, and Singapore; and has design centers in Beijing, Shanghai, Bangalore, and Sofia, Bulgaria, as well as Austin, Texas, and Santa Clara, California.

Environmental Ambivalence

Environmental activists are strong supporters of the shift to renewables. But many don’t care whether the chips and EVs are made in America as long as they are made using clean production processes and government policy accelerates the shift away from carbon.

Local environmentalists often resist the intrusion of fabs, solar farms, windmills, and power lines. Sometimes this is legitimate, as in concerns for offshore wind disrupting fisheries. In other cases it is aesthetic, as when solar farms or wind turbines are seen as spoiling pristine landscapes.

The irony is hard to miss. Much of the impetus for Biden’s industrial policies was environmental. Increased investment in renewable energy is needed to reduce carbon pollution and slow climate change. But many of these projects are either delayed by laws that were enacted in an earlier era to protect the environment, or because they entail tricky environmental trade-offs. Environmentalists will need to reconcile their desire to shift away from carbon as rapidly as possible with their wish for a pristine environment.

Another irony involves the double-edged role of Joe Manchin. Environmentalists have abhorred and blocked Manchin’s effort to use federal legislation to rescue the Mountain Valley Pipeline, which would carry natural gas from West Virginia to Virginia, by explicitly directing federal agencies “to issue all approval and permits.”

However, the rest of Manchin’s bill is far from crazy. It would set a two-year target for major projects that require environmental reviews, have government set a lead agency to reduce the fragmentation, require the president to identify and prioritize reviews for at least 25 strategically important energy and mineral projects, and allow federal overrides of state permitting requirements in some circumstances, particularly on electricity transmission. If the U.S. government is serious about targeted industrial policy, we need something like this legislation, stripped of its sweetheart provision for West Virginia.

In 2015, legislation called the FAST Act (for Fixing America’s Surface Transportation) included a provision known as FAST-41 for better coordination of environmental reviews at the federal level. However, project participation is voluntary. In principle, fast-track approvals could be accelerated without compromising core environmental goals. It’s another way government has to be retooled to make industrial goals a national priority.

Yet there is an inevitable tension between participatory democracy and large-scale industrial policy. We need to expedite these projects, but not to return to the days of New York’s Robert Moses and others in the urban renewal era who created special redevelopment districts with the power to bypass local democratically elected bodies.

And if we create super-approval powers for federally led industrial policies, it helps to remember that progressives are not always the government. The Prospect has written about the tension between blue cities and red states, which increasingly have written preemption laws to prevent the Austins and the Charlottes from enacting progressive local policies.

A national Republican administration could perform the same gutting of environmental (and labor) standards, if loopholes for fast-track permitting were added to the hard-won statutory mandates of the National Environmental Policy Act and the Clean Air Act. The dirty part of the Manchin bill is a reminder of the perils of tooeasy overrides of environmental standards and reviews.

Industrial Policy as Foreign Policy

America’s new progressive economic nationalism has extensive and thorny foreign-policy implications. It was much easier when the U.S. pretended that the location of production didn’t matter, and free access to U.S. markets was part of the glue of the Cold War alliance.

The key player who bridges the new industrial policy with America’s several foreignpolicy challenges is Jake Sullivan, Biden’s national-security adviser. The shift in Sullivan’s own thinking, from a traditionalist on trade and foreign-policy issues into more of an economic nationalist, has been key in reinforcing Biden’s own strategic priorities.

In a 2020 report for the Carnegie Endowment titled “Making Foreign Policy Work Better for the Middle Class,” Sullivan and

There is an inevitable tension between participatory democracy and large-scale industrial policy.

his several co-authors wrote that “the prime directive of everyone in the foreign policy community—not just those responsible for international economics and trade—should include developing and advancing a wide range of policies abroad that contribute to economic and societal renewal at home.” This was a revolutionary shift in thinking.

For those who see industrial policy as key to regaining manufacturing and technological leadership as well as good middleclass jobs, there are several foreign-policy complications. “There is a risk,” says one senior participant in these debates, “that the foreign-policy goals will crowd out the industrial-policy goals.”

The top foreign-policy priorities for Sullivan and Biden today are holding together the U.S.-led coalition on two key fronts: supporting Ukraine, and containing China’s geo-economic and military ambitions. Both goals require Western unity, which is to say close collaboration with the European Union.

The EU is mightily aggrieved at Biden’s several industrial policies. To some extent, Europe did this to itself. Europe once had

extensive industrial policies. But the EU’s founding document, the Maastricht Treaty of 1992, expresses a neoliberal view of how economies are supposed to work. It either bans or strongly discourages state subsidies at the national level and doesn’t replace them with pan-European targeting policies.

With its embrace of national economic planning, and Europe’s substantial abandonment of it, the U.S. and the EU have switched roles. In his summit meeting with Biden in December, French President Emmanuel Macron expressed Europe’s frustration that Biden had changed the rules, and complained the U.S. efforts to capture domestic production with explicit subsidies would come at Europe’s expense. In response, Biden spontaneously promised to “tweak” industrial policies to make them more Europe-friendly.

None of this had been staffed out, but it soon led to one tweak that could seriously undermine domestic EV production. The Inflation Reduction Act provides a $7,500 federal subsidy for purchasers of an EV, as long as the battery and its component materials are made in North America. But a

separate provision on leased or commercial vehicles refers, ambiguously, not to “North America” but to either the U.S. or countries with which the U.S. has a “free trade agreement,” i.e., Canada and Mexico.

Senior White House and Treasury officials, looking for a large bone to throw Macron and the Europeans, creatively defined this provision to include Europe, based on various trade deals to which the U.S. and the EU are parties. Thus if you lease an EV, or buy one as a commercial purchaser, you get the full subsidy for vehicles made in Europe as well as the USA

“Treasury is simply following the tax laws and the IRA as written,” Kristin Lynch, a Treasury spokesperson, said, somewhat disingenuously, in a press statement. In fact, the whole deal was cooked up by Sullivan’s office.

The Treasury interpretation, released as “guidance,” will be finalized in March. How seriously this undermines the intended purpose of the EV tax credit depends on whether it is temporary or long-term. Domestic EV and battery producers do not have the current capacity to meet anticipated demand. If

Biden promised French President Emmanuel Macron “tweaks” to domestic production rules for electric vehicles; the White House scrambled to comply.

this is a temporary benefit to Europe, while the U.S. and the EU work out a broader industrial-policy entente, it actually serves U.S. interests of getting more EVs on U.S. roads while domestic production gears up. But if it is permanent, auto purchasers could just lease rather than buy, and the entire intent of the subsidy will be gutted.

One of the most emphatic critics of this invented loophole, of all people, is Joe Manchin. In the past, he has argued that if U.S. policy is promoting use of EVs, it should also be promoting domestic supply chains and production. In December, he wrote Treasury, “If these [leased European] vehicles are deemed eligible, I can guarantee that companies will focus their attention away from trying to invest in North America.” Manchin is planning to introduce legislation that would tighten the language of the credits.

EVs are just one of many areas where foreign-policy concerns—in this case, keeping the EU’s support for broader national-security goals—could easily water down industrial policy. There will be more such tweaks.

A Western Economic Alliance?

Going forward, the U.S. and Europe need some sort of grand bargain that allows both parties to subsidize innovation and production, but with a rough balance of benefits. This would take both the U.S. and the EU back to the pre-WTO and preMaastricht era, when managed capitalist economies were not prohibited from promoting domestic industries. Capitalism, tinged with social democracy, was far more equitable back then.

At a minimum, both the U.S. and the EU need to resist the temptation to haul each

other before the WTO, which has become mercifully irrelevant. The U.S. has decided that it is going to subsidize innovation and production, and the WTO be damned.

One vehicle for this sort of high-level bargaining is the new U.S.-EU Trade and Technology Council, announced at the June 2021 U.S.-EU Summit meeting. For the United States, the TTC is co-chaired by U.S. Trade Representative Katherine Tai, Secretary of State Antony Blinken, and Raimondo. For the EU, the co-chairs are European Commission Executive Vice Presidents Valdis Dombrovskis and Margrethe Vestager.

There are ten TTC working groups, on a host of tech, trade, supply chain, and security policies. It is at this level that the U.S. and Europe will work toward common policies.

There is also awareness on both sides that the U.S. and the EU need to collaborate on the next generation of advanced technology and related production, and that the common adversary is China. In the case of 5G technology, Europe-based Nokia and Ericsson are key players. The U.S. and Europe need a common Western telephony network. Europe and the U.S. also have a common need to take back pharmaceutical supply chains from China, including the active pharmaceutical ingredients (APIs).

The Green Steel Deal of November 2021 gives a common tariff preference to steel and aluminum made with low-carbon production processes, deliberately including the U.S. and Europe and excluding Russia and China. That deal, branded as the Global Arrangement , is a template for other such agreements.

The U.S., however, has moved more aggressively than the EU in using an export control regime to deny Chinese companies access to semiconductors either made in the U.S. or made elsewhere using U.S. technology. The Biden administration keeps expanding its entities list, banning Chinese companies with links to the Chinese military.

On December 15, Alan Estevez, the undersecretary of commerce for industry and security, built off the original October announcement by restricting trade of hightech equipment with 36 additional Chinese companies. Among those added to the list is Yangtze Memory Technologies Corporation, a company that was said to be in talks with Apple to potentially supply components for the iPhone 14.

The EU does have some security restric -

tions on trade with China, but the U.S. regime is far more explicit and aggressive. In principle, there is recognition on both sides of the Atlantic that Western nations that share a commitment to the rule of law and transparency in economic arrangements need a common strategy to contain China. But while the U.S. is deliberately raising barriers to work in or with China, Germany continues developing commercial relationships with Beijing. In November, German Chancellor Olaf Scholz led a delegation to Beijing with executives of Germany’s leading companies, frankly looking for new business partnerships.

This is another area where national-security concerns could trump industrial-policy goals. It will be tempting for Sullivan and Biden to offer Europe more loopholes in U.S. industrial policies in exchange for a tougher common China policy. In the bargaining process, there will be plenty of skirmishes. But both sides seem committed to prevent them from escalating into an open breach.

Despite the practical challenges of fusing the several industrial and tech policies of the Biden presidency into a coherent national economic strategy, the achievement is formidable as a fundamental change of ideology and national purpose. Along the way, there will be failed ventures and technological bets that don’t pan out, just as there are in the private sector.

Given the centrality of private industry in these new efforts, at a time when corporate America wields immense political power, it is too easy for Biden’s administration, especially the Commerce Department, just to give industry whatever it wants. That makes it all the more imperative for the labor movement and its allies to push Biden hard to do more for unions as well as for workers.

Histories of industrial policy during World War II show a process that was often messy and wasteful. Yet it produced towering American progress in new technologies and weapons systems that not only won the war but anchored domestic industrial leadership for a quarter-century afterward.

What’s impressive is that the several Biden initiatives, most of which originated in cross-party deals in a polarized Congress, do add up to a potential strategy for restoring American industrial and tech leadership. Making it all live up to its promise will be no mean feat. n

The U.S. and Europe will need to reach a grand bargain that allows both parties to subsidize innovation and production.

REANIMATING THE TAXMAN

The impossible task ahead for the newly flush Internal Revenue Service

By Jarod Facundo

At its core, the Internal Revenue Service (IRS) is the federal government’s revenue collector and benefits administrator. Yet with Congress inclined to run virtually every function of the government through the tax code in some form, the agency is equivalent to the central processing unit of every electronic device on the planet.

Just in the past several weeks, the IRS has delayed internet platform requirements for filing tax forms for most gig economy workers, outlined the structure of a new minimum tax on corporations, prepared to write the framework for a new tax on stock buybacks, and clarified the new rules for point-of-sale electric-vehicle rebates. Still to come are regulations for advanced energy project tax credits, clean-fuel production tax credits, carbon capture tax credits, and clean-energy production and investment tax credits, all of which were passed in the Inflation Reduction Act (IRA). Despite a lack of expertise, the IRS is a focal point of government

policy on health care, the environment, manufacturing, and labor, to name just a few.

The agency must implement all of these perpetually changing additions to the tax code, in spite of the fact that it’s woefully ill-equipped to handle its basic function of ensuring that all individuals and businesses pay the taxes they owe.

Due to severe underfunding, there are immediate areas where the agency has failed taxpayers. Even before the COVID -19 pandemic, quality customer service with the agency suffered. In May 2020, the agency had a backlog of approximately 20 million returns, meaning delayed tax refunds for millions of households. Even this year, the IRS still has to complete about 1.4 million of last year’s returns. And wealthy Americans and large corporations have long gotten away with not paying what they owe, to the endless frustration of the public.

Last August, in a separate part of the IRA , Congress

ILLUSTRATION BY ROB DOBI

provided massive long-term funding for the agency: nearly $80 billion over the next decade to supplement existing appropriations. Aside from operational and enforcement capabilities, a significant chunk of those funds will go toward hiring approximately 87,000 additional employees.

This immediately became one of the fiercest attacks launched by Republicans in the midterm elections. Headlines blared at conservative websites about an army of 87,000 new agents, poking into the kitchens and bedrooms of every American taxpayer. That’s not entirely true. The 87,000 figure is an estimated total of all expected employees, not just agents. Still, in Rep. Kevin McCarthy’s (R-CA) first speech as House Speaker, he said: “Our first bill will repeal funding for 87,000 new IRS agents. Because the government should be here to help you, not go after you.” The House passed that bill days later. According to the Congressional Budget Office, doing so would increase the deficit by well over $100 billion in the next decade, which is supposed to be anathema to conservative goals.

The politics over collecting taxes are as old as the practice itself, especially in American life. Decades of conservative fearmongering have given the public the impression that the IRS is a labyrinth filled with rogue, amoral agents around every corner. It’s former President Ronald Reagan’s truest harbinger of the nine most terrifying words in the English language: “I’m from the government and I’m here to help.”

The opportunity now exists to make those words Reagan used as a scare tactic actually mean something positive. Charles O. Rossotti, the former IRS commissioner from 1997 to 2002, in a late-December article for a tax publication called the $80 billion “a once-in-a-century opportunity to restore a depleted IRS.” The money could make customer service functional and taxes less of a chore for the vast majority of Americans, while significantly increasing public revenue simply by collecting what’s due, and restoring a small measure of faith that nobody is above the law, no matter how rich.

However, Rossotti added that the moment still presented “serious risks for the Biden administration and the U.S. tax system,” potentially leaving the IRS in a worse position ten years from now. Without a permanent commissioner who can steer the agency and ample support from the White House, this once-in-a-generation moment

could fall victim to political pressure and administrative inefficiencies.

This didn’t happen overnight. In 2010, Congress began gutting the IRS’s operational and enforcement capabilities. Accounting for inflation, the agency’s budget has dropped from $11.6 billion in 2010 to $9.1 billion in 2021. That might not seem like a lot at first glance. But this has translated to a loss of more than 21,000 employees, 15,000 of whom are enforcement staff, the type equipped with the skill set to examine the most complex returns. The high-profile release of Donald Trump’s tax returns in December exemplified the consequences of this. For many years, only one agent was assigned to audit the highly complex returns of the real estate magnate, and staff was resigned to not being able to review all of the potential issues.

The biggest consequence of a gutted IRS has been to allow systematic tax evasion by the wealthy and well-connected. Since 2010, the IRS’s overall audit rate has dropped 58 percent, including 54 percent for the largest corporations and 71 percent for those making more than $1 million a year. The number of revenue agents, the auditors capable of reviewing the most complex returns, is at a number not seen since 1954, when the U.S. population was roughly half of what it is today.

Perversely, underfunding has channeled the agency’s attention toward quick rips against unsophisticated individual income tax filers and small businesses. Lacking the technical expertise and enforcement capacity for the most complex tax returns in the country, the agency turns to the most vulnerable, the people who can’t fight back. Former leaders inside the agency told the Prospect that the agency has historically operated on a misguided culture of enforcement by any means possible, regardless of the return on investment.

Increasing the number of agents is certainly part of the IRS ’s long-term goals. However, “it has to be put in context,” Matt Gardner, a senior fellow at the Institute on Taxation and Economic Policy, explained to the Prospect . Much of the remaining staff is already or will soon be eligible for retirement. From the IRS’s existing 79,000 employees—the same amount as in 1970— an estimated 52,000 are eligible to retire in the coming years, meaning that most of the 87,000 new hires will go toward replacing

existing staff. Nor is it guaranteed that the agency can accomplish its ambitious hiring goals as it competes with the private sector for the most qualified individuals.

There are existing avenues the agency can take to streamline the hiring process, but that’ll be challenging so long as the agency remains without a permanent commissioner. Charles Rettig, Trump’s holdover commissioner, left last October, before it was revealed that the agency under his leadership failed to audit Trump during his first two years in office, despite auditing both Barack Obama and Joe Biden before and after that period. President Biden has nominated Daniel Werfel, a former IRS acting commissioner, to lead the agency.

As a part of the IRA’s funding, the agency was tasked with developing an operational plan for the agency to explain how it would use the additional funding. That report is due February 17, 2023. Put another way, the agency’s master plan is being drafted without the person who can carry out or provide input into what such a plan would look like and what immediate priorities the agency will take on. Even the most qualified acting commissioner cannot substantively direct the agency’s next decade. Without a permanent commissioner, the agency is functionally a faceless organization vulnerable to the worst projections of an agency run amok.

During confirmation hearings, expected later this year, Senate Republicans are likely to question Werfel on how he intends to use the IRA money. There’s no question that Republicans will try to slow down Werfel’s confirmation, though Democrats can confirm him with their votes alone. Perhaps more important, Republicans will use the hearing as an opportunity to shout about their myriad problems with the IRS.

In order for an IRS commissioner to suc -

New IRS funding could restore a small measure of faith that nobody is above the law, no matter how rich.

ceed, Rossotti told the Prospect that they must manage external relationships across agencies, but above all with Congress. “I testified in hearings 48 times when I was commissioner,” Rossotti said. Next, they must build a team inside the agency. “[A commissioner] can make decisions, but he can’t execute everything.” And lastly, they have to set clear priorities for the agency. “You can’t do everything … There’s a thousand things everybody wants to get done.”

After the congressional negotiations, the IRS will be tasked with deciding how to use its funding. Boosting customer service support will be an immediate priority. According to the National Taxpayer Advocate’s 2020 report, the IRS reported receiving more than 100 million phone calls, with employees answering only 24 percent of them. “Put differently,” the report states, “ IRS employees did not answer more than 75 million telephone calls from taxpayers seeking help in complying with their tax obligations.” The report even excoriated the agency’s definition of answered calls: “The IRS ‘answered’ 23 million calls by routing

them for automated responses, while 39 million taxpayers simply hung up.”

In 2000, under Rossotti’s tenure, the IRS launched the Taxpayer Advocate Service, an independent organization within the agency. The first person to head this body known as the “voice of the taxpayer” before the IRS and Congress, Nina Olson, served as the national taxpayer advocate for 18 years. She told the Prospect, “Taxpayer service has been abysmal over the last two years partly because of the pandemic but partly because it was the straw that broke the camel’s back.” She applauded Treasury Secretary Janet Yellen’s immediate directives for the IRS to reach an 85 percent phone call answer rate, 15-minute maximum hold times on the phone, and tripling the number of walk-in site appointments for taxpayers compared to the previous year.

But Olson expressed skepticism that technology alone could improve the customer service experience. “The IRS can destroy your life … It has the power to take people’s money without having to go to court and just go into your bank account and pretty much wipe it out or take most of your pay-

check.” Digital options are great, but as she put it, “Taxpayers at some point in their process, if they’ve got a problem with the IRS they need to talk with someone.”

In early January, the Treasury Department announced that the IRS had hired 5,000 customer service representatives for the upcoming tax season.

In Olson’s final report to Congress , she cited the need for a “Taxpayer Anxiety Index,” leveraging technology to alleviate the interaction points where taxpayers become most disenchanted with the IRS. She offered the example of a taxpayer needing their refund for medical bills. “They’re waiting and they keep checking the IRS’s Where’s My Refund app, and they get a message saying, ‘Your refund is in process. Check back in a week.’” That information means nothing to taxpayers. She continued: “They’re getting desperate, that closing feeling in their throat, the anxiety levels increasing, they’re not going to be happy.”

Improving the customer experience is doubly critical because the IRS is so central to how we deliver vital federal bene -

During former IRS commissioner Charles Rettig’s tenure, the agency failed to audit Donald Trump in his first two years in office.

fits. Economic impact payments from the pandemic, the Child Tax Credit, and the Earned Income Tax Credit are administered through tax refunds. Rachel Snyderman, a senior associate director at the Bipartisan Policy Center, told the Prospect, “There is an opportunity here for the IRS to really think about how it goes in this next decade as a benefits administrator.”

As taxpayer advocate, Olson cited the high default rate for installment payments to the IRS. She created a model that would flag if taxpayers would be at economic harm, using a combination of a person’s income, family size, and their previous filings, and comparing it to the IRS’s existing allowable living expense formula.

At the time, her suggestions went unheard. But in March 2022, the agency formed the Taxpayer Experience Office, one dedicated to centralizing the agency’s benefits administration and expanding payment options. This kind of focus on

taxpayer experience will be vital to the IRS’s reinvention.

Two sets of highly skilled employees will be needed for the IRS to carry out its most ambitious goals of upgrading the agency’s decades-old technology and properly auditing the largest corporations and wealthiest individuals: computer scientists and tax law experts, like CPA s and attorneys.

As the Prospect previously reported, $5 billion of the new funding will go toward technological upgrades inside the agency. Currently, IRS employees manually enter data. The IRA did not mandate an electronic tax filing system. However, Treasury Secretary Yellen has called for the operational plan due on February 17 to include aspects on improving the agency’s information technology infrastructure. The existing computer language used in the IRS is COBOL , a language that debuted in the late 1950s and is rarely taught to college students today.

While not all operations inside the IRS use COBOL , Janet Holtzblatt, a senior fellow at the Urban-Brookings Tax Policy Center, compared the commingling of various languages to a house with additions based on different styles of architecture. “You want the parts to look closer together,” she said.

Aside from training new hires on old technology, the agency faces additional challenges. “You have to compete with the private sector,” Holtzblatt said. Though “government benefits are really good … you have to get highly skilled computer scientists to come to the IRS and take government salaries.”

The original version of the IRA gave the IRS the ability to hire some people above the government scale pay cap. However, that was struck in the final bill because of the byzantine way Democrats had to pass the bill, through a process known as budget reconciliation. A reconciliation procedure known as the Byrd Rule enables the Sen-

Nina Olson, former national taxpayer advocate, expressed skepticism that technology alone could improve IRS customer service.

ate parliamentarian to decide whether or not an aspect of the bill has an “extraneous effect” on the budget or revenue collection. If it does, it gets thrown out of the bill, and that was the case with the IRS pay scale provision.

In practice, this kneecapped the ability for the IRS to hire qualified individuals, based on a surface-level analysis that such a measure would have too minor a budgetary implication. Of course, hiring computer scientists to upgrade outdated technology could prove to be a significant investment for increasing tax revenue collection. But the budget scorekeepers typically don’t go that deep in deciding what stays and what goes.

Still, the IRS has other options to make necessary IT hires. The first is by hiring outside consultants from the private sector, thus outsourcing its technological upgrades. In this case, salary caps would no longer be an issue. Instead, there’s the potential for friction between the independent contractor and the agency, not to mention the fact that federal funding would be going to support a contractor’s profit margin. Another option would be the IRS going to the Office of Personnel Management and getting the authority to hire above pay caps. Lastly, the IRS could request additional funding to pay above salary caps through the appropriations process.

Whatever means lead to the IRS successfully acquiring technological expertise will also have to be used for its hirings in enforcement. The ideal candidate to take on the IRS’s most complex cases is a mid-level career professional, not a fresh graduate or recently certified CPA . Once again, the agency will be competing with accounting and law firms offering more money.

Auditing tax returns for the wealthy and big businesses, Holtzblatt explained, involves deep knowledge of the complexi-

ties of structuring income and of the everlengthening tax code provisions that apply. Auditors must be able to decipher whether a tax return is legal but complicated—what the IRS calls avoidance—or illegal and classified as noncompliant or evasive.

That distinction is critical. Holtzblatt further explained that the granularities in those categories are what often bog down the agency when conducting the most complicated audits. “To handle those cases,” Holtzblatt said, “the ideal would be to hire mid-career professionals from the private sector … so you’re not spending five years training them. You’re still gonna have to train them within the IRS perspective, but you don’t have to train them as long.”

Just as with the hurdles with hiring topnotch computer scientists, the IRS will face similar difficulties recruiting accountants and tax law experts. However, the pressure is even higher in this case. Holtzblatt elaborated: “This is not an area where you can outsource technology. You cannot outsource somebody who is going to be auditing taxpayer returns.” Thus the agency is forced to work with Congress for additional funding for competitive salaries, or go to the Office of Personnel Management for approval.

All of these challenges demand a permanent commissioner running the agency, who can set priorities and manage outside relationships. Werfel, a former OMB official under Republicans and Democrats and an acting IRS commissioner under Obama, has a monumental task ahead of him should he get confirmed.

In the optimal case where the IRS is adequately staffed on the enforcement side, it can begin reviewing gray areas of the tax code, such as “uncertain tax benefits” (UTBs).

To take a simple example, imagine a political science graduate student who decides to write off her cable bill from her tax filings, reasoning that her cable bill, which includes C-SPAN, is part of her work, and thus a business expense. Is that obviously legal or illegal? Hard to say.

That’s exactly what the largest companies in the U.S. do today, on a galactic scale. They know they can get away with this because corporate audit rates have dropped by half over the last decade. Additionally, if they are questioned, they’re prepared to battle on the grounds that they were engaging in avoidance, not evasion. Teams of tax preparers hired by large firms are constantly pushing

the envelope of legality over whatever can be possibly written off. Corporate budgets for accounting and tax compliance dwarf the amounts that the IRS can devote to any single return.

While the complexity of the tax code is a headache for middle- and low-income tax filers and small businesses, the increasingly convoluted nature of the tax code benefits corporations and the rich. Their legal apparatuses have been specifically tasked with developing a speciality for tax avoidance. This can take the form of classifying certain costs as used for research and development, stacking government-administered tax credits, or harvesting losses that carry over from year to year to offset profits and gains.

This complex network results in the most obviously sketchy write-offs going mostly unexamined, and in the rare instances they are investigated further, those battles can take years to resolve.

As a result, Gardner explained, the largest corporations and the wealthiest individuals have benefited most from an atrophied agency. “The very largest and most profitable companies are now claiming these tax breaks,” Gardner said. “They admit it in black and white, and yet they’re not getting anything resembling a corporate audit.” A report from the Institute on Taxation and Economic Policy found that 55 of the largest corporations paid nothing in federal taxes on 2020 profits.

The IRS won’t be starting from zero working on UTB s, because the financial data already exists. There would not need to be additional resources dedicated to collecting new data points because companies already have to report this information publicly to shareholders, as required by the Securities and Exchange Commission. This reinforces why the IRS needs a commissioner who can manage the outside relationships with other government agencies.

A part of those annual financial disclosures lists the tax breaks a company claims and whether or not the company believes it could stand up to an audit from the IRS. What the company decides couldn’t pass in an audit is thus a UTB. Because UTBs are so exploited, to Gardner, it’s an obvious first step the IRS could take in ramping up enforcement.

But again, this circles back to whether or not the agency can properly staff itself in the first place. The reality is that the pool of qualified individuals with the necessary

The ideal candidate to take on the IRS’s most complex cases is a mid-level career professional, not a fresh graduate.

experience in corporate tax law is the same group that the largest corporations want to recruit for their corporate tax law divisions. “The IRS is definitely looking to hire folks like that,” Gardner said. “But these companies are every bit as interested in hiring them and probably have more money and certainly more flexible ways to do it.”

However, Gardner says that even with a larger workforce, it’ll take years for the agency to recalibrate its expertise. An underrated concern, Gardner says, is that redeveloping this expertise will be running against maintaining overall morale inside the agency. The worst-case scenario would be if the majority of the 52,000 employees eligible to retire do so, and at the same time newly recruited staff burn out before efficiently learning their jobs. Given an ongoing tight labor market, and high turnover trends in the private sector, it’s not impossible to imagine a similar dynamic playing out inside an agency that will have all eyes on its performance.

The most visible way Congress can sabotage the IRS over the next decade is by simply passing bills that rescind the $80 billion allocated by the IRA. The actual success of those measures is questionable, given that Democrats control the Senate and the White House and just passed this funding last August. A stand-alone repeal of funding from a Republican House would serve as little more than signaling to the public that under a Republican trifecta, that is their priority.

However, there are more arcane measures at Congress’s disposal, most prominently the appropriations process. Congress carving away at the IRS’s base funding through appropriations is the slower, less bombastic measure. But ultimately, it is the agency’s most existential threat. In fact, even under a Democratic trifecta, last year’s omnibus spending package cut nearly $300 million from the agency’s budget. So immediately, money from the $80 billion meant to supplement the agency’s existing budget is, in effect, supplanting lost base-level funding.

The hypothetical argument from Republican lawmakers to the IRS might be “You got $80 billion. Spend it. You don’t need as much in your appropriations,” said Holtzblatt. “But the $80 billion was premised on the assumption that [the IRS] would continue to get annual appropriations.” The result, Holtzblatt said, is “if you carve out appropriations, you lose the ability to add on to taxpayer services and enforcement.”

The stealth attack on base-level funding and a frontal assault on the new funding could happen simultaneously. Republicans could hold government funding, or legislation to increase the nation’s debt limit, hostage to conditions that include peeling back some of the $80 billion. At the same time, the IRS budget could be ground down in appropriations. Republicans could burn the candle at both ends.

Funding for agencies does not happen in a single subcommittee. Functionally, “the IRS is competing against other agencies,” Holtzblatt said. While the IRS looks at its budget in totality, in appropriations, a subcommittee looks at many agencies that fit together within a broad category. This point is key because the IRS has several functions, so in the appropriations process, those functions will be separately identified and appropriated for. Whether the agency gets the money it seeks or that money goes to another agency with a similar function depends on a roll of the dice. And with Republicans dispositionally opposed to the IRS, it will be a challenge for the agency to win those battles.

Aside from Congress hacking away at the agency, there are other ways the agency can be undermined. “House Republicans … figured out [in the 1990s] that if they couldn’t get their really aggressive tax-cutting plans enacted under the Clinton administration,” Gardner said, “short of that, they could hold a bunch of hearings designed to kneecap the Clinton administration’s tax-collecting capabilities.” Gardner continued: “It really put a chill on the willingness of IRS leadership to enforce the law. The public perception was out there that the agency was overstepping its authority.”

Republicans have signaled the desire for numerous investigations. A potential line of inquiry could be a data breach that happened at the IRS last September that led to leaks of some 120,000 taxpayers’ confidential information. They even want to probe the millions of letters sent out last October reminding filers of eligibility for various low-income tax credits. Republicans decided that letting people know about potential tax benefits was inherently political, even though it had been done before under Trump. Any customerfriendly tactics the IRS adopts will likely be seen in this manner.

Democrats can counteract this. Acting as human shields for the wealthy and big corporations is decidedly unpopular, even

among Republican voters. Stating honestly what the GOP is up to here could be very damning. But that would require Democrats to stand up for the principle of taxes being the price we pay for a civilized society, as former Supreme Court Justice Oliver Wendell Holmes once said. The IRS has lots of detractors, but to get through the next few years, it’s going to need a couple of champions.

Former IRS commissioner Rossotti is one of the most outspoken advocates for the agency to address undercollection of payments. In 2021, he founded the nonprofit Shrink the Tax Gap.

The IRS defines the tax gap as the difference between taxes owed to the government and what’s actually collected. An unsexy reality many want to ignore is that this gap, which has grown by $600 billion each year, and will total over $7 trillion in the next decade, is not synonymous with tax evasion, which is illegal. This lack of distinction infects ongoing debates over what the IRS can and should do with its $80 billion.

Following Rossotti’s tenure, he wrote a book, Many Unhappy Returns: One Man’s Quest to Turn Around the Most Unpopular Organization in America. In the 2005 memoir, Rossotti forecasted with scary accuracy how the agency would eventually end up: “No matter how much the IRS improves, an ever expanding tax code and ever shrinking resources to administer it are making the whole tax system more and more unfair to the vast majority of taxpayers, who diligently pay what they owe no matter what their tax bracket.”

The American Families Plan Tax Compliance Agenda, the precursor to what passed in the IRA , aimed to reduce the gap by 10 percent. The report stated that this would only be possible by focusing enforcement

Even under a Democratic trifecta, last year’s omnibus spending package cut nearly $300 million from the IRS’s budget.

scrutiny on underreporting from the highincome taxpayers and the businesses they own, which accounts for the largest share of this gap, approximately 80 percent. Before the IRA , in 2021, Sen. Elizabeth Warren (D-MA) and Rep. Ro Khanna (D-CA), introduced separate bills to cut the tax gap by at least a third over the next decade, though some tax policy–centered projects have called the move misguided.

The data for potential investigations already exists. For Rossotti, the IRS’s success is not about simply asking how many more audits does the IRS need to conduct, it’s about starting from questions that ask how much revenue is the government losing? “The IRS gets two billion information reports today on about $17 or $18 trillion of income,” he said. Yet that represents a fraction of the data actually used in audits and investigations.

Aside from operational and enforcement capacities, according to Rossotti, addressing the gap requires broad implementation of machine learning technology that can automate data reports. It’s not about eliminating agents; they would still be involved in the process. In an ideal situation, streamlined reviews lead to voluntary compliance rather than working on years-old cases.

One example of how technological innovation at the IRS runs into political pressure can be seen in the decision to delay changes to the updated 1099-K tax forms that would cover many gig economy workers. Services like Venmo provide users reports on their income. Originally, Venmo and others only had to provide users a 1099-K form if they received more than $20,000 in annual income and had more than 200 transactions. Last year, the threshold for reporting dropped to $600 a year, regardless of total transaction numbers. This is in line with 1099 income for independent contractors from a single employer. Shrink the Tax Gap estimates that there is $2 billion in unreported taxes on the 1099 form.

Meanwhile, well up the income ladder, the richest use a souped-up independent classification unavailable to most other independent contractors: pass-through entities, otherwise known as S corporations. Shrink the Tax Gap estimates that the $1.2 trillion of income from the growing pass-through sector accounts for $140 billion a year in unrecovered taxes. In the absence of upgrades for machine learning technology and highly skilled agents who can analyze complex pass-through enti -

ties, it’s understandable why some would fear the possibility of IRS agents investigating their unsophisticated cases where they split meals, bills, and other expenses over apps like Venmo, PayPal, or Cash App. That threat of negative publicity was enough for the IRS to push 1099-K enforcement for another year.

Right now, the agency is making snap decisions based on political factors or paths of least resistance. A permanent commissioner who develops a plan for the agency, sets forward priorities, and regularly reports to Congress on its progress could eliminate the swings back and forth. But if and when Werfel is confirmed, he’ll be tasked with running an agency based on a plan he had no formal capacity to participate in. One of the most critical undertakings in the history of the agency is setting sail without a captain.

I asked Rossotti what challenges this dynamic would create for Werfel. “One of the biggest things a commissioner has to do is set priorities and that’s what a plan is all about,” Rossotti said. “The fact that he’s not been confirmed yet and they’re talking about a plan … I honestly don’t know. That’s a very difficult problem.” n

Without a permanent IRS commissioner, the agency lacks leadership and vision for its critical revitalization measures.

WALL STREET’S

Ithaca has put its Green New Deal in the hands of a green private equity fund, a private foundation, and a Goldman Sachs–backed software company.

In 2019, Ithaca, New York, a lush college town bounded by giant gorges, set a goal of going carbon-neutral by 2030. That might sound like a vague, feel-good pledge for a city in the liberal Northeast. But Ithaca’s timeline is unusually aggressive. Weatherizing and electrifying Ithaca’s old building stock, 40 percent of which was built before 1940, will mean tearing out boilers and gas stoves, installing heat pumps, and fixing drafty walls and leaky windows in some 6,000 buildings.

Ithaca’s Green New Deal is aimed not only at cutting emissions but at reducing economic inequality. More than a third of its residents live below the poverty line. The city chose Luis Aguirre-Torres, an energy expert who had previously managed international green-finance initiatives, to lead the operation. “We are the first in the world

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to attempt something so crazy,” AguirreTorres told NPR, adding, “it can be replicated all over the United States.”

Over the next year, Aguirre-Torres attracted more than $100 million in private capital to fund the overhaul. The venture capital firm Andreessen Horowitz and the investment bank Goldman Sachs are now among the investors with a stake in the heating and cooling systems that will be installed in Ithaca’s residential housing, much of it low-income. A green private equity firm is financing the transition of Ithaca’s commercial buildings.

Those commitments were secured in the heady summer of 2021, when interest rates were low and investors were rhapsodizing about environmental, social, and corporate governance (ESG), a catchall term for investments that promise to bring about positive social change. ESG was in high demand: During the first half of 2021, it was mentioned in almost a fifth of corporate earnings calls.

Then, the post-pandemic economy turned grittier. Supply chain shocks made it hard to source appliances, and central bankers raised interest rates, slashing demand and tilting the economy toward recession. Capital suddenly had less appetite for longerterm investment. With energy prices also soaring, decarbonization schemes were put on pause, and ESG offerings began to include “energy security,” a designation that could mean investment in fossil fuels, seemingly in conflict with environmental aims.

BY LEE HARRIS

Downtown Ithaca, New York

That was bad news for Ithaca’s Green New Deal. By mid-2022, Aguirre-Torres told the Prospect in an interview, Ithaca’s decarbonization funding scheme was hanging by a thread: “It was no longer profitable.”

But last summer, the Biden administration passed an unprecedented set of subsidies for clean energy. “Suddenly, the Inflation Reduction Act made it work again,” Aguirre-Torres said. “It’s profitable for pretty much everybody. The bill is not passed on to the residents. Private equity makes money. The government manages to do what they want to do.”

The IRA was indeed historic, pumping $369 billion into climate investments. But the revenues on clean-energy installation in a midsize city like Ithaca are still, on their face, hardly worth the cost of setting up the deal. To understand investors’ involvement, it’s necessary to consider broader shifts in the energy system that are just beginning to come into view.

The financial industry is eyeing the emergence of clean energy-as-a-service, where profit margins are slim for now but agreements could last in perpetuity. Ithaca is an early case study of how, due to the design of the IRA, the ambitions of the green-energy transition rest on deals between building owners, small cities, and Wall Street, the terms of which are only beginning to be negotiated.

The energy transition has big up-front costs, but the potential for massive longterm savings. In residential buildings, electrifying space and water heating can reduce utility bills, especially compared with fuel oil, propane, and electric resistance heat. The electrification advocacy group Rewiring America has averaged out potential savings and says the typical home could cut $516 per year by electrifying.

Ari Matusiak, Rewiring America’s CEO, has been a public booster for the IRA . “The nice thing about the Inflation Reduction Act is it effectively creates an electric bank account for every household in America,” he recently told the news site Vox.

But some groups focused on the climate transition have cautioned against leading with the claim that energy efficiency always saves money. In many places, air-source heat pumps are not yet cost-competitive with gas, though that could change with widespread deployment. Even where they are already competitive, savings would come on future utility bills. The question

remains: Who pays up front for the equipment and manpower to retool the United States’ 130 million buildings?

Despite its size, the IRA did not solve this problem. Rather than providing up-front cash, it runs through the tax code, so households may have to wait to receive benefits. And while heat pump rebates are generous, they only cover part of the cost of the equipment and installation, which can range well past $20,000 before incentives.

This is not a new problem. The 1970s energy shock saw the emergence of Energy Service Companies, or ESCOs, which helped businesses escape the rising cost of oil by reducing their energy usage. Companies like Honeywell, Siemens, and Johnson Controls provided the expertise and technology to upgrade inefficient systems.

The basic ESCO works like this: Offer a building owner a deal to keep paying somewhere around their current utility bill, or a little lower, indexed for inflation. Rehab the building with more efficient equipment. When bills go down, pocket the difference between the energy savings and the cost of the new machines. There can be more perks for the ESCO. If Honeywell’s system is proprietary, when a switch breaks, you’ve got to buy it from Honeywell. But these deals have mostly been made with large and relatively sophisticated customers: cities, universities, hospital systems.

For years, private lenders have flirted with the idea of extending energy savings to residential housing and smaller businesses. A McKinsey study on “energy efficiency as a resource” projected that $520 billion in up-front investment could gross savings of more than $1.2 trillion. But there have been a series of scandals around PACE, or property assessed clean energy financing, a state-run lending program that has led to predatory schemes. Private lenders are given a lien against the resident’s house and priority in payback, with little independent oversight of the contractors who have incentives to layer on unnecessary charges. This has burdened homeowners with debt and even foreclosure, while often failing to deliver energy bill savings.

Now, with cities passing requirements to overhaul their housing stock, and with the federal government handing out a new spate of tradable tax credits, financiers are considering whether this is their opportunity to become energy efficiency lenders. If they harvest the tax credits and take a cut of the

profits from future energy savings, it could prove lucrative for this modern spin on ESCOs.

But do the fundamentals work out? Profit margins for energy efficiency are slim. In New York, electricity prices are nearly 50 percent higher than the national average.

It can be hard to get specific answers about affordability. Asked whether air-source heat pumps are competitive with gas heating in Ithaca’s Tompkins County, the state energy agency, NYSERDA , did not answer the question, but said in response, “Occupants will benefit from a more healthy and comfortable building for decades to come. These efficient homes and multifamily buildings are also more resilient to temperature changes, putting fewer stresses on the power grid.”

Experts interviewed by the Prospect said that air-source heat pumps in cold climates are often still more expensive, on an annual basis, than heating the same house with gas. When retrofits are done thoroughly and well, including insulation, air sealing, and other upgrades, they can break even or produce savings. But that requires careful installation, and comes with a high degree of uncertainty. That begs the question of why Wall Street is ramping up to deliver what could be a money-losing service.

Lisa Marshall, who directed an organization that worked with contractors to assist residents in Tompkins County with converting to heat pumps, said she is puzzled. “When you’re saying you’re going to finance something based on the cost savings, and realize the cost savings don’t exist, then I don’t understand the financing model,” she said. “I have asked myself why investors are interested, and not gotten a clear answer.”

When Aguirre-Torres arrived as Ithaca’s sustainability coordinator, his first idea was to issue a green bond. But the city’s postpandemic $80 million budget was overlev-

Rather than providing up-front cash, the IRA runs through the tax code, so households may have to wait to receive benefits.

eraged. Borrowing hundreds of millions of dollars in startup cash seemed out of the question. “The amount that was needed is way bigger than a small city could invest,” said Anna Kelles, state assemblymember for Ithaca. “You’re trying to electrify an entire city. That is going to require very large starting capital. That’s why no one’s ever done it.”

Affordable cost of capital for residents, Aguirre-Torres figured, would mean below-market-rate financing of around 3 percent. He turned first to local community development financial institutions (CDFI s), but their high origination costs and inflexible fees put them out of reach. He then went to Wall Street.

Aguirre-Torres was connected with Generate Capital, whose co-founder, Jigar Shah, now heads the Department of Energy’s Loan Programs Office, which gave Tesla its startup loan. Through Generate, he met Alturus, which he described to the Prospect as “a satellite private equity firm of Generate Capital.”

Alturus is widely understood in Ithaca to be a private equity fund; multiple public officials characterized it to me this way, and it is listed as private equity on Crunchbase, a business intelligence firm. But two Alturus managing directors disputed that designation in an interview with the Prospect, distancing themselves from a business model that has been criticized for its tendency to wring profits from struggling firms.

“Our capital is dedicated, ESG -focused capital. So it’s not just, I want 20 percent returns and I’m going to LBO [leveraged buyout] Ithaca,” said Managing Director Gopal Vemuri. “We’re not Apollo, we’re not KKR , we’re not the barbarians at the gate here.”

A private equity firm typically purchases companies and resells them in a few years. By contrast, Alturus calls itself an energyas-a-service provider, since it maintains equipment and works with contractors over a longer term. In Ithaca, it plans to help small businesses decarbonize. Its leasing model takes risk off of customers’ hands, Alturus managers claim. Instead of making a big up-front investment, mom-and-pop stores can treat decarbonization and energy efficiency as an operating expense.

Aguirre-Torres also needed financing for low-income homes, traditionally the toughest segment of buildings. Scouting a solution, he hit it off with Donnel Baird, another charismatic green-energy leader who has generated a flurry of news coverage for his startup BlocPower. Baird tweets under the name “Turn Buildings Into Teslas.”

BlocPower, which Baird founded in 2014, works with local contractors and provides nomoney-down leases on electric heating, cooling, and hot water systems, as well as rooftop solar. This attempts to solve the problem PACE has struggled to address: Low-income residents often have bad credit and little cash. There is not much transaction history for

energy efficiency in residential housing, meaning banks see the deals as high-risk.

Ithaca brought the company in as a project manager, overseeing the implementation of the Green New Deal, including Alturus’s work. Fundamentally, Baird said, “we’re not a bank, we’re like a venture capital–backed technology firm.”

That technology is a proprietary software that assesses the risks of a green makeover for each building in a neighborhood. What are the chances that the equipment doesn’t work, or the customer defaults on the loan, or construction labor is scarce, or the house turns out to be unusually expensive to rehab?

BlocPower then sets an equipment lease rate to offer that building owner. This property-byproperty price-setting is critical, Baird argues, since the profit margins lie in determining the exact level of risk for each property. “Our bet is that we can do risk management better than a traditional Wall Street firm for this category of investment, because we’ve invested millions and millions of dollars in software.”

The contract with Ithaca, Baird said, is just a “hunting license.” Building owners are offered a deal, and if they take it, BlocPower will lease the equipment. BlocPower adds that building to a portfolio, creating a financial product that Baird said is similar to a mortgage bond. Investors including BlackRock, Barclays, and Goldman Sachs, which already invests in BlocPower, have expressed interest in a securitized bundle of these projects, Baird said, as part of an ESG portfolio.

To help attract capital from investors like BlocPower and Alturus, NYSERDA set up a loan loss reserve that has agreed to take first losses if projects default, up to $2.5 million for each company. Baird was able to scale up its reserve by attracting a $3 million loan guarantee from the Kresge Foundation, which provides philanthropic financing for construction and renovation projects. Joe Evans, portfolio director for Kresge’s Social Investment Practice, told the Prospect he decided to get involved after BlocPower’s glowing media treatment came to his attention.

“It was a for-profit company owned by a Black man. The board was diverse, the staff was diverse. Their focus was on improving the quality of life and operating expenses for housing where lower-income people and communities of color live,” Evans said. “There was a fair amount of alignment.”

The loan loss reserve removed much of the default risk, and the whole enterprise, Baird

Ithaca’s Green New Deal seeks to weatherize and electrify some 6,000 privately owned buildings.

said, became dramatically more lucrative after the passage of the IRA . Decarbonizing all of Ithaca’s housing stock previously would have cost around $600 million, Baird said. If BlocPower fully utilizes the IRA’s tax credits, it will probably cost $450 million.

But direct profits remain low. AguirreTorres said that the overall project has a cost of capital in the low single digits. Alturus and BlocPower declined to specify the rate of return but both said it would be in the single digits. As interest rates rise, investment banks like Goldman Sachs could make more doing many other things.

To understand banks’ interest, it’s necessary to dig into what exactly they are underwriting. Firstly, BlocPower makes the case by emphasizing the ESG credentials of the deal. “We’re going to go in there and try and make it Wakanda,” Baird said of Ithaca, referring to a Black utopia from the Marvel Comics universe.

Baird emphasized that poorer homeowners will keep the full value of both the tax credits and the energy bill savings from the upgrades. But both of those claims are dubious.

While tax credits can be claimed directly by homeowners willing to go to the trouble of finding contractors themselves, they could also raise profits for investors. “The tax credit is cash. It can be assigned anywhere in the transaction, it just lowers the total cost,” said Reed Hundt, CEO of the Coalition for Green Capital.

Baird told the Prospect that BlocPower’s fee is just the cost of leasing equipment. BlocPower does not take a cut of the energy efficiency savings, he said, which “100 percent go to the customer.” That contradicts the understanding of Kelles, the state assemblyperson, who told the Prospect that BlocPower’s profits come out of energy bill savings. BlocPower takes a “set percentage” of those savings, she said.

An SEC filing by BlocPower sheds more light on the revenue model. It states that upgrades can save some households more than 40 percent on energy. BlocPower “then prices its leases to provide either 10-20% net savings to the customer, or to break even but provide a substantial additional benefit, like improved indoor comfort, improved indoor air quality, or hazard remediation.” In other words, BlocPower could capture up to all of the net energy savings, while providing buildings with nonmonetary benefits.

In interviews, BlocPower and its funder Goldman Sachs framed the deal differently.

Baird argued that his interests are aligned with those of customers, who would only opt in to the program if they are offered a good deal. He added that BlocPower promises to lower energy costs, and that would not be possible if investors were taking double-digit returns. But a promise of energy savings is not a guarantee: If the equipment fails to deliver or raises costs, building owners are left paying the difference, plus the cost of the lease.

Asked about this risk, Michael Lohr, managing director at Goldman Sachs’s Urban Investment Group, said that their profits do not depend on building owners seeing lower energy bills. “If for some reason costs go up—because as you’ve seen now, with inflation and cost of electricity and what have you, there are rising costs—we’re not relying on there being savings,” he said. Asked whether he expects bills for the average building owner to rise after full electrification, Lohr said, “That obviously depends on the cost of electricity, which I can’t predict, or I’d be in a different role.”

The Prospect asked Baird for the names of satisfied customers in New York who could testify that BlocPower had completed successful projects generating utility savings. After responding to multiple earlier emails, he did not respond to this request. He also declined to provide a case study of their model.

Metro IAF, a coalition of community groups that works on rehabilitating affordable housing, has argued for exploring a nonprofit ESCO -type entity that serves lowincome communities. In the absence of that, the next best thing might be consumer protections to protect against higher-thanpromised costs.

Lenders like BlocPower could choose to guarantee projected savings for customers. The city of Ithaca, or NYSERDA , which is underwriting the loan, could choose to require this. Instead, BlocPower’s payment is an additional monthly bill, charged separately from the utility.

With few competitors and little price transparency, Ithaca residents will have to put a lot of faith in BlocPower’s model. Baird, for his part, thinks they should. “I went to B-school right after the subprime mortgage crisis, so I just don’t believe in usury,” Baird said. “We believe that our job is to have our technology decrease risk. If we are right, then we will be very profitable, even with single-digit return profiles. If we are wrong, then we’re gonna take out

a bunch of risk, and be overwhelmed by that risk, and go under.”

What is the long-term vision for investors?

Beyond the ESG securitization BlocPower says it is discussing with Goldman and others, there are several other potential attractions. Cities overhauling their energy usage will produce not only a steady drip of payments for new equipment, but also a detailed stream of data. Carbon savings in low-income housing could be tracked and marketed as offsets, sold to polluting companies eager to symbolically reduce their carbon footprint.

BlocPower is offering “environmental justice carbon offset tokens,” a blockchaintracked asset that it says will “represent additive energy savings and offset greenhouse gas emissions generated by BlocPower’s retrofit projects.” The company has a detailed measurement and verification system, which it says will become the basis for carbon offset sales.

The installation of leased equipment also provides an opportunity to control the demand side of the system. BlocPower is exploring “virtual power plants” that could make adjustments to household appliances, from toasters to refrigerators, in the lowincome housing they serve. It has already put in an application for this with the Department of Energy.

Investors’ returns could depend on it, Baird told the Prospect . “We’re hoping that the advances in mobile technology, in machine learning, in cloud computing and Internet of Things allows us to access enough data to create a risk management model, so that we can do this in a singledigit returns kind of way.”

BlocPower’s investors may also be willing to accept thin margins because they recognize that the model for energy provision is

Given the information asymmetries between private investors in complex and untested deals, cities may be at a disadvantage.

evolving. BlocPower presents its equipment lease model as being like a mortgage. But you can still live in a house after the mortgage is paid. BlocPower offers 15-to-20-year leases for equipment that lasts roughly that same period. At that point, the panels will likely need to be replaced. It’s more like a car payment, which is how Assemblymember Kelles described it. And it could lead to energy lenders being able to profit from an endless supply of replacements and upgrades, with plenty of data harvesting in the process.

Ithaca’s building decarbonization plan has also been stalled by political turmoil. Svante Myrick, the youngest mayor in the city’s history, abruptly resigned early last year to become executive director of People For the American Way, a progressive advocacy organization.

The city’s interim mayor, Laura Lewis, has been less enthusiastic about the Green New Deal, according to several experts on Ithaca politics. (Lewis did not respond to requests for comment and calls for this story.) In October, amid protests by city employees, Aguirre-Torres resigned, citing racist microaggressions and a lack of support from the administration.

Aguirre-Torres has now joined the team at Rewiring America. Matusiak, the CEO, told the Prospect they are interested in the Ithaca

model as part of a strategy called “Rewiring Communities,” which will involve cities aggregating demand for private investment.

Ithaca’s program is now being administered by Rebecca Evans, former campus sustainability coordinator at Ithaca College, who has stepped in as acting director of sustainability. She says the city may scale back the first phase of projects to be sure it can make full use of IRA tax credits. In the meantime, they will be using the “snowflake model” of community organizing, she said, holding block parties and going door-to-door to advertise BlocPower’s program. Baird himself is a former community organizer.

Asked what she thinks of Wall Street’s role in the deal, Evans balked. “I have to give Luis credit for shaping this, and I’m just running with it on the implementation side, and he really is the finance guru of our team—or was, I should say.”

Ithaca’s deal shows some of the compromises in the IRA’s public-private model. On one hand, low-income renters and homeowners need champions like Baird and Aguirre-Torres, energetic entrepreneurs attracting the investment needed to finance the transition at affordable rates, to chase down all available tax credits, and to find local contractors amid a shortage in construction labor.

But when the New Deal’s Public Works Administration set out to fund widespread electrification of rural America, it was up to local legislators to submit project proposals to the agency. That helped enterprising politicians build patronage networks and reinforce the constituency for public power. Today, instead of a public agency coordinating between direct federal subsidies, contractors, and public stakeholders, the initiative is being led by a community organizer turned Wall Street entrepreneur. A private foundation is providing first-loss capital, while investors look to package the product as an ESG security.

Baird is persuasive partly because his sense of urgency—and the creativity of the contracts he has designed—contrasts with the glacial pace and risk aversion of state agencies like NYSERDA . But given the information asymmetries between private investors in complex and untested deals, cities may be at a disadvantage when signing up with clean-energy investors like Alturus and BlocPower.

Evans, for her part, is putting her trust in Ithaca’s new financiers. “It is in BlocPower’s best interests to keep costs low,” she told the Prospect. Plus, she added, “Alturus is mission-driven, in the same sense as the Green New Deal.” n

Donnel Baird (right) of BlocPower tweets under the name “Turn Buildings Into Teslas.”

Ticketmaster’s Dark History

Ticketmaster’s

Dark History

A 40-year saga of kickbacks, threats, political maneuvering, and the humiliation of Pearl Jam

A 40-year saga of kickbacks, threats, political maneuvering, and the humiliation of Pearl Jam

BY MAUREEN TKACIK AND KRISTA BROWN

BY MAUREEN TKACIK AND KRISTA BROWN

Just over 28 years ago, Taylor Swift was a precocious Montessori preschooler growing up on a Pennsylvania Christmas tree farm, and Eddie Vedder was the Most Important Musician in America, Kurt Cobain having bequeathed to him the (unwanted) title with his suicide that spring. Bill Clinton himself called Vedder to the White House to ask him for help with “messaging” around Cobain’s death, and the rock star in turn confided in the president that he was having trouble with a rapacious corporation named Ticketmaster, which appeared to be operating an illegal monopoly. A few weeks later, the Clinton Justice Department invited Vedder’s band Pearl Jam to be the star witness in an antitrust investigation inspired by the case. The band obliged.

But no sooner had they agreed to participate in the probe than their lives began to resemble a kind of pop culture Book of Job, replete with biblical floods, mysterious plagues, possible burglaries,

and crippling self-doubt. And 11 days after canceling a Ticketmaster-free 1995 summer tour due to “pressures” they feared “would ultimately destroy the band,” Pearl Jam’s handlers at the Department of Justice issued an unusual two-sentence press release announcing the end of its investigation.

For years, the Ticketmaster saga, which cost Pearl Jam millions of dollars, would haunt the band. A 1996 Rolling Stone piece improbably cast the battle as a calculated effort on Vedder’s part to buy anti-consumerist cred. Admiring critics mused that “the band whined too long and loud about Ticketmaster” to maintain the “enormous momentum it built up from 1991 to 1994,” even as these critics whined about the increasingly unbearable cultural vacuity promulgated by the blitzkrieg consolidation that followed the DOJ’s abandonment.

Thousands of concert promoters, radio stations, record labels, talent agencies, and other music industry gatekeepers were swallowed by a small clique of deep-pocketed financiers in

Illustrations by Kristian Hammerstad

the years following the closure of the Pearl Jam case. As the speed of music file transfers onto ever-tinier devices threatened to depose the entire industry, moguls jockeyed bitterly over their slices of a shrinking, shapeshifting pie.

And yet the strange and awesome power of Ticketmaster, a company built around the novelty of a printer that could instantaneously produce a cardboard entry pass into thousands of concerts from the convenience of the nearest Sam Goody, grew as every other part of the business seemed to shrivel. Ticketmaster’s parent company is projected to gross $16 billion in 2022, more than the entire U.S. record industry grossed in 2021. Despite sponsoring almost no live events in the year following the outbreak of the pandemic, its stock price went up

The debacle surrounding the “verified fan presale” for Taylor Swift’s 2023 concert tour highlighted Ticketmaster’s vexing combination of apparent incompetence and totalitarian control. Ticketmaster has portrayed its systems as the victims of an “unprecedented” (if wholly predictable) mismatch of supply and demand; the Department of Justice and numerous state attorneys general are investigating. But while Swift herself has professed empathy for fans stymied in their quest to see her live, she has resisted publicly shaming the ticketing monopoly, as she has other foes. Virtually no pop star has even attempted to blow the whistle on the concert cartel in the years since Vedder tried, and failed.

Though Cobain’s death presaged a cultural vibe shift away from anti-corporate rock, the critic Steven Hyden recently wrote that “the moment when it was clear beyond a shadow of a doubt that an era had ended was Pearl Jam’s depressingly futile fight against Ticketmaster.” But this futility was wholly manufactured. Then as now, Ticketmaster has triggered allegations of predatory pricing, questionable kickbacks,

anti-competitive collusion, and merciless retaliation against anyone who challenged its dominance. When the Justice Department dropped its investigation in 1995, it had nothing to do with the merits of its case, and everything to do with unalloyed political corruption, meted out in classic bipartisan fashion by a menacing confederation of lobbyists, propagandists, shady characters, and one extremely powerful former Texas senator who is currently promoting a book called The Myth of American Inequality.

And as you might expect, the saga begins long before Seattle invented “grunge.”

Ticketmaster’s conquest of the concert business dates back to 1981, when it came under the control of one Burton Kanter, a famous Chicago tax attorney whose celebrity clients ranged from the band Creedence Clearwater Revival to Chicago’s Pritzker family, which had originally

acquired the business with possible intentions of outfitting a New Orleans stadium it controlled with computerized ticketing systems. It is worth noting here that Kanter was swimming in underworld connections—which would become something of a leitmotif in the Ticketmaster tale—and that he had just five years earlier been indicted on charges stemming from his co-ownership of a CIA-connected Bahamas tax shelter called Castle Bank whose clients included the Las Vegas bootlegger-turned-developer Moe Dalitz, Ohio’s famed mobster Morris Kleinman, and various Teamsters pension funds, along with Hugh Hefner and Bob Guccione. (Kanter beat the charges, mostly because of an unbelievable blunder the IRS committed when he countersued the agency, though a tax court judge later ruled him guilty of having orchestrated a complicated kickback scheme.)

Kanter recruited a friend named Fredric

Rosen to operate the firm, whose career before Ticketmaster is something of a mystery. Yet he proved shockingly well equipped for what then seemed the near-impossible task of taking on Ticketron, the deep-pocketed market leader of computerized ticketing. Rosen succeeded by forming a network of exclusive alliances with a small business community that other ticket agents had ignored: rock concert promoters.

The rock concert business was a collection of regional fiefdoms run by aggressively turf-conscious hustlers. Bill Graham ran San Francisco, Larry Magid controlled Philly, the developer Don Law controlled Boston, a New Orleans boxing promoter’s son named Lou Messina dominated Houston, and Dave Lucas’s Sunshine Promotions ran Indiana. Many of these promoters spent part of the 1980s operating under consent decrees following a slew of antitrust investigations.

Rosen gave promoters the opportunity to centralize control in their respective territories by brokering exclusive contracts between Ticketmaster and their favorite venues. And while some of those venues already had contracts with Ticketron, Rosen offered a powerful inducement in the form of the “service charge.” So long as Ticketmaster was free to levy whatever service charge it deemed appropriate, Rosen was more than willing to kick back a cut to promoters and venues, and even offer new clients cash advances of up to $5 million on the service charges they might bring in, according to a 1995 Associated Press article. In 1988, 17 of them founded a trade organization, the North American Concert Promoters Association (NACPA), which would later be accused of colluding with Ticketmaster to fix service fees.

Ticketmaster and its promoter allies

wooed venues by outfitting their box offices with expensive ticketing machines and interconnected inventory management systems free of charge, and paying them massive advances on their portion of future fee revenues to entice them to sign exclusive contracts. Laws against predatory pricing were still enforced in those days; this could have been seen as an example.

In 1986, Boston super-promoter Don Law, a founder of NACPA , signed an exclusive contract with Ticketmaster promising him between 25 and 50 cents per ticket—sometimes more, depending on the venue—in exchange for his undying loyalty. By 1992, a Boston Globe investigation reported that the region’s ancillary fees were some of the most expensive in the nation, thanks to fees that typically comprised a quarter of the total ticket price. That year, Ticketmaster faced a class action suit stemming from the brazen “commercial bribery” tactics described in the newspaper’s investigation; the company responded by suing an attorney quoted in the piece for libel.

Ticketmaster also thrived by swallowing adversaries. It acquired seven competitors between 1985 and 1991, and maintained a joint operating arrangement with its biggest West Coast rival, the Bay Area Seating Service (BASS), with which it was allegedly conspiring to fix prices. (That case would be settled, with Ticketmaster donating $1.5 million in tickets to charity.)

Then of course there was Ticketron, wounded by Rosen’s deal-making but still kicking until 1990, when D.C. sports mogul Abe Pollin teamed up with then-upstart private equity firm Carlyle Group to buy it. Pollin promised to revitalize Ticketron, even poaching promoter Ben Liss to run it. But he announced plans to sell it to Ticketmaster barely a month later.

In 1992, a startup called Moviefone launched a competing service with backing from a British company. Moviefone later learned that the British company had conspired with Ticketmaster to sabotage the effort. Ticketmaster denied involvement, but Moviefone ultimately won a $22.7 million settlement over the dispute in arbitration; it stayed in its lane after that.

Throughout all this, countless legislators, erstwhile competitors, class action attorneys, and consumer advocates tried and failed to expose, break up, and/or impose utility-style regulation on Ticketmaster. Shortly after the Ticketron buyout, a Cali-

fornia state senator sponsored a bill to cap ticket fees at 15 percent. In retaliation, Ticketmaster dragged one of his aides in for an eight-hour deposition, on the pretense of suspecting that the staffer obtained information from a source who was bound by a confidentiality agreement. “I found it very chilling that who we talked to in preparing a bill could be determined by the opponents of that bill,” said the aide. “These people play for keeps.”

Like virtually every rock star who emerged from the Seattle “grunge” scene, Eddie Vedder grew up in financial precarity, worked dead-end jobs to supplement his hobby, and felt impossibly guilty about the overnight fame he’d won almost instantaneously upon moving to Seattle to join a band that had lost its lead singer to a heroin overdose. As he explained to Spin magazine in 1995, Vedder merely wanted his shows to be accessible to “the father [who] works at a gas station” (a job he held in the 1980s), and just wants to give his kid one magical night that might inspire him “to pick up a guitar.”

Following the sudden success of their debut album Ten , mere months after deciding on a band name, Pearl Jam began to conscientiously avoid activities viewed as distractions from making and playing music—filming music videos, releasing “singles” and other forms of marketing—in favor of promoting themselves by playing free or cheap live shows. The trouble with this business model was that it required paying off Ticketmaster, which had by this point brokered exclusive contracts representing 63 percent of the concert seats in America, and 90 percent of 25 top markets with larger arenas.

Ticketmaster demanded a substantial service charge for any tickets distributed to concertgoers, regardless of whether or not the band was charging anything. When Pearl Jam planned a free concert in Seattle in 1992 and volunteered more than $125,000 to stage the show, Ticketmaster demanded an additional $45,000 to print tickets. The following year, Pearl Jam’s manager made a deal with Ticketmaster on a charity show, wherein the company agreed to donate a dollar of its $3.25 service charge to the charity. But Ticketmaster unilaterally reneged days before the tickets went on sale.

It was clear Ticketmaster was attempting to make an example out of Pearl Jam, as

Ticketmaster thrived by swallowing adversaries. It acquired seven competitors between l985 and l99l.

last-minute hiccups began to plague every show they scheduled. First, the company backed out of an agreement to itemize service charges on tickets in Chicago, according to later congressional testimony. Then it briefly disabled the ticketing machines for an event whose promoter had allowed the band to distribute some tickets to its fan club in Detroit. Promoters and venue operators began to report back that Ticketmaster reps had threatened them with legal action simply for working with Pearl Jam, and even threatened to run the band’s longtime road manager out of the business.

When Pearl Jam began planning a $20-per-ticket tour in the summer of 1994, NACPA , the promoter trade group, faxed its members, counseling them not to play along with the tour, its proposed pricing structure, or any of the methods it might propose to sidestep Ticketmaster’s control. “[Ticketmaster] views the Pearl Jam issue as an all or nothing proposition,” wrote the executive director, Ben Liss, the man previously tapped to run the ill-fated Ticketron.

AJustice Department investigator caught wind of the memo, and encouraged Pearl Jam to compile a complaint it could use to prompt a formal antitrust inquiry. A congressional staffer named John Edgell organized a hearing to attempt to explain to the public how an ostensibly benign printer of concert and basketball tickets had become the subject of such fear and loathing.

Witnesses at the hearing, held on June 30, 1994, painted a picture of an all-powerful gatekeeper that maintained a very literal stranglehold over live music events. The venues were bound by purportedly consensually negotiated exclusive contracts, but their enforcers were generally not the venues but the concert promoters, whom one witness described as operating an open cartel. Service charges were primarily set by Ticketmaster, and there seemed to be no limit to their size—the average Ticketmaster service fee in 1997 was 27 percent—or to the number of additional junk fees for processing, mailing services, parking, or even capital expenditures. So if Pearl Jam asked to set the price below what Ticketmaster felt the market would bear, one witness explained, there was nothing stopping Ticketmaster from imposing a 100 percent fee.

Beneath the superficial scourge of high fees lurked a murkier problem, as Aero -

smith’s manager at the time, Tim Collins, meticulously explained. Ticketmaster, Collins said, offered artists no way of ensuring tickets were purchased by fans at all, and seemed in fact to have designed its system to be easily hijacked by professional scalpers and insiders, who were notorious for withholding large blocks of tickets for resale by “disreputable elements.” At a Los Angeles show where he and three assistants had taken it upon themselves to interview every attendee in the front section of the arena about where they’d gotten their tickets, Collins testified, every single one said they bought them from a scalper.

When Collins met with Rosen, who was both Ticketmaster CEO and minority owner, to negotiate a deal whereby Aerosmith would fund ticket distribution to its fan club in exchange for a “volume discount” on its service charge, Rosen tried to buy Collins off by offering the band an additional 50 cents per ticket, if he would agree to raise the ticket price and stop whining. “I told Mr. Rosen that his offer was like offering a cold man ice in the winter,” Collins told the committee.

Though it was competing for coverage with the first day of a preliminary hearing in the O.J. Simpson trial, the hearing made national news, mainly due to the fact that Pearl Jam members had testified in person. And though a lot of the coverage was superficial, the allegations raised by witnesses were substantive and disturbing. Rock music historian Dave Marsh described a litany of preposterous charges (including a parking fee for every ticket, whether the concertgoers arrived together or not), while characterizing Ticketmaster as “a ticket monopoly” that restricted “access to popular culture only for those who can pay very high premiums.”

Behind the scenes, Ticketmaster was

working a dizzying array of angles. Rosen tapped Ticketmaster’s then-owner Paul Allen to coax his attorneys, which also represented Pearl Jam’s publicity firm, to drop the case. Ticketmaster’s captive venue owners retained the former law firm of Anne Bingaman, at the time the assistant attorney general for antitrust, to establish an astroturf group to defend the company’s honor in the media. There is evidence

Ticketmaster tapped its onetime attorney Mickey Kantor, a close Clinton confidant then working as U.S. trade representative, to keep tabs on the case; it’s confirmed that Kantor had made calls on Ticketmaster’s behalf in 1992, while he was general counsel of Clinton’s presidential campaign. And two unrelated professionals involved in the case on opposite coasts separately told the Prospect that important legal documents began to disappear from their offices in the months after the hearing; both of them suspected break-ins.

By August 1994, Pearl Jam’s members were beginning to wonder if the company had somehow infiltrated the band itself. Drummer Dave Abbruzzese, who later called the Ticketmaster crusade “a waste of time,” was abruptly fired for vague reasons of philosophical differences. Abbruzzese’s lack of interest in the cause became a sticking point with the band.

A certain degree of paranoia was justified. Ticketmaster had apparently retained the services of one Marty Bergman, a freelance private investigator, sometime FBI informant, and renaissance con artist who had named one of his holding companies RICO, Inc. Bergman’s younger brother Lowell was a legendary investigative journalist, and Marty explained to committee investigators shortly after the hearing that he had been dispatched by his brother to produce a deep dive into the rock concert racket for 60 Minutes. This was a lie; Marty’s own 60 Minutes experience was limited to a small role in one 1991 investigation. Bergman’s second wife Laura Brevetti was an attorney at Ticketmaster’s New York law firm until 1993, and had a track record of getting involved in her husband’s activities.

In any event, Marty Bergman convinced an array of investigators, including committee staffer John Edgell and attorneys with at least one outside law firm involved in the case, to divulge sources, documents, and wisdom they had gleaned on everything from kickbacks to scalper relationships for

Pearl Jam attempted a Ticketmasterfree summer l995 tour. The band concluded the tour was cursed.

the “exposé” he claimed to be producing. “Marty was a con artist and he had me snookered,” remembers Edgell. “I spent untold hours with him.”

At a certain point, it dawned on the congressional staffer that the colorful freelancer was working for the other side. “A few months later [60 Minutes anchor] Mike Wallace came to town, and I brought it up with him, and his jaw sort of dropped,” remembers Edgell. “And then I got a call from [60 Minutes creator] Don Hewitt, who just kept saying, ‘Marty Bergman is a bad man. A bad, bad man.’ Still, I felt so stupid.”

Meanwhile, Pearl Jam attempted a Ticketmaster-free summer 1995 tour, working with a startup called the ETM Entertainment Network to locate random venues too remote or unusual to have been bought.

In response, Ticketmaster attempted to “plant [local] news stories” that would undermine Pearl Jam, according to a former publicist for the anti-Ticketmaster coalition. These stories suggested Pearl Jam had nixed certain non-Ticketmaster venues solely because they didn’t perceive them to be cool, or highlighted the security risks of performing in nontraditional venues. In more obscure outlets, including two dubious newspapers that The Village Voice said “looked like they were thrown together overnight,” stories written and edited by Bergman cronies sold a particularly shameless conspiracy theory suggesting Pearl Jam’s crusade was a cynical plot to help Sony enter the ticketing market.

The remote venues that Pearl Jam selected introduced an array of hurdles, some suspicious. In Salt Lake City, where Pearl Jam had scheduled two shows on the Wolf Mountain ski slope, a torrential downpour amid cold weather forced them to call them off at the last minute. In San Diego, where the band made a deal to play at the county fair, the sheriff’s department compiled a 14-page report urging authorities to cancel the concert, using arguments and data provided by Paul Wertheimer, a “crowd safety consultant” and anti-moshing activist the band suspected of being on Ticketmaster’s payroll. Then in San Francisco, after Vedder got a mysterious stomach ailment seven songs

into his set, the band concluded the tour was cursed, and canceled the remaining dates, reliably sending refund checks to thousands of disappointed fans and ultimately rescheduling the tour at Ticketmaster-sanctioned venues. “I’m way too fucking soft for this whole business,” Vedder told Spin

The week after the tour cancellation, on July 5, 1995, the Justice Department issued a two-sentence statement announcing it was “closing its antitrust investigation into [Ticketmaster’s] contracting practices,” though it would “continue to monitor developments in the ticketing industry.” Marty Bergman boasted to an attorney friend interviewed by The Village Voice that he had single-handedly “saved Ticketmaster from the antitrust investigation,” and that Ticketmaster was now “indebted” to him. In his recently published Pearl Jam biography, Hyden blames Generation X for sabotaging the probe, musing that the investigation “got crushed because [Pearl Jam’s] peers and even their fans, along with the federal government, lacked the resolve, energy, and imagination to come up with a better idea than simply allowing Ticketmaster to do all the bad things they were obviously doing.”

But Ticketmaster’s real savior appears to have been Charlie Black.

Black was a partner in the lobbying firm Black, Manafort, Stone and Kelly—yes, that Manafort and Stone—whose wife Judy, a veteran tobacco lobbyist, ran the Inter -

national Council of Shopping Centers. Black had worked on every Republican presidential campaign since 1972, and was in talks to sign on with the presidential campaign of his longtime friend Texas Sen. Phil Gramm when the unthinkable happened: The GOP won the House and Senate in 1994.

While Gramm was up for a powerful subcommittee chairmanship overseeing the budget of the Department of Veterans Affairs and the space program, in January he mysteriously swapped his spot for the chairmanship of the subcommittee overseeing the budget for Commerce, Justice, State and the Judiciary. Gramm made no headlines when, Edgell says, he threatened to slash funding to the DOJ ’s Antitrust Division. But after the Ticketmaster investigation closed, the Hill veteran figured it all out.

“Sure enough, the funding to the Antitrust Division was fully restored right afterward,” says Edgell, who had lost his committee job to the Republican Revolution and was working for a congressman “with zero interest” in antitrust. He thought about trying to get a reporter to write about the apparent quid pro quo, but “this stuff just happens so often in Washington … Charlie Black wouldn’t be doing his job if he hadn’t gotten [the investigation] dropped.”

Reached by email, Gramm and Black denied the allegations. Gramm’s assistant told the Prospect, “We know of no basis for the assertion in the inquiry.” Black wrote back directly saying he’d never worked for Ticketmaster and that his wife did not join the company until “a few years after” its antitrust investigation. But a 1996 SEC filing states that Judy Black joined the company as senior vice president of governmental affairs in March 1995, four months before the DOJ investigation closed.

Fred Rosen, who donated $1,000 to Gramm’s presidential campaign one month before the DOJ dropped the case, told Dean Budnick in the book Ticket Masters, “Charlie Black’s firm was one of the firms we used in the early ’90s.” (Bizarrely, Pearl Jam interviewed Black, Manafort, Stone and Kelly in January 1995 to promote its case against Ticketmaster on the Hill, but the band balked

A trade group fax counseled promoters to not work with Pearl Jam.

when Roger Stone, who made the presentation to the band’s management, wanted a million dollars to do the job, according to a longtime band representative.) As chairman of the firm, it would be unusual for Black to not know the identity of such a high-profile client affiliated with his wife.

By October 1995, Sen. Gramm had left the subcommittee chairmanship for a new post on the Finance Committee. His frenzied campaign fundraising was losing steam following revelations he had invested in a semi-pornographic movie in the 1970s, and within a few months he would back out of a 1996 presidential run to focus his efforts on winning re-election to the Senate. Gramm did win that race, and he would spend his third term allying with Bob Rubin and Larry Summers to repeal the Glass-Steagall Act (which had barred commercial banks from trading with consumer deposits), crush the regulation of over-the-counter derivatives, and slip a provision into a bill nicknamed the “Enron loophole,” exempting energy traders from government supervision.

As Gramm would later reflect after the titanic collapse of the financial system, thanks in part to many of the laissez-faire regulatory policies he helped create, “When I am on Wall Street and I realize that that’s the very nerve center of American capitalism and I realize what capitalism has done for the working people of America, to me that’s a holy place.”

The anti-Ticketmaster coalition was stunned by the sudden abandonment.

An investor in Pearl Jam’s alternative ticketing service ETM told newspapers he had been scheduled to present proprietary data substantiating Ticketmaster’s monopoly before DOJ investigators that week. A publicist hired by a consortium of rock bands to raise awareness of Ticketmaster’s anti-competitive tactics reached out to her contacts at the DOJ and found “they weren’t allowed to talk to us anymore.” She told the Prospect, “I think we all expected more from a Democratic administration.”

The vague explanation Attorney General Janet Reno later offered for dropping the probe involved the apparent discovery “that there were new enterprises coming into the arena” and so, by virtue of the theoretical existence of competition, “we did not have a basis for proceeding.”

Perhaps unsurprisingly, no “new enterprises” ever really made it into the arena. ETM shut down in 2000 after suing Ticketmaster for antitrust violations and settling. A service called NEXT Ticketing founded by Boston uber-promoter and longtime Ticketmaster loyalist Don Law was scrapped in 1999. A startup called Tickets.com founded with seed funding from Steven Spielberg merged with a rival after Ticketmaster sued the company for linking to its concert pages; it was driven out of the concert business and acquired by Major League Baseball in 2005.

But lack of antitrust enforcement aside, the most critical factor in ensuring Ticketmaster’s continued dominance over the concert industry was its relationship with Robert F.X. Sillerman, who unified the decentralized concert promotion syndicate into a behemoth that would come to be called Live Nation.

Sillerman was a Bronx-born radio station financier who curiously told reporters in 1999 that his family refused to tell him what the “X” in his name stood for until his 18th birthday. (It’s “Xavier,” and the “F” is Francis, a popular name among Catholics of the era, but Sillerman is Jewish.) A millionaire by age 21, Sillerman was reported in 1980 to have interests in 34 different companies, including a stock brokerage and the largest industrial flooring provider in New Jersey. But during the 1980s and early 1990s, he mostly bought radio stations, initially in a partnership with syndicated rock radio show host Bruce Morrow. A radio executive who “fell afoul” of him told Newsday in 1996 that crossing Sillerman had “caused me great pain. It has come back to haunt me. I’ve had feedback over the years, ‘Oh, you went after Bob.’”

Sillerman built four chains of radio stations between 1993 and 1995, using loopholes to sidestep strict federal caps on radio station ownership. After Congress repealed those caps in 1996, Sillerman became a billionaire almost instantly; three of his radio rollups were absorbed by fellow serial buyer

Pearl Jam met with President Clinton in the White House, where Eddie Vedder detailed the band’s troubles with Ticketmaster.

Clear Channel Communications. “In some markets he’s Pac-Man,” a trade publication editor said at the time.

By that point, Sillerman had begun to pivot into consolidating Ticketmaster’s concert promoter cartel, starting with Cellar Door in D.C., Magid in Philly, and (current Taylor Swift promoter) Messina in Houston. At least 13 of the 17 charter members of NACPA were absorbed by Sillerman’s conglomerate SFX . He spent more than $2 billion on acquisitions, including one of a startup co-founded by Michael Rapino, who is today the CEO of Live Nation.

Not everyone sold out happily. Cleveland’s Jules Belkin lamented in 1999 that “the major effect” of Sillerman’s shopping spree was that “ticket prices have risen dramatically … There is a history of what Sillerman does and it’s not entirely to grow an industry, but to grow it to where he can sell it.” Indeed, attendance at the top 50 concert tours plummeted from a high of 32.5 million tickets in 1994, the year Pearl Jam took on Ticketmaster, to 26.3 million five years later, while ticket prices soared by $10 just from 1998 to 1999. Belkin sold out in 2001.

It was the “relaxation of antitrust laws during the Clinton administration that led to SFX ’s rise to power,” Jim Koplik, whose Cross Country Concerts was another charter member of NACPA , told the Hartford Courant in 1999 from his new post at SFX. By 1998, Sillerman was boasting publicly that his promoters were responsible for a quarter of the tickets Ticketmaster sold each year.

Sillerman was not shy about his intentions for this new empire. He told Wall Street analysts on an investor roadshow that Ticketmaster had offered to float SFX an extra $20 million a year in kickbacks, but he refused, wanting instead to carve

out a whole suite of new charges just for promoters and venues. He would even tease the idea of a competing ticketing service, not an entirely idle threat, since Sillerman had acquired NEXT with its buyout of Don Law. But by November 1998, Sillerman and Ticketmaster had mended fences with a new exclusive fee-splitting agreement that also committed SFX to “use its reasonable best efforts” to exclusively employ Ticketmaster in every venue that hosted one of its events.

From then on, it was not entirely clear where one company ended and the other began. This remained the case even after Sillerman sold SFX in a stock swap valued at between $2.7 and $4.4 billion to Clear Channel in an audacious deal that broadened the concert cartel’s reach to nearly 1,200 radio stations. When the jam band String Cheese Incident found its fan club locked out of its usual allotment of tickets in 2002, it wasn’t sure which company to sue. As Mike Luba, one of the band’s managers, would say in Ticket Masters, “Were [Clear Channel] the bad guys, or was it Ticketmaster?”

It’s difficult to hyperbolize the cultural deadening that accompanied this lunatic frenzy of consolidation. Nearly all of Sillerman’s shopping sprees were financed with high-yield debt. Making the interest payments required an endless stream of layoffs. Radio stations across the country mercilessly fired local DJs and engineers and piped in hours of programming from San Diego, where moonlighting radio personalities went to sometimes absurd lengths to deceive listeners into believing they were local. Playlists became shorter and shorter; regional variations mostly disappeared. “Radio stations have lost their distinctive sound,” said the rock promoter Ron Delsener in a 2002 interview lamenting that “the same four [acts] are recycled so that all those cookie-cutter bands sound alike.” (Delsener was co- CEO of Clear Channel at the time.)

Throughout all this, Ticketmaster and SFX/Clear Channel—renamed Live Nation and spun off as a stand-alone concert business in 2005—continued to beat off regulators and class action attorneys. The DOJ announced an antitrust probe into SFX in 1998; nothing happened. In 2003, George W. Bush’s antitrust chief disclosed a probe into allegations that Clear Channel had retaliated against Britney Spears for hiring non- SFX promoters by removing her songs from radio playlists, a strat -

egy internally dubbed “negative synergy.” Clear Channel spent millions on lobbyists and campaign contributions; the investigation went nowhere. The company would later famously deploy negative synergy on the Dixie Chicks in retaliation for lead singer Natalie Maines’s criticism of the Iraq War. Taylor Swift would later say the Dixie Chicks’ blacklisting had “terrified” her as a young musician.

As music sales plunged, radio flailed, and music monopolies faded as a political lighting rod, Ticketmaster and Live Nation decided to make their commonlaw marriage official. They announced a plan to merge in February 2009, just days after inciting the rage of Bruce Springsteen fans with a scheme to redirect customers to Ticketmaster’s recently acquired scalper marketplace TicketsNow, despite cheaper first-sale tickets being available.

Springsteen posted a letter on his website opining that a Ticketmaster/Live Nation merger would be “the one thing that would make the current ticket situation even worse for the fan than it is now.” Yet somehow, Obama antitrust chief Christine Varney could not find it within herself to block the combination, asking the companies to instead sign a consent decree agreeing to divest certain (irrelevant) assets and promising not to retaliate against venue owners who chose to use competing ticketing services. An FTC regulator who sued Ticketmaster for deceptive practices regarding the Springsteen sale told the Prospect he was “stunned” by the merger approval.

For all its success at shareholder value maximization, the merger mainly cemented the public and regulatory acceptance of a collusive racket that dated back decades. And it likely surprised no one when the merged company broke the terms of its consent decree almost immediately by cutting off its concert tours from at least six amphitheaters that signed ticketing contracts with Live Nation’s only halfway significant rival, while simultaneously hatching an elaborate criminal conspiracy to sabotage a potential competitor by hacking into its databases to steal information. (Illustrating the toothlessness of the deal, the latter plot, which involved a scheme to punish the pop singer Adele for attempting to distribute a portion of concert tickets to her fan club, did not violate the consent decree.)

What had changed between Pearl Jam’s Ten and Adele’s 25 was the balance of power

Robert F.X. Sillerman unified the concert promotion syndicate into a behemoth that would become Live Nation.

in the music industry. As record labels faded into irrelevance with the collapse in album sales—of the 50 top-selling artists of all time, Taylor Swift is literally the only one to have debuted after 2000—Ticketmaster/Live Nation had thoroughly occupied the power vacuum. Pop artists, according to Live Nation CEO Michael Rapino, now derive about 95 percent of their income from concert tours. In the process, the company replaced the old multimillion-dollar record contract with the “360-degree deal,” wherein artists cede Live Nation the rights to not just their concert tours, but virtually everything fans might buy, from T-shirts to bootleg recordings to credit cards. This radically altered industry power dynamics, even for the rare star capable of moving millions of albums.

As touring became a far more important revenue generator for musicians, Live Nation marketed “dynamic pricing” as an artist-friendly innovation. Live Nation was caught in 2019 conspiring with a representative for Metallica to route tickets to the secondary market and split the profits of the upselling with the band.

Live Nation suddenly became a grand prize for monopolists who understood its capacity for dominance. Eventually, its majority shareholder (with 33 percent ownership) would be the longtime financier John Malone and his firm Liberty Media, which simultaneously bought up the nation’s only satellite radio outlet SiriusXM, online radio company Pandora, and finally in 2020 a controlling stake in the radio giant formerly known as Clear Channel (though it ultimately exited that deal). After Wall Street split the radio venue and concert promotion sides of the business, Liberty Media got the Clear Channel band back together.

On a CNBC appearance about the Taylor Swift fiasco, Liberty CEO Greg Maffei was borderline gleeful noting that her promoter Lou Messina worked for AEG, yet “chose to use us because we are, in reality, the largest and most effective ticket seller in the world … even our competitors want to come on our platform.” AEG retorted in a statement: “We didn’t have a choice.”

Swift herself weighed in on Instagram, expressing that it was “excruciating for me to just watch mistakes happen with no recourse.” It was a startling admission from a star who has confronted monopolists from Spotify to Apple to the private equity firm Carlyle Group and won, and a testament to

the powerlessness musicians feel going up against the seemingly untouchable giant.

But this time could be different. As early as 1996, Cobain’s widow Courtney Love was already regretting her failure to join Pearl Jam’s war, likening the musician she’d once nicknamed “Eddie Bedwetter” to Abraham Lincoln and telling reporters she was “embar-

rassed about how wrong I was about him.” Today, for the first time in decades, regulators are determined to fully enforce antitrust laws, and public tolerance of monopolistic abuses is increasingly waning. The Swift nightmare, as FTC chair Lina Khan pointed out in December, “ended up converting more Gen Zers into anti-monopolists overnight than anything I could have done.”

A taller order may be convincing stars and industry insiders to speak out against the leviathan that feeds them. As Love later reflected on the rock community’s sluggish response to Pearl Jam’s battle: “Nobody helped them. I sat there with a needle in my arm. Now it’s time for all of us to step up.” n

Maureen Tkacik is a senior fellow at the American Economic Liberties Project. Krista Brown is a senior policy analyst at the American Economic Liberties Project.

Pop artists now derive about 95 percent of their income from concert tours, radically altering industry power.

Americans’ Climate Migration Has Begun

The first generation of climate migrants tries to cling to the places they call home, but bureaucrats, wallets, and an overheating planet have the final say.

By Gabrielle Gurley

The Great Displacement: Climate Change and the Next American Migration

By Jake Bittle Simon & Schuster

Patrick Garvey loved living in the Florida Keys. Famed as an oasis for quirky folks, the idyllic limestone island chain offered Garvey, who’d journeyed down from the Canadian Maritimes, the kind of off-the-beaten-track life he craved. On isolated Big Pine Key, he found his passion project, cultivating a rare

tropical fruit grove. He had a wife, twin daughters, and a pet pooch. Life was good— until September of 2017, when Hurricane Irma made a turn for the Keys. With his family already out of harm’s way, he stayed put and spent harrowing hours in a nearby school shelter with hundreds of other evacuees. Emerging hours later, Garvey picked his way across the pulverized island. He found his grove with only one solitary tree.

Hurricanes expose the perils of living on the front porch of the climate crisis. In the coming decades, severe storms, floods, fires, heat waves, and drought will force millions of Americans to search for new

Books

homes. In The Great Displacement, journalist Jake Bittle delivers powerful stories of seven scarred communities and their people, compelled to cope with loss, unresponsive bureaucracies, and the prospect of future threats. Journeying across the South to the Southwest and into California, he digs deep into the personal experiences of these first climate crisis migrants and delivers a potent appraisal of the myriad forces already uprooting and complicating life for Americans as they scatter across the country.

Given the sweep of the continental United States, migration is a portal to some of the most fraught chapters in the country’s

An aerial view of Paradise, California, after it burned to the ground in 2018

CULTURE

history. Bittle, a staff writer for Grist, an online climate and justice magazine, opens with a nod to the early-to-mid-20th-century Great Migration, which propelled some six million terrorized Blacks out of the South. On its surface, by contrast, the climate crisis is an equal-opportunity, slow-motion catastrophe in progress, one that affects everyone regardless of melanin content or whether you are penniless, bank in Bitcoins, or stuff dead presidents in a wallet. Bittle underlines this egalitarian starting point, but proceeds by reporting how it’s overlaid on the nation’s historic and enduring fault lines of race, ethnicity, and class that structure where Americans live today and where they end up in the aftermath of a cataclysm.

Black communities have long been sited in perilous areas. One place Bittle profiles is Lincoln City, a Black neighborhood in Kinston, North Carolina. Settled after the Civil War, the community’s formerly enslaved people made their homes on a swampy riverbank that whites knew to be susceptible to flooding. (In 1981, the Army Corps of Engineers completed one dam to protect Raleigh and decided against a second to protect areas like Kinston to the south.) Most of their descendants refused buyouts after Hurricane Fran’s flooding in 1996. Three years later, when Hurricane Floyd decimated Lincoln City, county officials did not have to ask; residents came to them. A perverse kind of managed retreat then dispersed the mostly senior residents who did not have flood insurance elsewhere throughout the region and the country. But the white residents of the state’s Outer Banks, a series of barrier islands, have been the repeated beneficiaries of beach nourishment and other projects to protect their homes and other properties.

A superb storyteller, Bittle is at his finest as a chronicler of the loss of place and the sense of belonging, and the frustration that financial constraints pose for the victims of natural disasters. These elements combined to convince some survivors to stay in proven dangerous zones like Coffey Park, a Santa Rosa, California, neighborhood ravaged by the 2017 Tubbs Fire. He spotlights the particular socioeconomic and demographic markers that determined whether people moved to someplace safer and affordable or stayed in imperiled places despite the risks and costs. After the embers came over hills and the highway-cum-firebreak they’d thought would protect their com -

munity, Kevin Tran and his family escaped in two cars. His father took their dog in one. Tran had his mother ride with him in a second, fearing that she might double back to retrieve photo albums. They made it out with just minutes to spare before the fire reduced their neighborhood to ashes. Their insurance payout came nowhere near to covering what it would cost to live anywhere else in metro San Francisco. They opted not to move out of their diverse, congenial middle-class community, a rarity in that part of California, that they all loved.

José Guzman, his wife, and four children took a roundabout route back to Coffey Park. Following the fire, they initially moved clear across the country to Louisville, Kentucky, for several years. The lower cost of living and fewer climate hazards there, however, proved no match for the emotional tug of California life, even though that meant returning to rebuild on a burned-out plot of land with an outstanding mortgage. A wealthy suburban couple, Vicki and Mark Carrino, stayed on, too. They returned to Fountaingrove outside Santa Rosa. Despite the near certainty that fire still loomed in their future, the Carrinos were so bonded to their former homestead that they built an almost exact (and expensive) replica of their former home with their insurance proceeds and savings.

Why? Sociologists Anna Rhodes and Max Besbris have explored the concept of a “forever home” in their study of a Houston suburb flooded by Hurricane Harvey. They found that the appeal of a forever home—a dwelling for a lifetime, surrounded by family, friends, and strong community ties—underpins longtime residents’ decisions to remain, rebuild, and defy the obvious dangers.

Living in perilous areas means that public officials must incorporate “resilience” into community planning—that is, managing and hardening vulnerable places against future disasters. But is resilience just another word for nothing left to lose? Norfolk, Virginia, increasingly prey to sea level rise, has embarked on fortifying the Chesterfield Heights neighborhood by raising streets, improving drainage, and building berms. But Bittle deems the case for this multimillion-dollar project to be disingenuous, a slender benefit that only staves off the inevitable. Even as the coastal real estate markets already display hints of the bubble that preceded the Great Recession, he notes that at some point in the not-toodistant future, even before chronic flooding

overwhelms some coastal neighborhoods in Norfolk and beyond, that market is likely to crater.

What stays true is them that have gets. When the town of Paradise, California, burned to the ground in 2018, one group of migrants found an agreeable place to settle down in the Boise, Idaho, suburb of Nampa. Some of them had been couch-surfing or struggling with rent payments. But one enterprising real estate agent, enchanted with her new home, convinced some of her fellow residents to follow her lead and settle in Idaho. Thanks to her ministrations, they found an appealing place with less climate risk and with homes they could afford. Left to fend for themselves, hundreds of other Paradise evacuees fell into homelessness, consigned to a tent city in a Walmart parking lot ten minutes away from their incinerated town.

If Bittle’s sojourn through threatened places lands on a discordant coda, it is because he provides few solid answers to his question of where the climate-displaced will go. Instead, Bittle proffers plausible scenarios with plenty of caveats. While a few small communities have opted for “managed retreat” (planned moves of people and assets out of danger zones), he argues that it will not work as well for larger places. Bittle cites Boston, New York, Miami, and Charleston, South Carolina, as especially endangered, and notes that the cost of buying out homes and moving other assets away from tide-impacted shorelines almost anywhere along the East Coast will be difficult and pricey. To be sure, forward-thinkers in Charleston are taking small but significant steps to move people out of threatened areas. Hurricane Sandy did force New York to cede sections of Staten Island to the water. But developers still hold sway. The rebuilt homes in the post-Sandy Rockaways now have million-dollar-plus price tags.

After natural disasters that render areas or regions uninhabitable, Bittle argues, many people will seek out deeply resourced cities that can recover faster than rural areas. The long-term effects of climate

Bittle is at his finest as a chronicler of the loss of place and the sense of belonging for victims of natural disasters.

change also prompt him to provide some regional speculations. Cincinnati and Buffalo could become more attractive for climate migrants outrunning disaster. Buffalo (this season’s brutal snowstorms notwithstanding) boosters have been selling the city as a climate refuge. While retirees make decisions on a shorter timeline more inclined to warmth, younger people may well steel themselves for the climate crises ahead, and northern tiers of the U.S. are more likely to house them. Here, Bittle rightly raises the ugly specter of climate gentrification.

Despite what census data reveals about population flows to Texas, Florida, and Arizona, for instance, the South and Southwest will actually disgorge people and industries in the coming decades due to increasing temperatures and water scarcity. As long the megadrought continues, this calamity almost guarantees a shift in migration patterns for a popular city like Phoenix. And the Southeast also has its own unique water scarcity issues

In crafting his concluding solutions matrix, Bittle treads too gently on federal and state-level deciders. Steering taxpayer dollars more quickly to victims in the wake of disasters is certainly warranted. Bittle documents agency foot-dragging in distributing relief dollars and exposes deeper

shortcomings, like the policies that block replacing affordable homes like trailers. If anyone doubted it, he makes clear that reforms commensurate with the emerging migration conundrum are overdue.

States also need to move on home insurance regulatory overhauls. After two years of fire seasons that compelled the California insurance industry to pay out more than $12 billion in claims, the companies responded in the way that insurance companies trying to recoup tremendous losses invariably do: by jacking up premiums. After the Tubbs Fire, Bittle reports, one wealthy couple received the bill for their new insurance premium, which came to $8,000 a year. If the Great Recession punctured the illusion of the American dream of home ownership for people of color who’d succumbed to subprime mortgage deceptions, the climate crisis now poses similar hazards to homeowners who are underinsured or uninsured against flood and fire losses. Here again, many are likely to be low-income people of color.

Such problems are exacerbated in red states averse to regulation. In the Republican regions of the Southwest, real estate developers operate as islands unto themselves, building exurban communities like Merrill Ranch in Florence, Arizona. There, credulous town

officials, not thinking past their own political expiration dates, promised infinite supplies of scarce water to incoming residents. Meanwhile, nearby cotton farmers face financial ruin inflicted by a nearly dry reservoir and limited water rights.

Unfortunately, Bittle sidesteps the partisan divide that grinds up solutions-oriented policymaking into fine dust. Federal and state agencies, insurance companies, and real estate concerns respond to political rules-setters. Some state lawmakers and nonprofits are actively exploring solutions to the climate crisis, as Bittle notes, but not enough are. Indeed, if climate is a defining crisis of the 21st century, the federal actors, the president, members of Congress and state leaders, and regulators bear monumental responsibilities here.

Bittle duly recognizes that the Democrats’ renewable-energy climate package is a step forward (though it comes with generous tax credits and lets fossil fuel producers off the hook), and the historic infrastructure bill provided billions to FEMA programs. But even with these billions, there are not enough dollars to aid every threatened place. Nor is the fiscal path ahead certain in a volatile and chaotic environment. The Republican House, with its chaos-seekers, climate deniers, and fossil fuel supporters, will ensure that forward motion on climate adaptation and mitigation will be nonexistent so long as they are in the majority.

As for the questions Bittle raises about Americans’ social responsibilities to people in imperiled places, the answers are obvious and unsettling. History, politics, and racism in places like Lincoln City converged to dictate who must move, who gets to live where, and at what costs. Absent a big step up from political deciders to plan for these massive population shifts, climate crises could usher in decades of economic dislocation and racial and social turmoil.

Like thousands of other survivors of natural disasters, Bittle relays that several more personal crises forced Patrick Garvey to grapple with some very difficult decisions. His wife had decided that a separation beat eking out a precarious existence on a decimated Big Pine. He had no more money for repairs. Another storm might destroy any fruit trees he replanted. Rising brackish water could seep into the soil and kill off the trees, too. Garvey agonized over how to restart his life. “What happened next,” Bittle writes, “was for the water to decide.”

Patrick Garvey’s tropical fruit grove on the Florida Keys was destroyed by Hurricane Irma.

Can China and America Live and Let Live?

Détente with the Chinese regime had many downsides. Open conflict might be much worse.

By Blaise Malley

Pacific Power Paradox: American Statecraft and the Fate of the Asian Peace

By Van Jackson Yale University Press

In the last half-decade or so, the United States’ political and national-security establishment has re-embraced great-power competition as the organizing principle of American foreign policy at an alarming rate. After 30 years of relative calm between major nations after the collapse of the Soviet Union, Democrats and Republicans alike have concluded that rivalry with China will be the defining challenge of the next generation of American national security. They justify that conclusion by arguing that rivalry is inevitable and that countering Chinese influence in Asia is crucial to maintaining regional stability.

“China has mounted a rapid military modernization campaign designed to limit U.S. access to the region and provide China a freer hand there,” reads the Trump administration’s December 2017 National Security Strategy. “China presents its ambitions as mutually beneficial, but Chinese dominance risks diminishing the sovereignty of many states in the Indo-Pacific. States throughout the region are calling for sustained U.S. leadership in a collective response that upholds a regional order respectful of sovereignty and independence.” The NSS, along with the 2018 National Defense Strategy (NDS), codified growing bipartisan concerns about China’s influence, concerns that had percolated in think tanks and the bureaucracy during the Obama years and become politically viable under Trump. The conventional wisdom

around this question went something like this: The post–Cold War consensus that welcoming China into the global economy would lead to political liberalization was deeply misguided, and China was now using the advantages created by years of skirting international norms to threaten stable U.S. leadership in Asia and around the world.

In his new book, Pacific Power Paradox: American Statecraft and the Fate of the Asian Peace , Van Jackson, a former Defense Department staffer during the Obama administration and current professor at Victoria University of Wellington, disputes both the post–Cold War narrative and the new hawks. Jackson makes the case that while détente with China may not have always served to accomplish American policy goals, Washington’s relationship with Beijing was more often a stabilizing force in the Asia-Pacific than a destabilizing one, and that outside of détente with China, U.S. policy was not as foundational to the Asian peace as American narratives may suggest. “U.S. détente with China—the flawed but long-lasting cooperative relationship between Asia’s two largest powers,” Jackson asserts in the book’s conclusion, “has been a vastly underappreciated source of regional stability since the 1970s.”

Pacific Power Paradox sets out to answer crucial questions about America’s role in the world. These include: “How much has America really mattered, for good or ill?”

“To what extent has Washington been not just a source of, but also a threat to, regional security?” and “What might the United States do to shore up an Asian peace that is today under tremendous strain?” Jackson’s account is a deeply researched analysis of the seven presidents (not counting the incumbent) who have overseen a more than 40-year-long stretch in which “no interstate wars have been initiated in Northeast Asia,

Southeast Asia, or the Pacific.” Each chapter of the book focuses on one of these presidents’ terms in office, and each is split into several sections: U.S. forward military presence in Asia, the White House’s handling of alliances in the region, economic interdependence, regionalism, democracy, and good governance. Jackson details American relations with countries throughout the region, notably Japan, North and South Korea, the Philippines, Vietnam, and the other countries of the Association of Southeast Asian Nations (ASEAN). But for the purposes of this review, the most important theme is the nature of the great-power détente with China.

Maintaining an increasingly fragile peace in Asia will require reconciling two competing beliefs: one, that U.S. competition, if not outright rivalry, with China is an inescapable fact of American statecraft, and two, that the ability to keep that rivalry within certain limits, and avoid crossing certain lines, has been crucial to achieving peace in Asia in the first place.

Jackson points to several times over the last 40 years in which American presidents faced a fork in the road vis-à-vis the relationship with China, and each time Washington opted against antagonizing Beijing.

Following Richard Nixon’s rapprochement with China in the early 1970s, and some hiccups in the relationship during Gerald Ford’s presidency, Jimmy Carter’s administration sought to strengthen ties because a “genuinely cooperative relationship between Washington and Beijing would greatly enhance the stability of the Far East,” as then–National Security Adviser Zbigniew Brzezinski argued.

Internal tensions were often starker during Republican administrations, due to disagreements stemming from the party’s varying levels of commitment to anticommunism, foreign-policy realism, and a corporatist influence from U.S. businesses hungry for Chinese markets. Despite some debate within the administration, Jackson states that in the Reagan years, the United States ultimately fulfilled Assistant Secretary of State John Holdridge’s statement that “our long-term objective is to enhance greatly the stability of the region by strengthening U.S.-China ties.”

In June 1989, shortly after George H.W. Bush ascended to the presidency, he faced a tough choice during the Tiananmen Square massacre “between putting the weight of

U.S. influence behind Chinese society or behind the CCP leaders with whom Bush had cultivated close ties over the years,” writes Jackson. “Bush chose the latter.” It was one of many examples of the United States rating economic or political priorities over human rights or democracy in Asia.

Jackson makes an interesting choice to cover Presidents Clinton and Bush II in just one chapter, illustrating some of the continuations in policy between the two men who presided over the so-called unipolar moment. Clinton is often held responsible for accelerating China’s incorporation into the global economy because of his corporatist approach to economics and his push to grant China normal trade relations status and permit them to be a full member of the WTO. Jackson agrees with that assessment. “[E]ngagement and integration not only matched the liberal rhetoric of Clinton’s national security policy,” he writes. “They were far better for the U.S. economy’s growth, which

trumped just about every other foreign policy consideration.”

Many might disagree with Jackson’s economic analysis, but his argument that engagement with China was beneficial to the Asian peace is more convincing. Great powers will always compete for international influence. But the United States and China have thus far managed to avoid direct confrontation, which has held Chinese foreign-policy adventures and other potentially combustible regional dynamics in check. For instance, that relationship has been key to ending the conflict between Vietnam and Cambodia and keeping a lid on the erratic North Korean regime.

For several decades starting in the ’70s, détente with China helped protect Taiwan’s independence and channel Chinese ambition in peaceful directions. As Jackson explains, “The détente that followed restrained Chinese military adventurism after 1972 and moderated China’s approach to Taiwan starting in 1979 … Détente also

gave rise to foreign policy ideas in China centering on peaceful development. It incidentally accelerated and deepened economic interdependence, both within the region and between the great powers.”

Alas, détente started to crack in the mid2000s. Initially, Bush made hawkish sounds on China, but spurred by 9/11 and a shift away from Asia and toward the Greater Middle East, he sought to turn China into a “‘responsible stakeholder’ in what policy makers referred to with increasing frequency as the ‘liberal international order.’” But at the same time, there was a sense that the wars in Iraq and Afghanistan had only served as a mere temporary obstacle in an inevitable rivalry between the United States and China. And simultaneously, Beijing was prepared to take full advantage of an American empire that had been unquestionably weakened by two failed wars.

During the Obama years, think tanks and the bureaucracy began to adopt the rhetoric of great-power competition with China.

Since Nixon, American presidents have faced a fork in the road in the relationship with China; each time, they opted against antagonism.

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Jackson contends that the Obama White House strained to hold together détente with China even as conventional wisdom in the nation’s capital pulled in the opposite direction, at one point attempting “to stop the Pentagon from even using the phrase ‘great power competition.’” But such language became common in Washington, and China interpreted such rhetoric as a sign that competition was indeed unstoppable. Obama left office with détente—and peace in Asia—hanging by a thread.

While Jackson argues initially that President Trump displayed a “shocking amount of continuity … in U.S. foreign policy, especially toward East Asia and the Pacific,” he later concludes that his administration displayed a “transgressive rejection of any semblance of détente with China in favor of unabashed rivalry,” which was a real change. His administration’s decision to loudly and insultingly embrace rivalry with China will likely have long-term effects for American foreign policy. After decades of teetering on the edge of open rivalry—and barely maintaining peace in Asia, occasion-

ally despite their best efforts—both of those realities may be over in the near future. After decades of responding slowly to changes in China, largely ignoring their human rights abuses and increasingly assertive foreign policy, and allowing their mercantilism to have a terrible effect on our national economic well-being, it is understandable that policymakers in the U.S. would come to believe change is warranted. But Jackson offers words of caution for a slugging match with China—for American domestic politics, but also for the future of Asia’s vulnerable peace, including the ethnonationalism and

“clash of civilizations” rhetoric that is driving extreme politics around the world. Beyond that, “you risk not only arms races, proxy conflicts, and real wars, but also negative externalities like hate crimes, McCarthyism, circumscribed civil liberties, and militarism generally,” writes Jackson.

None of this is to suggest that competition with China is wholly unmerited. Beijing and Xi Jinping bear their own share of responsibility for the deterioration in relations between the two powers. But Washington embraced great-power competition as a defining lens of national security exceptionally quickly, in part because it appeals to so many people from varying parts of the political spectrum. One only has to look at Vladimir Putin’s Russia to see the risk of a dictatorship that feels it has no reason to maintain its connections to the West. China and America will likely be the two global powers for the rest of this century; it would be wise to learn to live with each other. n

Blaise Malley is a reporter at Responsible Statecraft and a former Prospect intern.

Chinese president Xi Jinping bears some responsibility for the deterioration in the U.S.China relationship, but so does Washington.

Trump’s decision to loudly and insultingly embrace rivalry with China will likely have long-term effects for American foreign policy.

Human Intelligence

The

By Francesca Fiorentini

The Special Committee to Investigate Hunter Biden’s Lap Closed Session

March 3, 2023

Attendance:

Rep. Matt Gaetz (R-FL) (chair)

Rep. Andrew Biggs (R-AZ)

Rep. Lauren Boebert (R-CO)

Rep. Paul Gosar (R-AZ)

Rep. Marjorie Taylor Greene (R-GA)

Rep. Jerrold Nadler (D-NY)

Minutes:

Call to Order

Rep. Gaetz called the meeting to order at 3:17 p.m. Late start on account of Rep. Greene filming Cameo requests in the congressional gym. Gaetz called the meeting to order with the singing of “McCarthy’s a Bitch” to the tune of “God Save the King,” as stipulated in negotiations over the House Speaker vote.

Image Reconstruction Report

Rep. Boebert unveiled a successful 3D-printed rendition of the unit, based on the multiple “Elon-liberated” photographs. Rep. Gaetz remarked on the impressive size. Boebert consulted a MAGA urologist and someone described as “Trevor from the D.C. Apple Genius Bar” to understand both the scope and shape of it and the angle of the iPhoneography. Instructions were then given to an

animator (who has never worked for Woke Disney) to mock up and print the model. Total spent: “$450,000-something” according to Boebert, who said she will bring receipts. Rep. Nadler reminded the committee that all expenses must be accounted for.

“Gets It From Dad” Update

Rep. Biggs presented the results of the action plan to find out if Hunter’s endowment was yet another thing his father bestowed on him. Unfortunately, the Secret Service was unsuccessful in convincing the president that his Shirley Temple recipe had not been altered, and he opted for his usual warm whole milk instead. This left the president far too conscious to execute the investigation. Biggs presented a new proposal to sew a small camera into the president’s Land’s End pajamas. There was some discussion of logistics. Rep. Nadler reminded the committee of the illegality of both concepts.

“ Does Crack Help?” Report

Rep. Gosar reported back on Operation Smoked Wood regarding how crack cocaine, when smoked, affects the unit, which could mean that the pictures are fake news. Does the member present itself as larger or smaller if crack is smoked? Gosar’s findings showed no change. Does it present itself harder or softer? Gosar’s findings were indeterminate, as he said he began “calling his boys to see who wanted to burn a cross” and lost track of time, or lost “crack of time,” as he put it. Unclear whether that

was an intentional pun. Rep. Nadler again reminded the committee of the illegality of buying and smoking crack cocaine.

Motion #1

Rep. Greene raised a motion to subpoena the unit for “doing a Me Too” to America. Rep. Nadler asked how that would work specifically. Greene mumbled something about Nadler and space lasers. Rep. Gaetz laughed. Rep. Boebert seconded the motion. Brief discussion about whether parts of the body can be called to testify before Congress. Motion was adopted. Nadler dissolved an Alka-Seltzer into his water.

Motion #2

Rep. Biggs raised a motion to assist Rep. Gosar in Operation Smoked Wood, which would necessitate locating more crack cocaine. Biggs said he “knew a guy.” Gosar seemed to second the motion, might also have been scratching his face. Motion is adopted.

Announcements

Rep. Gaetz is going to be holding a midnight BYOB screening of the unedited Hunter Biden Laptop Tapes, followed by a Hunter Biden look-alike contest.

Adjournment

There being no further business to discuss and the Special Committee to Investigate Other Things About Hunter Biden needing the conference room, the meeting was adjourned at 5:15 p.m. n

GOP House majority gets down to the nation’s business.

Putting fundamentals above fear and factionalism

By Randi Weingarten, President AMERICAN FEDERATION OF TEACHERS

As educators and families have grappled with the challenges of teaching, learning and reconnecting during the COVID19 pandemic, you would hope that elected officials would have done all they could to help educators and families cope, recover and thrive. Instead, over the past three years, legislators in 45 states proposed hundreds of laws making it harder— laws seeking to ban books from school libraries; restrict what teachers can say about race, racism, LGBTQIA+ issues and American history; and limit the school activities in which transgender students can participate. After making untold concessions to farright members of Congress to eke out a victory, one of Kevin McCarthy’s first pledges as House speaker was to pass bills to address “woke indoctrination in our schools.” These culture wars may be good fodder for right-wing politicians. But when parents and voters of all ideologies prioritize their goals for schools today, they want something very different. They want what educators want—safe and welcoming environments and a focus on essential knowledge and skills.

The American Federation of Teachers commissioned a survey of voters and public school parents in December to examine public education as a 2022 voting issue and the public’s education priorities for 2023 and beyond. Their top priorities include developing students’ fundamental skills in reading, math and science; ensuring all children, regardless of background, have an opportunity to succeed; developing critical-thinking and reasoning skills; teaching practical life skills; and preparing students to succeed in college or careers.

We asked respondents to prioritize policies for improving public education. Expanding access to career and technical education, addressing staff shortages, reducing class size, and improving literacy skills top the list. And we asked which approach should be a higher priority for improving education: making sure schools and teachers have the support and resources to meet the needs of all students, or giving parents more say in what children are taught and stopping schools from teaching a “woke, liberal” agenda, as governors like Ron DeSantis and Glenn Youngkin have advocated. Parents and voters strongly supported the first priority. We also asked about another concept advocated by anti-public school crusaders like billionaire Betsy DeVos: giving parents more choice over which schools their children attend, including

taxpayer funding for private schools. By an 80 percent to 20 percent margin, voters and parents want policymakers to focus on improving education in the public schools rather than expanding school choice. Parents and the public are concerned about shortages of teachers, counselors and nurses. They worry about inadequate funding for schools, students falling behind academically during the pandemic, lack of support and respect for teachers, and school safety. And this survey was conducted before a teacher in Newport News, Va., was shot and critically wounded in her classroom, reportedly by a 6-year-old child. No one has emerged unscathed from the hardships of the past three years. At least 220,000 children in the United States have lost a parent to COVID-19. Young people have lost valuable in-person education, school-based support, and connections with their peers and caring adults. Educators have experienced the hardest years of their professional lives, only to be blamed for school closures caused by a pandemic, labeled as “groomers” and accused of teaching “filth.”

These accusations can scare teachers away from having important classroom conversations that are necessary to prepare students for their

roles in a healthy democracy. And politicizing education and denigrating teachers exacerbates the educator shortages that already are at crisis levels. Countless people have asked me how, in this climate, we can recruit and retain teachers. We must respect, appreciate and pay them more, of course. But we should also give them the tools, time and support they need to do their jobs.

We must trust teachers to teach. And, frankly, parents and voters do. Three-quarters of parents say that teachers in their schools generally stick to teaching appropriate academic content and skills. Voters see the culture wars as a distraction from schools’ core mission of educating students, and they believe that politicians who are pushing these issues are doing so for their own political benefit. Not surprisingly, public school teachers top the list of who parents and voters trust to have the right ideas for public education, while politicians rank dead last.

Educators’ North Star is helping children recover and thrive academically, socially and emotionally. This survey shows a deep well of support for educators, for the promise and potential of public education, and for the investments parents want to help their kids.

Weingarten reads to students at Buckeye Primary School in Medina, Ohio, on

Photo: Pamela Wolfe

Parents want what educators want—safe schools and a focus on essential knowledge and skills.

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