Cracking the Matrix: Economic Fallout of Government 2021 Policies

Welcome to the Real World Data

In “The Matrix,” Morpheus reveals to Neo that the reality he perceives is a constructed illusion designed to keep him under control. This analogy starkly illustrates the current economic landscape shaped by the Inflation Reduction Act and the Infrastructure Investment and Jobs Act. Despite their well-intentioned goals of promoting renewable energy, cleaner automobiles, and increased jobs, these legislative efforts have underscored the failures of government intervention in the free market. Since their inception, the American economy has experienced a -20% loss in purchasing power, the highest interest rates in 24 years, and a national debt that has ballooned to $35 trillion. These outcomes highlight the disconnect between the ambitious green objectives and the practical economic consequences, reminiscent of the disillusionment Neo faced upon awakening from the Matrix. The initial appeal of these policies, much like the illusion in the Matrix, ultimately reveals a stark reality: without viable economic planning, even the most well-intentioned initiatives can lead to significant economic strain and public discontent, as reflected in President Biden’s approval ratings causing him to drop out of the 2024 election.

The Matrix of Government Spending

The Inflation Reduction Act and the Bipartisan Infrastructure Law were designed to address renewable energy and modernize infrastructure through substantial financial investments. Trillions of dollars were printed and allocated to stimulate demand for renewable energy and electric vehicles (EVs). The Inflation Reduction Act allocated $369 billion (out of the $1.5 trillion total amount) for clean energy initiatives through tax credits, theoretically boosting U.S. manufacturing. However, U.S. manufacturing has been in recession, contracting for over 12 months. The Infrastructure Bill, with its $1.2 trillion budget, aimed to modernize infrastructure, including a global electric vehicle network, renewable high-speed trains, and widespread Wi-Fi.

These legislative efforts were supposed to save Americans money on their electricity bills, yet the cost of electricity has risen 33% since these bills became law, averaging an 11% increase per year. Americans, much like Neo awakening from the illusion in “The Matrix,” are now confronted with the harsh reality each time they receive their monthly electricity bills.

From an economic standpoint, the fundamental principles of supply and demand have been significantly disrupted. The artificial increase in demand for renewable energy and EVs, driven by these government incentives, has not been met with a proportional increase in supply. Instead, supply constraints and increased costs of production have led to higher prices.

Moreover, the government’s deficit spending has surged from $1 trillion per year before 2021 to about $2 trillion per year. This substantial increase in the money supply has led to inflationary pressures across the entire economy.

Austrian economics teaches us that artificial manipulation of the money supply leads to malinvestment and economic distortion, and the current scenario provides a textbook example. The influx of money into the economy without corresponding increases in goods and services has resulted in inflation, higher costs for goods and services, and eroded purchasing power. The ambitious green objectives of these bills, though well-intentioned, have resulted in unintended economic consequences, highlighting the perils of extensive government intervention in the free market.

As Americans walk through the door of economic reality, they find themselves in a situation analogous to Neo’s realization in “The Matrix”—the illusion of a controlled, beneficial economic environment is shattered, revealing the true consequences of these policies (there is no spoon or there is no short cuts). The significant rise in deficits and the subsequent increase in the money supply have not only failed to achieve the intended outcomes but have also burdened the economy with increased inflation and economic instability.

Electric Vehicles: Charging Into Oblivion

The EV market tells a similar tale of disappointment, even with a massive tax credit ($7,500) that was supposed to boost demand for EVs for Americans have failed. The anticipated surge in demand failed to materialize, leading Goldman Sachs Research to lower its forecast for growth in the sector. Their bear scenario, predicting a year-over-year decline in EV sales volume in 2024, has become more realistic given the prevailing negative factors.

Decline in EV Sales and Market Dynamics

California, the leading state in electric vehicle adoption, has seen its once-robust sales growth come to a screeching halt, signaling the dramatic burst of the EV bubble. Electric vehicle sales in California, the bellwether for the nation’s green ambitions, have turned negative: 101,443 all-electric cars were registered in the state in the second quarter of 2024, down from 102,730 in the second quarter of 2023, a -1.2% drop. The growth rate plummeted from a high of 55% last summer to 16% in the fourth quarter of last year, 2% in the first quarter of this year, and has now gone negative, marking a precipitous decline.

Despite the initial hype, numerous EV manufacturers such as Fisker, Lordstown, and Okamoto have filed for bankruptcy, with others like Nikola, Lucid, and Rivian teetering on the brink of collapse. Even the industry titan Tesla has seen its stock plummet by a staggering 60% from its 2021 peak. The $7,500 tax credit, intended to boost EV sales, has proven woefully ineffective, as the high cost of EVs remains a significant barrier for most Americans.

Malinvestment and Inefficiency in Infrastructure Development

The Biden administration’s ambitious $7.5 billion plan to install half a million EV charging stations has resulted in the completion of a mere seven stations, illustrating a staggering inefficiency and misallocation of resources. This scenario underscores the concept of malinvestment, where capital is allocated to projects that do not yield the expected returns due to artificial market interventions.

Infrastructure Law

In 2021, Congress allocated $7.5 billion to build tens of thousands of EV chargers across the United States, aiming to support President Biden’s goal of establishing 500,000 charging stations. As of early 2024, only seven charging stations with a total of 38 charging spots are operational across four states (Hawaii, New York, Ohio, and Pennsylvania), with construction underway in four other states. This epic failure highlights how government intervention often falls short in providing the market with what it truly needs, revealing the stark inefficiencies of centrally planned initiatives.

Economic Implications

The struggles of the EV market starkly illustrate the fundamental principles of supply and demand. The artificial boost in demand, driven by government incentives and tax credits, was not matched by an adequate supply response. High production costs, exacerbated by rising interest rates, have kept EV prices high, dampening consumer demand. This severe misalignment between supply and demand has led to market distortions and inefficiencies, as forecasted by Chief Economist Gregory Crennan at Golden Coast Consultants.

The Solar Industry: A Dimming Future

The solar industry has recently faced significant challenges, marked by stock price declines, reduced consumer demand, company bankruptcies, and layoffs, reminiscent of Neo’s awakening to the harsh realities in “The Matrix.”

Stock Price Declines

Solar stocks have experienced substantial declines this year. Key players such as Enphase Energy, SunPower Corporation, and SolarEdge Technologies have seen their stock prices drop significantly. For instance, the Invesco Solar ETF is down approximately 29% for the year, and SolarEdge witnessed a 15% decrease in its stock value following a cautionary statement about surplus inventory and workforce reductions. The sector, which initially thrived on the promises of the Inflation Reduction Act and the Bipartisan Infrastructure Law, now faces the stark reality of market forces akin to Neo’s realization that the Matrix was an illusion.

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