When ideology overcomes economic interests

Among the disastrous consequences of the "big, beautiful bill" signed into law by US President Donald Trump, one in particular has shocked political economists. The law radically eliminates clean energy subsidies approved three years ago by the administration of President Joe Biden. Many believed that these subsidies were immune to changes in presidents because they create jobs and profits for companies in traditionally Republican "red" states. As allergic as the Republican Party, controlled by Trump, is to "green politics," it was assumed that it would not dare to eliminate them. But it did.

Why has the conventional wisdom been proven wrong? Scholars who study political decision-making processes typically pay attention to economic costs and benefits. They argue that legislative proposals that create material benefits for organized and well-connected groups while simultaneously generating diffuse losses for the rest of society are likely to be adopted. Many elements of the Trump bill can indeed be well explained from this perspective: specifically, it creates the conditions for a radical transfer of income in favor of the rich and at the expense of the poor.

Conversely, legislative proposals that create concentrated losses for powerful economic powers are unlikely to advance. This explains, among other things, why in the US the idea of increasing the carbon tax (which is necessary to combat climate change but hits the fossil fuel industry hard) has always been politically toxic and unlikely to succeed.

Biden’s green energy program—the so-called Inflation Reduction Act (IRA)—was designed to overcome this political obstacle. Instead of a stick (a carbon tax), the law offered a carrot in the form of subsidies for solar, wind, and other forms of renewable energy. These incentives didn’t just make the IRA pass; they were expected to have a long-term impact. Even if Republicans returned to power, the beneficiaries of these subsidies were expected to resist their removal. And over time, as the green lobby grew stronger, there could even be a political opportunity for outright resistance to the fossil fuel industry.

Those hopes, however, have been dashed. The green lobby did try to soften the anti-IRA provisions of the law and managed to delay the start of the phase-out of tax breaks for solar and wind energy until mid-2026. But while the IRA law has not been completely repealed, the expected transition to a green economy - on which Democrats had been counting - has clearly failed.

Supporters of the materialist version of political economy will find a rational explanation for such a reversal. For the regressive tax cuts for the rich, it was necessary to find revenue elsewhere. And so the interests of, so to speak, a less influential group were sacrificed for the interests of a more powerful group. It is also possible that three years of subsidizing the IRA were not enough to form a strong lobby to defend it. As one of the advocates of the law said: "We will never know, but if we had had four more years to consolidate these industrial investments, it would have been much harder for legislators to abolish them."

Yet these justifications do not sound convincing. We must admit that ideology sometimes trumps material interests. There is little doubt that many Republican lawmakers voted against the economic interests of their constituents. Some did so out of fear of Trump's repression, while others voted because they are sincere climate skeptics and, like Trump, oppose any green initiatives. Either way, ideas about what is important and how the world works prevailed - not economic lobbies or vested interests.

This is an important lesson in political economy. Ideas can be as important as the interests of political groups in pursuing a party agenda. The ability to shape the worldview and ideology - not just of elites but of ordinary voters - is a powerful weapon. Those who possess it can persuade people to make choices that are clearly not in line with their own economic interests.

Moreover, these interests themselves - whether economic or otherwise - are shaped by ideas. To understand whether we will benefit or harm from certain political decisions, we need to know how those decisions will affect the real world and what will happen if we do not make them. Few of us are capable or inclined to make such calculations. Ideology allows this complex decision-making process to be simplified.

Some of these ideologies appear in the form of stories and narratives about how the world works. For example, a right-wing politician might say, "Government intervention in the economy always backfires," or "Elite universities produce knowledge that is unreliable and only useful to themselves." Other ideologies emphasize the importance of different forms of identity—ethnic, religious, political. The idea can change depending on the context: "Immigrants are your enemy" or, say, "Democrats are your enemy."

It is important to note that the very concept of "self-interest" relies on deeper ideas about what "our" means: who we are, how we are different from others, and what our purpose is. These ideas are not given by nature or birth. An alternative tradition in political economy holds that interests are a social construct, not the result of material circumstances. For example, depending on how we identify ourselves—as "white male," "working class," or "evangelical"—we will assess our interests differently. As the constructivist philosopher would say: "Interests are ideas."

That’s an important lesson for Trump’s opponents. To succeed, they need more than just well-crafted policies that deliver material benefits to their target groups. Whether it’s fighting climate change, strengthening U.S. national security, or creating quality jobs, they need to win a much broader war of ideas—especially those that shape voters’ perceptions of who they are and what their interests are. Democrats need to realize that they have recently championed ideas and identities that have made many ordinary Americans worse off—much like the pre-Biden economic policies that brought Trump to power.

The author is a professor of international political economy at Harvard University

Copyright: Project Syndicate, 2025. (translation: NR)