by Philip Rossetti, Resident Senior Fellow, Energy Program (May 5, 2022)
The Defense Production Act (DPA) is a 1950, Cold War-era law that allows the federal government to intervene in private contracts when there is a national security need. At the time, the obvious benefit of the law was that should the Cold War become a hot one, manufacturing capacity and other security-related industries could be quickly retooled without needing to go through Congress—continuity of government being a major concern of the period as well. The DPA, though, has only rarely been used for such conventional national security concerns. Most commonly, the DPA is used post-disaster to redirect contracts toward government relief (food, materials, reconstruction, etc.), which shields market participants from liabilities of contract breaching.
In recent years, though, the DPA has been becoming increasingly attractive as a tool to circumvent both government bureaucracy and market forces and prop up political objectives. This has included attempts to bolster coal and nuclear electricity generation, manufacture more medical equipment during the pandemic, raise oil and gas production during times of high prices, and, most recently, advance critical mineral production.
The problem lies in that the DPA is intended to address market failure in the context of national security; essentially there are times that it is important for national security for an economic action to occur regardless of profitability to firms. Instead, the DPA is being considered either to intervene in markets that are functioning adequately (electricity production) or to sidestep the need to reform governmental barriers to market entry (critical minerals). This distorts the market by rewarding political connectedness over economic productivity.
R Street’s work on the DPA has focused on our mantra, “free markets, real solutions.” We do not reject the importance of the DPA as a policy mechanism to address issues where there are national security concerns that are not addressed by the market, but we do reject opportunistic application of the DPA that undermines the free market.
Please read our scholars’ work on the DPA, which helps to enumerate the law’s practical application in times of disaster, as well as when calling upon this policy tool results in more harm than good.
Resources
“You can’t grow the economy by abusing government authority: Defense Production Act Edition,” by Philip Rossetti and Jonathan Bydlak, June 7, 2022
“President Biden’s Defense Production Act power grab,” by Eli Lehrer, The Hill, April 9, 2022
“Can we please stop with the DPA already?” by Philip Rossetti, April 5, 2022
“The Defense Production Act is not a Get Out of Jail Free Card for Bad Energy Policy,” by Philip Rossetti, March 15, 2022
“Trump Is Using the Defense Production Act All Wrong,” by Caleb Watney and Alec Stapp, Politico, April 9, 2020
“Trump’s Abusive Power Play,” by Devin Hartman and Philip Wallach, RealClearEnergy, June 5, 2018