Originally published by The American Conservative on July 16, 2019.
Looking at Representative Alexandria Ocasio-Cortez’s Green New Deal, one is reminded of Voltaire’s comment that the Holy Roman Empire was neither holy, nor Roman, nor an empire.
But that might be slightly unfair. There is some Green in the GND, though the ideas aren’t New, and it’s definitely not a Deal. At least not for taxpayers.
Many experts have pondered the likely fiscal burden of the GND. This is a speculative exercise since Ocasio-Cortez has a resolution rather than a bill. In other words, there’s no legislative language. She simply wants fellow lawmakers to conceptually endorse her wish list of policies, much as they periodically pass resolutions for things like National Dairy Goat Appreciation Week.
That being said, budget gurus have examined the GND wish list and they calculate that the 10-year cost could reach $90 trillion. That’s trillion, not billion—a staggering amount of money. For all intents and purposes, Ocasio-Cortez wants to expand the burden of federal spending from 21 percent of economic output to about 50 percent of economic output.
So how’s this fiscal orgy going to be financed? There are three potential options: 1) Lots of tax increases: Ocasio-Cortez and other GND supporters are very ecumenical about potential revenue sources. Higher income tax rates are on the list, as are energy taxes and levies on financial transactions; 2) Lots of new debt: even huge tax increases would be incapable of generating enough money to finance the items on the wish list. This presumably means the economy also will be saddled with a large amount of additional red ink as well; 3) Printing money: many of the advocates of the GND are also supporters of “modern monetary theory,” which is a bizarre theory that big expansions of government can be financed by printing money. Suffice to say such an approach didn’t work for Weimar Germany.
The economic implications of these policies are horrifying. The GND would mean Greek-style fiscal policy in the United States, with concomitant economic stagnation.
But this is just part of the problem.
It’s equally important to consider how the GND would dramatically expand Washington’s power over the economy—above and beyond new taxes and higher spending. Consider some of the explicit goals of Ocasio-Cortez’s proposal.
- Zero-carbon economy: the government would be obliged to end any and all reliance on fossil fuels and shift the nation to 100 percent renewable energy.
- High quality healthcare: the government would be obliged to provide universal and unrestricted access to health care for everyone.
- Guaranteed jobs: the government would be obliged to provide everybody with a job that includes generous benefits, including paid vacations and a comfortable retirement.
- National high-speed rail: the government would be obliged to create a nationwide system that was so quick and so effective that commercial air travel could be ended.
- Retrofitting every building in the nation: the government would be obliged to gut and rebuild every single structure in the country so that they all met a zero-net-carbon goal.
Every single one of these costly ideas will serve as a magnet for consultants, contractors, administrators, and others who will want to profit by “helping” to implement the various pieces of the GND.
For those who remember the corruption and cronyism of the Obama administration’s green energy program (part of the failed stimulus), Ocasio-Cortez wants to do the same thing. But far more extensive.
Let’s take a look at why this is misguided. And that means we have to endure a lesson about the economics of growth.
In a market-based economy, consumers are ultimately in charge. Businesses can only earn profits if they provide goods and services that meet the needs of people.
And businesses compete with each other to offer the best products at the best prices in hopes of capturing a slice of the market.
To use economic jargon, this competitive process drives the allocation of labor and capital, which are the “factors of production.” In everyday language, it simply means that jobs and investment naturally gravitate to industries and companies that do a better job of satisfying consumers.
Competition also drives innovation. Entrepreneurs are constantly putting money at risk in hopes of finding new and improved goods and services that will capture the interest of consumers.
Yes, many new products and most new businesses will fail, but it only takes a few successes to drive the economy. And those successes disrupt incumbent firms, causing them to lose market share, and maybe even go out of business.
In other words, capitalism is sometimes not very pleasant for capitalists. Consumers simply care about getting more for less, not whether an established company fails.
That’s the bad news, so to speak. The good news is that this process, known as “creative destruction,” is what makes societies richer over time. The invention of the electric light bulb displaces products such as candles and enables a big boost in productivity. The invention of the automobile displaces horse and buggy transport and enables a big boost in productivity. The invention of the personal computer displaces the typewriter and enables a big boost in productivity.
This is the way a healthy economy operates.
But what happens if the “invisible hand” of consumer-driven competition is replaced (or substantially weakened) because politicians adopt something like the Green New Deal? As noted above, Ocasio-Cortez’s proposal envisions a massive expansion in both the size and scope of government.
Taxes and spending will consume a much larger share of the economy, which means that market forces will get squeezed as politicians directly allocate resources in the economy.
But the fiscal burden of the GND is just part of the story. There will be a substantial increase in the amount of regulation, cronyism, and red tape, according to major provisions of Ocasio-Cortez’s plan. And this also means that market forces will get squeezed as politicians indirectly allocate resources in the economy.
The key thing to understand is that cronyism and regulation undermine the free market just as taxes and spending undermine the free market. The mechanism—direct versus indirect—isn’t the same, but in both cases the preferences of consumers no longer drive the economy.
Instead, the crowd in Washington tilts the economic playing field. And it’s quite possible that regulatory cronyism can do even more damage than taxes and spending.
Consider, for instance, the economic impact of a carbon tax. It would be bad for growth, since energy is a very important input for major portions of the economy. But both companies and consumers will adapt to the new burden and hopefully figure out ways to become more efficient to minimize the burden of the new levy (indeed, proponents of the tax explicitly hope and expect to see this happen).
But now contemplate the likely economic impact of a bunch of bureaucrats promulgating new regulations in hopes of artificially generating a particular change in energy consumption. The new rules and red tape will add costs to the economy, but almost certainly in a very haphazard fashion. Different interest groups will seek special treatment and politicians will put their thumbs on the scale as well.
Equally worrisome, many companies will decide that manipulating the levers of power in Washington is a shortcut to “earning” a profit. Suffice to say it won’t be a positive development if companies decide that pleasing Washington is more important than pleasing consumers.
During the Obama administration, a failed company called Solyndra became a symbol of ineffective and wasteful cronyism. The firm received hundreds of millions of dollars in goodies from Washington, money that was then squandered. Consumers didn’t benefit. Taxpayers didn’t benefit. And the economy didn’t benefit.
The Green New Deal would be Solyndra on steroids. Politicians and bureaucrats would have immense new powers.
This would create a feeding frenzy of cronyism.
This will mean more corruption, given the nature of politics. But from an economic perspective, the worrisome outcome will be stagnation. That might lead to a backlash and better policy. But we’ve also seen many examples around the world of voters responding to economic unease by demanding even more “help” from government. Americans tend to be more freedom-oriented, so hopefully it will be the former outcome rather than the latter.
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Image credit: nrkbeta | CC BY-SA 2.0.
