Economics of Green New Deal: More Red Than Green

My colleagues have written elsewhere about the energy and environmental components of the “Green New Deal” proposals that have been enthusiastically agreed to by most declared Democratic candidates for the presidency and which are about to be debated in the Senate. In this post I will take a brief look at the “social justice” components of the proposed Deal, which cover issues such as monetary theory and labor and employment policy.

What we will see is that they are just as radical as the proposals to decarbonize the economy in ten years. My colleagues and I have often noted that in order to decarbonize the economy, we would have to restructure the entire basis of the American economy. The Green New Deal plan admits that—and then some.

Here are the “social justice” aspects of the Deal, as described in the now-withdrawn FAQ that was issued with the initial draft Senate resolution.

Massive federal investments and assistance to organizations and businesses participating in the green new deal and ensuring the public gets a return on that investment.

• This is clearly based on “Modern Monetary Theory” that posits that because governments print money they can always pay off their debts, meaning that governments can invest in anything they feel like, with money as no object. This is a particularly naïve monetary theory, as George Selgin explains.
• Ensuring that “the public gets a return” would suggest that governments will be taking equity stakes in these companies. The government will effectively be nationalizing what will be most of the economy, given the all-encompassing nature of the GND.

Ensure the environmental and social costs of emissions are taken into account.

• This presumably refers to the external costs of emissions, with an added amount for “social costs,” whatever those may be. That means the premium added to internalize the cost of emissions will be higher than just accounting for environmental costs alone. The regressive nature of any taxes or fees will be exacerbated, meaning the poor will bear the brunt.

Provide job training and education to all.

• There being no detail, it is difficult to know how to assess this goal. The city state of Singapore, with a population of 5 million, is spending around $1 billion a year on retraining, allowing every Singaporean aged 25 or older a credit of around $350 to spend on approved retraining courses. It will be much more difficult to administer such a program in a population sixty-five times larger and much more geographically dispersed. The applicability of retraining must also be taken into consideration. In Youngstown, Ohio, displaced steel workers signed up for training in refrigeration and computer repair, but there were no jobs in refrigeration and the computer training was rendered obsolete by technological change. It would require something close to omniscience to provide universally effective job training. What we do know is that the previous attempt to provide something similar, in the original New Deal, was an ignominious failure.

Doing direct investments in frontline and deindustrialized communities that would otherwise be hurt by the transition to prioritize economic benefits there.

• The idea here appears to be using federal money to help communities that have had their main source of wealth and employment shut down by the energy transition. In the past, communities that have deindustrialized, such as Camden, New Jersey, have seen welfare claims increase, crime surge, property values plummet, infrastructure decay, health problems worsen, and social networks collapse. All these costs will have to be mitigated—and with them being repeated in community after community, state after state, all at once, it is difficult to see how even a constantly running government printing press will be able to cope.

Use democratic and participatory processes led by frontline and vulnerable communities to implement GND projects locally.

• Presumably this means that local communities will decide on what GND projects will be pursued, so avoiding the accusation of national central planning. This could only work if the communities listen to market signals, which would help to avoid massive malinvestment and misallocation of resources, but the market signal is explicitly and intentionally drowned out by the noise of the GND. The democratic “choice” will turn out to be a Hobson’s choice. Massive malinvestment is therefore guaranteed. The result will be widespread economic harm.

Ensure that all GND jobs are union jobs that pay prevailing wages and hire local.

• This suggests that workers will not be allowed democratically to choose not to unionize, instead reinstating the union shop nationally and perhaps even the closed shop. This is a dramatic departure for U.S. labor law. Right-to-work laws in states allow workers not to have to pay union dues as a requirement of employment. These will presumably be pre-empted federally. For prevailing wage requirements, we know that restrictions such as the Davis-Bacon Act that require prevailing wages depress the economy leading to fewer jobs and fewer public projects. They will therefore make GND projects longer and (even) more costly. Local hire requirements in a GND world of many projects will unfairly restrict worker opportunity and prevent workers from finding the best job offer for their skills, while at the same time restricting the available labor pool for the projects—in short, they are nonsensical.

Guarantee a job with family-sustaining wages.

• A federal jobs guarantee is fraught with problems. Subsidized or guaranteed jobs “crowd out” jobs created by the market, simply replacing existing jobs. The vast bureaucracy that would be required to administer such a regime will be subject to enormous public choice problems, pursuing its own desires at the expense of those it is supposed to help. The problem of hysteresis, that afflicted those employed in my own UK’s nationalized industries, will also raise its head, potentially causing shocks that it will be difficult for the bureaucracy to deal with as supported industries are destroyed by technological advance (unless the idea of the Deal is to pickle the economy in technological aspic). We should remember that the Paris commune, which guaranteed a job to all citizens, was reduced to having gangs of workers dig holes and then other gangs fill them in. Adding “family-sustaining wages” to this mix is simply fantasy. As Rudyard Kipling put it,

In the Carboniferous Epoch we were promised abundance for all,

By robbing selected Peter to pay for collective Paul;

But, though we had plenty of money, there was nothing our money could buy…

It is hard to see how this ragbag collection of economic fantasies could sustain families at anything more than subsistence level. The Soviet Union’s bread queues could have nothing on this.

Protect right of all workers to unionize and organize.

• There appear to be two prongs to this fork – first, the abolition of right-to-work laws mentioned above, and secondly the unionization of currently-exempt professions such as the armed forces.

Strengthen and enforce labor, workplace health and safety, antidiscrimination, and wage and hour standards.

• In a world of universal labor union membership and collective bargaining, it is difficult to see why such standards are necessary, unless the GND architects are concerned that collective bargaining agreements will not reach acceptable standards, in which case it is difficult to see why universal unionization is necessary.

Enact and enforce trade rules to stop the transfer of jobs and pollution overseas and grow domestic manufacturing.

• Don’t like Trump’s tariffs? You ain’t seen nothing yet. Trade works for both sides according to the principle of comparative advantage, which these provisions repudiate. Companies based abroad living without the GND constraints will become more competitive as their advantage grows, so will require higher tariffs and/or import bans to counteract. The result will be a substantially decreased standard of living as the GND U.S. descends into autarky.

Ensure public lands, waters, and oceans are protected and eminent domain is not abused.

• Eminent domain is abused constantly by megaprojects. It is difficult to see how massive projects such as ubiquitous high-speed rail links and huge numbers of wind farms will not require abuse of eminent domain.

Obtain free, prior, and informed consent of Indigenous peoples.

• One would hope these wise peoples will have the good sense to say no to these ludicrous proposals.

Ensure an economic environment free of monopolies and unfair competition.

• Of course antitrust had to be part of the GND. One has to assume that the GND economy will consist of huge numbers of local project-centered companies, including information economy companies, unable to reach economies of scale or provide the benefits of specialization at the national level, yet with the federal government both an investor and a watchdog, always ready to slap down the upstart company. In this respect there will be one massive monopoly that competes unfairly with every enterprise—Uncle Sam, Monopoly Man. This is to say nothing of the massive monopsony power that the federal government will accrue.

Provide high-quality health care, housing, economic security, and clean air, clean water, healthy food, and nature to all.

• So much in one sentence. Who is the subject of “provide”? Presumably Uncle Sam, bringer of more largesse than a feudal king. Not even the Soviet Union promised all of these to its citizens. Its experiment in just some of them failed absolutely.

The architects of the Green New Deal often refer to themselves as European-style social democrats or at most, Democratic Socialists. Yet what they propose in this program goes well beyond anything supported by European social democrats. As I alluded in the last bullet point, there is an appropriate word for the political system they seek to institute—it is communism.

We know from history that the appropriate color to describe communism is not green, but a deep, bloody red.