The Green New Deal is a pipe dream, not a serious policy proposal

The Green New Deal (GND), which is being spearheaded by Rep. Alexandria Ocasio-Cortez (D-N.Y.) and Sen. Ed Markey (D-Mass.), is a long list of proposed environmental regulations and goals, combined with several social policies that would redistribute income.  

The GND is a manifesto that collects a number of otherwise disconnected social, political, environmental and economic ideas of policymakers who mistakenly believe that a command-and-control economy is superior to a free marketplace and who wish to impose their social and political preferences on others at an extremely high economic cost.

{mosads}Many of the GND’s environmental goals are infeasible. This includes “net zero greenhouse gas emissions in 10 years” and “meet 100 percent of power demand with renewables.”

The GND’s authors have provided no explicit plan to achieve these goals, other than to claim that they are achievable because of the enormous expansion of government that occurred during World War II. 

They believe that the economic experience of World War II shows that we can spend as much today as is needed in order to implement a carbon-free economy. 

But there is no realistic comparison that can be made between the 1940s wartime economy, which involved shifting resources from producing cars into producing tanks with existing technologies, versus achieving zero carbon emissions in today’s economy without the technological know-how to make this realistic.

Other environmental goals of the GND show that the authors do not understand basic cost-benefit analysis, which should be the foundation of every government program.

“Upgrade all existing buildings to maximum energy efficiency” does not make economic sense. The costs of such remediation would significantly exceed the benefits for recently constructed buildings.

Moreover, there are not nearly enough skilled heating, ventilation and air conditioning (HVAC) workers to retrofit every building in the country along with building new housing, not to mention that the costs of insulation materials, HVAC systems and building supplies would go through the roof, which in turn would raise costs and make today’s housing crisis even worse. 

What’s more, doesn’t the production of building supplies, insulation and new HVAC systems burn carbon-emitting fossil fuels?

Other aspects of the GND, such as its pro-union provisions, have nothing to do with the “green” component of the GND, but they hearken back to the New Deal of the 1930s, when many manufacturing industries agreed to substantially raise wages provided that they were permitted to collude.

My research shows that this aspect of the New Deal delayed the recovery from the Great Depression by seven years. Raising wages above worker productivity is an even more short-sighted idea today when many more jobs can be easily offshored, outsourced or automated.

Other aspects of the GND fly in the face of basic economic reasoning, such as “guarantee a living wage to everyone.” What if the worker is very young and has not yet accumulated enough skills to justify a “living wage”?

What if the guarantee of a “living wage” leads some workers to put forth less effort than called upon? And should we impose such a substantial cost on employers when most minimum-wage earners are very young and/or part-time employees, and when only about 0.4 percent of household heads earn the minimum wage?

The GND would be extremely expensive, though it is hard to know just how much because much of it is vague. Former CBO Director Douglas Holtz-Eakin estimates the cost to be close to $100 trillion, which is already roughly five years of GDP, but as is the case with many large-scale government projects, the GND might be more like California’s ill-fated bullet train, in which the cost of the project’s completion roughly tripled relative to initial cost estimates.

The authors of the GND don’t worry about the cost, as they believe that the government can just print new currency to buy whatever is needed. This idea is known in some circles as “Modern Monetary Theory,” but there is nothing “modern” about this idea, nor does the idea qualify as an economic theory.

The GND’s authors have been advised by a very small group of economists that no inflation will occur by printing currency unless the economy is at full capacity. This idea lacks any economic coherence, and there are literally hundreds of empirical examples that show how substantial inflation can easily occur when economies are not at full capacity.

{mossecondads}Just look at any Latin American country over the last 60 years. Look at Spain in the 1980s, when inflation was 10 percent, and unemployment was 20 percent. Look at Zimbabwe just a few years ago. Look at the United States in the 1970s, when both inflation and unemployment were very high.  

The GND represents the deficient economic thinking of a new generation of U.S. policymakers. There are much more cost-effective ways of dealing with greenhouse gases, including taxing carbon emissions and dealing with the growing pollution problems in rapidly developing countries such as China and India.

China produces nearly one-third of global carbon emissions, so any effort at reducing carbon must include China and other major carbon emitting countries. But the GND is just for the United States. Even if the U.S. completely eliminated carbon emissions, it would reduce global carbon emissions only by 13 percent.  

More broadly, the command-and-control implementation of the GND, in which over 50 percent of the economy would pass through the hands of government, would be the largest peacetime shift to a socialistic economy — and the largest drop in individual freedom — that any of us have seen in our lifetimes.  

Lee E. Ohanian is a professor of economics and director of the Ettinger Family Program in Macroeconomic Research at UCLA. He’s also a senior fellow at the Hoover Institution at Stanford University.