The ‘Green New Deal’ Is the Worst Thing of All for Green
Democrats in Congress who claim an environmental conscience are pushing a so-called “Green New Deal” meant to fundamentally shift America’s focus to renewable energy sources in the hope of addressing anthropogenic climate change. Rep. Alexandria Ocasio-Cortez (D-N.Y.) has become the face of the effort, with calls for a top income tax rate of 70 percent to finance the program. The excessive intervention Rep. Ocasio-Cortez calls for would be crippling for the environment, simply because it would slow the economic growth that makes green-energy advances possible to begin with.
Although the “Green New Deal” doesn’t appear to have been a fully fleshed out, the Green Party has proposed a “Green New Deal” that would shift America to clean energy, subsidize “sustainable businesses,” create a public jobs program, and emphasis mass transit and bicycling as the primary means of transportation. It’s a radical plan, to say the least.
The cost of the Green Party’s “Green New Deal” is astronomical. By her own admission, 2016 Green Party presidential nominee Jill Stein estimated that the jobs program would require an addition $400 billion annually and the transition to energy renewability would need $200 billion annually. That would be $6 trillion over the ten-year budgetary window for just these two aspects of the proposal. This level of taxation would hurt productivity and investment in the economy.
But the cost almost misses the point. Implicit there is that the cost would make sense if it were smaller. No, the problem here is the intervention whereby politicians with no skin in the game try to bend the will of the actual marketplace. Such moves always end up in economy-sapping tears. History supports this view.
There’s no better example of this than President Franklin D. Roosevelt’s (FDR) New Deal. The phrase was coined in 1932 during FDR’s campaign against President Herbert Hoover, whose own extreme intervention in the economy, through tax rate hikes, spending increases, and record tariffs, turned a healthy economic dip into a full-blown recession for the U.S. Despite this, FDR chose to double down on Hoover’s mistakes.
Outside of further tax and spending increases, the main aspects of the New Deal were the National Industrial Recovery Act (NIRA) of 1933 and the Agriculture Adjustment Act (AAA) of 1933. The NIRA created cartels and monopolies, which, in turn, raised prices, and the AAA paid farmers not to grow crops or to destroy crops in an effort to boost agriculture prices. Thinking about AAA alone, nearly half of the U.S. economy back then was farm based. Is it any wonder that the intervention suffocated growth?
Crucial here is that Hoover and Roosevelt misunderstood a basic truth about downturns. They’re not the sign of a sick economy. In truth, downturns or recessions are a happy sign that market forces are cleansing the economy of what had made it sick during the boom. For politicians to intervene in what is the cure (the recession), is for them to prolong the illness.
All of this helps explain why unemployment during the Great Depression was extraordinarily high. Political intervention slowed the economic adjustment without which there could be no recovery. We saw the same during the Bush and Obama years. Interventions of the bailout and federal spending variety began under President George W. Bush, and then President Barack Obama continued the political moves that sadly restrained the recovery.
Put in unemployment terms, during the most recent economic downturn, the unemployment rate peaked at 10 percent in October 2010. The unemployment rate was 24.9 percent in 1933 before it gradually declined to 14.3 percent in 1937, at which point the United States experienced another downturn. The unemployment rate jumped to 19 percent in 1938 before, again, gradually coming down. Very important here is that the mild recovery in both instances began after 2010, and after 1938. This is notable because the New Deal was over by 1938 after having failed in the eyes of Democrats and Republicans alike, while 2010 was the year in which power was thankfully divided up in Washington through Congress shifting to the Republican party. Gridlock slowed the interventions that always result in reduced production.
In 2004, two economists from the University of California-Los Angeles (UCLA), Harold Cole and Lee Ohanian, published a study in the Journal of Political Economy that confirmed all of the above. They concluded that the New Deal not only failed to bring the United States out of the Great Depression, but it actually prolonged a slowdown that was big by U.S. standards. Well, of course it did. Interventions replace information-pregnant markets with information-bereft politicians when it comes to the allocation of precious resources.
Now, the “Green New Deal” isn’t a response to a severe economic downturn. Although the United States faces immediate challenges, such as a misguided and avoidable trade war, the economy is performing relatively well at the moment. The Trump administration’s regulatory reforms and the Tax Cuts and Jobs Act have spurred the economy, and Americans are to likely see 3 percent annual economic growth for the first time since 2005. And that’s the point.
Seemingly missed by Rep. Ocasio-Cortez and other environmentally focused Democrats is that economic growth itself is the greatest friend of all to the green movement. Without addressing how effective are Rep. Ocasio-Cortez’s solutions, they’re most likely to reveal themselves not through force, but thanks to prosperity that provides people with the means to alter their driving habits, use of electricity versus solar, along with how they eat, travel, dispose of trash, and seemingly everything else. Simply put, growth is what frees us up to focus our energies on fixing the world around us.
Crucial here is that environmental goodness can’t be decreed as much as it’s an effect of prosperity. That’s why this notion of a “Green New Deal,” not to mention other far-left Democratic priorities like “Medicare for all,” would do worse than undermine economic growth. Indeed, for it slowing the economy’s prosperity, it would also sap the desire within the electorate to do what’s necessary to improve the beautiful world around us. Rep. Ocasio-Cortez and others may believe they can design a better plan for the environment than private actors, but such a belief represents the folly of the mindset of politicians and central planners.
As Friedrich Hayek wrote in The Fatal Conceit, “The curious task of economics is to demonstrate to men how little they really know about what they imagine they can design.” The “Green New Deal” would do little more than hurt Americans and rob them of a better and more prosperous life. All while slowing the betterment of an environment that we all want to protect, left or right.