THE GREEN NEW DEAL
NOTE: A version of this essay was published in the March 2021 edition of When Free To Choose.
Where We Stand
THE GREEN NEW DEAL
One way The Northwood Idea remains vibrant is by examining it in contrast to a variety of divergent philosophies. Where We Stand presents the viewpoint of a respected author on a given topic, along with the perspective of a supporter of The Northwood Idea. It provides an opportunity to understand how our views differ from those of others, and why it is so vital that we continue to stand steadfast in the defense of liberty. In this edition, Steve Cohen from The Earth Institute at Columbia University advocates for support of the Green New Deal, and Northwood’s Dale Matcheck makes a case for a different approach.
Environmental Justice and Economic Recovery
By Steve Cohen, a senior advisor for The Earth Institute at Columbia University, where he is a Professor in the Practice of Public Affairs. This essay was first published on July 6, 2020, on the website of The Earth Institute at Columbia University.
Recovery from the COVID-19 economic meltdown will require additional response from the federal government. New Deal-style subsidies in employment and infrastructure are coming and will accelerate in 2021. The political movement for a Green New Deal is gathering momentum, and not a moment too soon. In America, as in most parts of the world, the rich do all they can to protect themselves from the negative impacts of environmental degradation. Unless they own a spaceship (and a couple do), they can’t run away from climate change, but climate impacts are more deeply felt in the South Bronx than in Scarsdale. On the other hand, sea level rise will come to both Rockaway and the Hamptons, so you can run, but you really can’t hide.
Energy, water supply and waste management infrastructure tend to be better in rich communities than in poor communities. Which is not to say infrastructure is particularly state-of-the-art anywhere in an America. For decades, Americans have refused to pay the taxes needed to fund sufficient capital investment in infrastructure. The dire need for reconstruction of our aging infrastructure provides an opportunity to shape the post-COVID-19 economy in a way that improves environmental quality in all neighborhoods, not just those with rich people. Just as FDR brought electricity to rural America, a Green New Deal could build a clean and efficient American electrical grid. It could also modernize transportation systems, water supply facilities, sewage treatment plants and systems of solid waste management. An American infrastructure revitalization program could put people to work while improving the efficiency and quality of our communities and economy. The good news about most infrastructure investment is that it tends to have a multiplier effect by making the economy more efficient. A rehabilitated energy or water system can reduce wasted energy and water. A new port can save time and money when shipping goods. Better mass transit can reduce the cost of moving people from place to place.
(In July 2020,) the Democrats in Congress released a far-ranging climate action plan. It is a little less aggressive than the Green New Deal in that it provides an extra decade or two to transition to a carbon-free economy, but it clearly articulates the priority of climate change. Reporting in the Financial Times, Myles McCormick and Courtney Weaver wrote that:
“Democratic lawmakers unveiled a climate action plan that would require the U.S. to bring its net greenhouse gas emissions to zero by the year 2050, in a move that aims to make climate policy a core issue in the November elections. The wide-ranging set of proposals … would also require power producers to achieve net zero emissions by 2040, U.S. carmakers to produce only electric cars by 2035, and force oil and gas producers to phase out routine flaring, where drillers burn off the less valuable gas found alongside the oil, by 2030.”
In contrast, the Trump Administration is not concerned about climate change and the few Republicans in Congress who are concerned are more focused on carbon capture and storage than decarbonization. Some conservatives are coming to recognize the importance of climate change, but many remain wedded to fossil fuels. The Democratic proposal includes a carbon tax coupled with a scheme to return some of those fees to poor and moderate-income Americans. I think that the parts of the proposal that fund and stimulate technology development and infrastructure will do better politically than any proposal that raises the cost of energy. But my economist colleagues remain enamored of the carbon tax and I suspect it will continue to appear in proposed but failed pieces of legislation until we are well on the way to a decarbonized economy. I oppose carbon taxes and think decarbonization will be more politically attractive if its goal is to lower the cost of renewable energy rather than raising the price of fossil fuels. In any case, it seems clear that Democrats have decided that climate change policy needs to be a key point of differentiation between their approach to governance and that promoted by Republicans. As Christopher Flavelle reported (in July 2020) in the New York Times:
“Few of the proposals are likely to go anywhere this year because they would require support from the Republican-led Senate as well as President Trump, who has called climate change a hoax. But as a political statement the package is notable because it presents what Democrats call a comprehensive legislative agenda for climate change at a time when public support is on the rise. In 2016, only 38 percent of adults in the United States said dealing with global climate change should be “a top priority for the president and Congress,” according to the Pew Research Center. By this year, that number had jumped to 52 percent.”
While I am optimistic that a new administration in Washington may well decide to invest in green infrastructure to help lift us out of economic stagnation, I remain concerned about the ability of our government to target that investment to impoverished communities. The Democrats say that minority communities should be prioritized for green infrastructure, but it is less clear on how that will be accomplished. One idea in the Green New Deal is to target employment on infrastructure projects to minority communities and possibly minority-owned businesses. Another might be to target infrastructure grants to those cities with the highest number of unemployed workers. That would not focus on minorities but poverty. The two criteria overlap and are not mutually exclusive — in other words, you could do both.
The federal government has a particularly bad record in recent years in distributing capital funding to states on any criteria other than partisan political advantage. While investing in infrastructure almost always facilitates economic development, all investments are not created equal. Population-based grant criteria favor growing states and may accelerate their growth at the expense of older states that have a greater need to revitalize older infrastructure but may be losing population.
The economic slowdown caused by the pandemic is having its greatest impact on poor people and people of color. Providing educational and employment opportunities to those most impacted by the downturn and designing, constructing and managing infrastructure to serve the communities of those most impacted is the core logic of the Green New Deal. Growing popular concern about racism and climate change along with the need for massive infusions of public capital to stimulate economic recovery create a perfect political storm for many elements of the Green New Deal. While I believe that the political winds are shifting in a direction that favors these policies, I am mindful of the counterforce represented by President Trump at Mount Rushmore. As Annie Karni reported in the New York Times:
“Standing in a packed amphitheater in front of Mount Rushmore for an Independence Day celebration, President Trump delivered a dark and divisive speech that cast his struggling effort to win a second term as a battle against a “new far-left fascism” seeking to wipe out the nation’s values and history. With the coronavirus pandemic raging and his campaign faltering in the polls, his appearance amounted to a fiery reboot of his re-election effort, using the holiday and an official presidential address to mount a full-on culture war against a straw-man version of the left that he portrayed as inciting mayhem and moving the country toward totalitarianism.”
Trump’s racist appeals are nothing new. Past Republican presidential candidates including Richard Nixon, Ronald Reagan, and George H.W. Bush have ridden race-based appeals into the White House. However, public opinion data appears to support the idea that Americans are finally moving in a different direction. Millions of Americans have been engaged in peaceful protests, and those looting stores are a tiny proportion of those in the streets. Our culture has changed, and racism, sexism and homophobia are less pervasive than before. And the physical facts of the pandemic and climate change cannot be blamed on immigrants or minorities. The pandemic and sea level rise don’t respond to national borders or race. So, while I recognize the political force that Donald Trump is mobilizing, I believe that the force behind some version of a Green New Deal is greater. Although the events of November 2016 impaired my confidence in my ability to understand political trends, America in the summer of 2020 gives me hope and is starting to remind me of the evening of November 4, 2008 …
We can do better than the Green New Deal
By Dale Matcheck, Ph.D, Professor at Northwood University and Chair of the Economics Department
The Green New Deal is an ambitious approach to climate policy that relies heavily on investments in intermittent energy sources. It will accelerate the transition away from fossil fuels at a pace that is incredibly fast and a cost that is staggeringly high. Its costs and complexity are further increased by its proponents’ determination to use it to advance their social policy agenda. It relies on the top-down command and control approach that greatly expands the role of government in the economy, along with the corporate handouts and political deal making that go along for the ride. But all this would be justified if it were necessary to save the planet. It isn’t.
The moniker “Green New Deal” was coined by New York Times columnist Thomas Friedman during the “great recession” that followed the financial crisis of 2007. He suggested that it would be a productive way to stimulate the economy during a historically severe recession. For some reason, the name has outlived the recession that inspired it. Now it is being touted for its effects on social justice as well. It has become the right policy for all seasons and reasons. It is too much to ask. As the great economist Thomas Sowell reminds us, when it comes to managing our scarce resources, “there are no solutions; only tradeoffs.” Human nature rebels at Sowell’s pessimistic assessment; we really want to believe that we can have our cake and eat it too. Any government spending, whether productive or wasteful, can easily create some jobs that would not otherwise exist. But creating a net increase in employment while raising productivity so that we can pay decent wages is hard. The private sector is very good at this. Government, typically, is not. And the Green New Deal is no exception to the rule.
The investments favored by the Green New Deal will make energy much more expensive. Expensive energy is a drag on the economy, as anyone who lived through the oil crises of the previous century knows from experience. Any benefits from the policy in the form of lower global temperature will not materialize for decades. In the meantime, it will strain government finances; it will require some combination of tax increases, government borrowing, inflation, and spending cuts in other public programs; all of these can be a drag on the economy. There will be no net job creation, as workers will simply move from one sector to another. We need to let go of the idea that whenever one industry expands, they all do. There may be special situations where this is true, but they are exceptional and temporary. President Biden is simply wrong when he said during the campaign that “it will pay for itself going forward.” Just ask Germany, which pays three times as much for energy as the U.S. and has just over 17.5% of its gross energy consumption coming from renewables. The more aggressive agenda put forward in the Green New Deal would be even costlier. On the low end, the respected energy research consulting firm Wood MacKenzie estimates the cost to be approximately $2,000 per household per year for the next 20 years. Other studies estimate a cost that is many times higher than that.
But for many people, the enormous cost is beside the point. As Congresswoman Alexandria Ocasio-Cortez (D-NY), the Green New Deal’s sponsor, says to her critics, “the world will end in 12 years if we don’t address climate change, and your biggest issue is how are we gonna pay for it?” Although AOC’s rhetoric is clearly exaggerated, it does capture the fear that many people have about the potentially devastating impact of climate change. Some of the headlines put forward to support this notion are certainly scary – scary enough to promote among our young people a feeling of impending doom. A recent poll of teenagers and young adults reveals that more than 70% of them fear that climate change will cause a moderate or great deal of harm to their generation. Mental health professionals have seen an upsurge in cases of severe eco-anxiety. Part of the decline in birth rates among young adults can be attributed to their reluctance even to bring new children into the world facing such a clear and present danger. This is sad, but it is not hard to understand. The careful and measured phrasing used by climatologists and other scientists in their peer-reviewed reports is often missing from newspaper accounts, documentaries, best-selling books and political stump speeches. What is missing from these popular accounts are what the late, great statistician Hans Rosling called “factfulness.” Yes, climate change is happening. On balance, it will make us worse off than if it weren’t happening. But no, it is not the end of the world. William Nordhaus, who won the Nobel Prize in economics in 2018 for his work integrating climate models with economic models, estimates, a “do nothing” approach would reduce average income in the year 2100 about 6% from what it would otherwise be. Others are much more pessimistic and estimate that it could cause a reduction of perhaps as much as 20%. But as the authors of that study put it, “this does not mean that the world will be poorer in 2100. … (It means) that the world will be substantially less rich than it would have been had temperatures not warmed.” In any case, the real choice is not between the Green New Deal and the end of the world. It is between the Green New Deal and the other, less costly, more effective policies that rely less on grand government plans and more on a bottom-up approach. What follows is a list of some of the more practical alternatives.
Incentive-based regulation. Command and control approaches are generally much more costly and much more subject to political favoritism than the incentive approach favored by most economists. Nordhaus endorses a carbon tax as the most effective policy, priced adequately to encourage conservation, adjusted up or down as needed as new scientific and economic information becomes available. This gives control to individual consumers and businesses to determine how and how much they will reduce their carbon footprint. The incentive created by such a tax will spur innovation and speed the transition to less-carbon-intensive technologies as businesses respond to the changing priorities of their customers. The reasoning behind this is simple. Sometimes the best opportunities to reduce emissions are known to “the man on the spot,” as F.A. Hayek calls him. This person has an opportunity which is known only to him – for example, an opportunity to share a ride to work. While the experts may think his best option is to buy an electric car and run it on solar cells backed up by reliable if seldom used fossil fuel powered generators, “the man on the spot” may achieve greater reductions more cheaply simply by sharing a ride to work with several colleagues. A tax gives an incentive to do either one, but he gets to choose which one. There are simply many cheaper and more effective opportunities that people will exploit when they have an incentive to do so. In addition, entrepreneurs will be rewarded for creating more such opportunities. And they won’t have to “force” their green alternatives on anyone, their customers will flock to them. Carbon taxes could be revenue neutral, allowing government to cut taxes elsewhere in the economy and to provide everyone with a tax refund called a “carbon dividend.” The uniform distribution of these carbon dividends is especially helpful to low-income families who can expect to receive more in rebates than they pay in energy taxes. This plan has been endorsed by 3,000 economists from across the political spectrum, including 28 Nobel laureates and the four living former chairs of the U.S. Federal Reserve.
Increasing prosperity. We should pursue the policies that promote economic prosperity, both for their own sake and for their indirect effects on climate change. We may not think of increasing prosperity as a climate change policy, but it most certainly is. Higher incomes produce several good effects related to climate change. The first is that faster growth accelerates the “demographic transition” to lower birthrates. The impact on climate of a lower peak population would be quite large. In five scenarios examined by the World Climate Research Program, the one that allowed for fastest income growth limited warming in the year 2100 nearly as much as the one which aggressively reduced emissions (between 2o -2.5oC each), but with global population stabilizing at 7 billion people in the fast growth scenario versus 9.6 billion in the slow growth scenario. Notably, the per capita income was much higher in the fast growth scenario ($140,000 per person compared to $40,000!) This raises another point that wasn’t captured in the models. Even though the world’s climate would be slightly worse in the high-income scenario, the risks associated with severe weather events would be much lower. That is because the additional wealth allows people to become more resilient to climate events. For example, vulnerability to hurricanes can be mitigated by private investments in better home design and construction, or public investments in dikes, floodplains, and emergency evacuation plans. Finally, the increase in wealth produces an increase in the public support for environmental policies and green products. Poor people naturally place a higher priority on food today versus a cooler climate 30 years from now. Wealthier people, assured of having their basic needs met, place a higher value on the environment.
Adaptation. As indicated in the previous paragraph, when faced with changing climate conditions, humans adapt. For example, farmers plant different types of crops or cultivate different land and invest in water-saving irrigation technology.
Breakthrough technologies. Even massive investment in wind, solar, and other renewables will not satisfy the global demand for energy in the decades to come, especially in the developing world. For that we will need to leapfrog the current technology with breakthrough technologies capable of delivering safe, stable, environmentally benign forms of energy. This includes the development of the next generation of safer, greener nuclear power.
Geo-engineering. Climate scientists worry about “tipping points” and irreversible effects that could cause catastrophic damage. These events are less likely than the more mundane and gradual changes we are seeing now. However, we may need an emergency plan to cool the planet quickly. Cloud brightening is an example of an economically feasible way to do this, and there are many others. We should support research in these technologies and their potential unintended consequences. Better to have them and not need them than to need them and not have them.
The above alternatives are not exclusive; when it comes to climate policy, we need to use all the tools at our disposal. That may include some of the investments in infrastructure and support for basic research included in the Green New Deal. But as whole, that agenda is economically and politically flawed. The rapidly increasing knowledge we have from both the natural and social sciences suggests that well designed public policies can improve human welfare substantially. But it also suggests that poorly designed public policies can diminish it substantially. The Green New Deal, with its outlandish promises and unnecessary costs, should be rejected.