Saving planet, creating jobs are noble ideas—but by combining them, Green New Deal exacts too high a cost
The Green New Deal that Democrats unveiled last week is actually two deals: one to combat global warming, another to create millions of well-paid jobs for targeted groups.
Individually, both goals have their merits. But by combining them, the Green New Deal promises to make climate mitigation both absurdly expensive and deeply partisan and is thus more likely to set back than advance the climate cause.
The premise behind the Green New Deal is right. While the world may not spontaneously combust in 10 years, global carbon-dioxide emissions need to start dropping soon, by a lot, to keep temperatures from rising more than 1.5 degrees Celsius from 1800s levels, according to the Intergovernmental Panel on Climate Change. Increases beyond that raise the probability of extreme weather, deadly heat and rising sea levels.
Because the private market has no incentive to reduce carbon emissions, government intervention is necessary. But not all interventions are created equal, and the Green New Deal’s seem engineered to be as expensive as possible.
Consider its goal of massive public investment to achieve 100% renewable energy in as little as 10 years. Kevin Book, head of research at ClearView Energy Partners, a research firm, estimates replacing the 83% of current U.S. generation that is not renewable with solar photovoltaic, wind and biomass would cost $2.9 trillion—nearly a full year’s tax revenue.
This excludes any cost for interest, operations, maintenance, new transmission lines or compensation to private investors for writing off natural-gas and coal plants with plenty of useful life left. It assumes cheap battery storage that doesn’t yet exist. Even so, this works out to $83 to avoid one metric ton of carbon dioxide.
The Green New Deal’s plan to upgrade every building in the U.S. to “maximum energy efficiency” is even more questionable. A study by Meredith Fowlie, Michael Greenstone and Catherine Wolfram in the Quarterly Journal of Economics found the federal government paid an average of $4,585 each to weatherize homes in Michigan. Extrapolate that to 95 million homes nationwide, and the bill tops $400 billion. The cost of avoided carbon dioxide: up to $285 per ton.
To understand how high $83 to $285 per ton of carbon dioxide is, consider that Barack Obama’s economists put the economic harm of a ton of CO 2 at $50. Or that you can pay a power producer
just
$6 to reduce emissions by one ton in New England,
$15 in California, and
$25 in the European Union,
based on emission permit prices in those jurisdictions, notes Mr. Greenstone, an economist at the University of Chicago.
Yet in the Green New Deal, trillion-dollar price tags are a feature, not a bug. That is because its mission is to create “millions of good, high-wage jobs” in “front-line and vulnerable communities.” The higher the price tag, the more jobs it creates. How to pay for it? Its Democratic sponsors would raise taxes on the rich and borrow the rest, including from the Federal Reserve, just as the U.S. did during World War II, dramatically boosting output and employment.
But in 1941, the U.S. had plenty of unused resources to mobilize: just 28% of prime-aged women had jobs. By 1945, 35% did and today, 74% do. (The data aren’t strictly comparable due to changing definitions.) The war effort still spurred intensive inflation pressure, contained only with wage and price controls. The U.S. is now close to full employment and its debts are far higher. Even in today’s world of low inflation and low interest rates, the scale of deficit spending the Green New Deal implies would likely push both higher.
Republicans and business groups have long fought even modest costs to mitigate climate change. Jacking up the price to finance left-wing Democratic priorities will only intensify their opposition. Indeed, Republicans and President Trump are itching to run against the Green New Deal. This guarantees inaction on climate unless Democrats win the White House, House of Representatives and 60 Senate seats.
What the U.S. needs is the Green New Deal’s sense of urgency combined with market mechanisms that incentivize carbon reduction at the lowest price, such as a carbon tax, carbon credits or tradable emission permits. This will also spur innovation that other countries can adopt to tackle their own emissions, which will be 88% of the global total by 2040.
Germany’s experience is illustrative. In 2000 it began targeting subsidies to renewable power and by 2017, renewables’ share of power consumption had risen fivefold to 38%. Because renewable generation was initially so small, the subsidies weren’t that burdensome, says Michael Pahle of the Potsdam Institute for Climate Impact Research. The priority, he says, was spurring innovation to drive down costs. But, he says, as renewables became much larger, cost became much more worrisome.
In 2015 Germany introduced reverse auctions, in which producers bid to supply energy at the lowest possible subsidy. By attracting the lowest-cost supply, this has driven solar photovoltaic prices down by half. Some bids have required no subsidy at all.
Even so, because Germany is phasing out nuclear power and hasn’t targeted transport, industry and agriculture emissions, it is behind on its emissions reductions. This underlines the need for an economywide carbon price, Mr. Pahle says. That is a lesson Americans should learn now, not after they’ve spent trillions on a Green New Deal.
Ideas from the Right, the Left, and across the Atlantic to mend what’s broken in our economy.
Antitrust Pivot
Many of the U.S.’s biggest economic ills—rising inequality, stagnant wages, low productivity growth—stem in large measure from corporate consolidation and monopoly power run amok. That’s the message from a new breed of policy wonk urging a return to the trustbusting days of the early 20th century.
The movement—labeled the New Brandeis School by its proponents and derided as Hipster Antitrust by its critics—is looking to ditch the Chicago School approach that’s dominated antitrust enforcement since the late 1970s. The Chicago School hews to what’s known as the consumer-welfare standard, which finds mergers anticompetitive only if they raise prices.
The new model takes its inspiration from Supreme Court Justice Louis Brandeis, who emphasized the need to restrain big companies and the concentration of economic power. Lina Khan helped galvanize the movement with a 2017 paper she wrote as a law student at Yale that made the case that Amazon.com Inc. is a threat to competition, even though it’s lowered some prices for consumers.
The ideas in Khan’s paper aligned with those of economists and lawyers, such as Tim Wu, a Columbia Law School professor, who’ve been arguing that the current antitrust framework is ill-equipped to deal with today’s technology titans. Among their recommendations is preventing tech platforms from vertically integrating into different lines of business, where they can potentially favor their own services and harm rivals. In this view, Facebook shouldn’t be allowed to own Instagram.
Defenders of the current framework say the New Brandeis School is nothing more than a big-is-bad ethos that would punish companies for being successful and popular with consumers. Yet it’s hard to ignore the growing body of research documenting the relationship between rising corporate consolidation and worrying economic trends, including a drop in the number of startups and tepid wage growth.
One sign of the movement’s increasing influence is that Joseph Simons, chairman of the Federal Trade Commission, one of the country’s two antitrust watchdogs, has organized hearings on the new enforcement approach. Also, Democratic presidential candidates such as Senator Elizabeth Warren are making antitrust enforcement a central part of their campaigns. —David McLaughlin
Supply-Side Economics
The broad contours of the Republican plan to optimize capitalism don’t look much different today than they did in the 1980s. The supply-side pitch is that reducing taxes on companies and top-earning individuals, curtailing spending on welfare programs, and slashing regulation spurs business investment. This leads to faster economic growth that benefits all Americans. Even the cast of characters is familiar. President Trump’s top economic adviser, Larry Kudlow, promoted a similar agenda as an official in the Reagan White House.
The first piece of the formula is already in place: A Republican-controlled Congress approved tax cuts at the end of Trump’s first year in office. (The jury is still out on whether those have permanently lifted the U.S. economy onto a higher growth track, as proponents argued.) The other piece—reducing future obligations of major entitlement programs—will be difficult to pull off now that Democrats control the House of Representatives and the political winds blow in the direction of a more relaxed attitude toward government budget deficits.
Still, it’s seen as a key ingredient. In a 2017 white paper, John Cogan, Glenn Hubbard, John Taylor, and Kevin Warsh—all pillars of Republican establishment economic policy circles—argued that “without significant spending restraint, even with positive effects on economic growth, the tax rate reductions would likely be limited and temporary, limiting their economic benefits.”
The contention is that spending on welfare eventually will account for an ever-growing share of the economy, “crowding out” private-sector investment and weighing on growth.
This view is still widely held among Washington policymakers. At a Jan. 30 press conference, Federal Reserve Chairman Jerome Powell said, “It is a long-known fact that the U.S. federal government budget is on an unsustainable path,” citing rising health-care costs and an aging population.
Conservative economists will likely have a difficult time rallying voters to their cause in 2020 because of the public perception that the orthodox prescription is partly to blame for widening inequality. It’s a fact that wealth disparities in the U.S. have been rising ever since the early 1980s—the last time Republicans presided over a sea change in the economic agenda. —Matthew Boesler
German Model
The search for better ways to distribute the fruits of American capitalism has some looking to Europe for inspiration. Germany offers a model of how corporate governance could be revamped to give American workers a bigger say over what happens to company profits. A law that took effect in 1976 formalized what had been common practice at many German companies as far back as the 1920s. It dictates that in a corporation with more than 500 employees, a third of supervisory board seats must be filled by directors elected by workers, a share that rises to one-half for companies with more than 2,000 employees.
The German system, known as co-determination, allows employees to have a say in working conditions, such as contractual terms and pay. It also gives them a voice in how profits are deployed—say, for a new research and development center vs. more dividends for shareholders. Some researchers say co-determination has helped spur productivity and innovation at German companies.
At the root of co-determination is the idea that companies should balance the interests of their various stakeholders, a group that includes equity owners but also workers, customers, and even local communities. That was also the ideal in the U.S. until the early 1980s, when under the influence of economist Milton Friedman it was supplanted by the belief that corporate managers’ sole responsibility is to maximize returns for shareholders. That single-minded devotion to stockholders has been cited as a factor in the stagnation of U.S. wages.
In August, Democratic presidential hopeful Elizabeth Warren unveiled her Accountable Capitalism Act, which draws from the German experience. The plan would allocate a minimum of 40 percent of a company’s board seats to directors representing workers. The requirement would apply to U.S.-domiciled corporations with more than $1 billion in annual revenue. Warren’s proposal is designed as a corrective to a trend that has been drawing increased scrutiny of late: Publicly traded companies in the U.S. have been devoting more and more of their profits to share buybacks and dividends. Given that less than half of U.S. households own stocks, the chances that workers will benefit when their employer succeeds improve markedly when profits are plowed back into the company. —Carolynn Look
Modern Monetary Theory
Any ambitious government-led project to reshape the U.S. economy usually runs into the same objection: We can’t afford it. One school of economic thought says that’s all wrong.
Modern Monetary Theory, a once-fringe set of ideas now getting some mainstream attention, says governments borrowing in their own currency have more room to spend than they think. The U.S., for example, can run deficits without having to worry about going bust, because it creates the dollars in the first place. The real constraint only kicks in when there’s too much spending relative to a limited supply of goods and services—in other words, when inflation spikes. And there’s been little sign of that in America for decades.
MMTers argue that their system isn’t so radical; it’s the way things already work, at least some of the time. Presidents, including the current one, haven’t balked at measures to boost the military or cut taxes, even when the resulting deficits run into the hundreds of billions. And emergencies, such as the 2008 financial meltdown, typically push concerns about balanced budgets deep into the background.
Now there’s a different sort of emergency on the horizon: climate change. Since the threat is arguably greater than economic depression or even war, it requires action on a suitably vast scale, argue Democrats who’ve picked up on the issue.
And MMT offers a key to unlock the financing. That’s why freshman Representative Alexandria Ocasio-Cortez, one of the first U.S. politicians to talk publicly about MMT, is also at the forefront of the drive for a Green New Deal. The maximal version of that program includes shifting the U.S. to 100 percent renewable energy within 10 years. If that wasn’t ambitious enough, the plan also calls for the government to guarantee a job for everyone who wants one—an MMT favorite that’s also a throwback to Franklin D. Roosevelt’s New Deal.
“Clearly, the environment matters more than entries on balance sheets,” says Randall Wray, a senior scholar at the Levy Economics Institute of Bard College and one of MMT’s most prominent proponents. “The environmental thing is real. It’s not financial.”
MMT’s detractors say government spending on that scale could trigger the kind of inflation that would wreck the whole economy. America’s national debt has already ballooned since the Great Recession, they warn, and adding more will erode the country’s creditworthiness and undermine the dollar’s role in global finance.
While those warnings are still frequently heard, there are signs that they’re losing their impact as the debate leans left. Several renowned economists who aren’t MMTers have recently tried to downplay the risks attached to deficits and debt. They include Olivier Blanchard, former chief economist at the International Monetary Fund, and Obama administration heavyweights Larry Summers and Jason Furman. Bank of England chief Mark Carney has made the case that action on climate change represents an economic opportunity, not a burden.
Ocasio-Cortez didn’t manage to garner enough Democratic support for her first attempt at actual legislation, a proposal to set up a Green New Deal committee. But there’s broad sympathy for the idea in principle, including among several of the party’s presidential candidates, and many of them have also endorsed a jobs guarantee. —Katia Dmitrieva
Tech to the Rescue
Amazon.com Inc. Chairman and Chief Executive Officer Jeff Bezos wishes there were a trillion human beings in the solar system. With room for that many people, there would be “a thousand Einsteins and a thousand Mozarts,” he told the Economic Club of Washington, D.C., in September. The world’s richest man is funneling $1 billion or more a year into a company, Blue Origin, that he hopes will help make extraterrestrial settlement a reality, creating places to live for all those Einsteins and Mozarts.
Bezos and others argue that innovation is the essential ingredient in human betterment. They have a point. Life would be pretty awful without the advances made by past generations, such as indoor plumbing, vaccines, refrigeration, and telephones. Bezos even asserts that freedom itself, not just material well-being, depends on technological progress: “I don’t even think stasis is compatible with liberty,” he told the Washington audience.
In the view of the tech-to-the-rescue crowd, innovation can solve just about every problem humanity faces. Global warming can be fixed with better electric cars, solar cells, wind turbines, and batteries. Income inequality can be solved by educating or retraining workers for the high-tech jobs of the future.
The Information Technology & Innovation Foundation, a Washington think tank founded in 2006 to propagate this philosophy, argues that using antitrust law to break up or discipline the big technology companies can backfire, discouraging innovation and harming consumers. Robert Atkinson, president and founder of the ITIF, co-wrote a 2018 book with Michael Lind called Big Is Beautiful: Debunking the Myth of Small Business.
The techies welcome a prominent role for government in paying for education and conducting or supporting research and development. But the movement is split on trade. The nationalists want to keep the U.S. in the tech vanguard and are willing to resort to tariffs and subsidies to preserve its dominance. The globalists, including some heads of multinational companies that earn lots of their profits abroad, are happy to see other countries advance technologically, figuring that the benefits of breakthroughs—say, a cure for cancer—will be shared by all of humanity regardless of their origin.
The common theme is that prosperity depends on a robust tech sector. “We’re in a 10-year productivity depression” that’s hurting living standards, says Atkinson. “Tech is really the only way we’re going to raise productivity growth.” —Peter Coy
Tariff Truthers
If there’s one thing most economists around the world today can agree on, it’s that tariffs are bad. Protect one domestic industry with an import tax, and you hurt a swath of others. Tariffs reduce choices for consumers and push up prices for goods. They stifle competition and deter innovation. And they invite other countries to retaliate, leading to the sort of tit-for-tat behavior that’s left U.S. soybean farmers watching crops once destined for China rot in their fields.
The president, of course, disagrees. “I am a Tariff Man,” he proclaimed in a Dec. 4 tweet. Besides Trump, the maligned tariff has a small core of defenders on the fringes of mainstream economics who claim an intellectual history going back to Alexander Hamilton and his “Report on Manufactures” to justify the value of duties. Tariffs, argues Jeff Ferry, chief economist at the Coalition for a Prosperous America (CPA), preserve jobs and help unleash investment.
The Washington-based CPA has close ties to the administration. Its chairman, Dan DiMicco, is a former Nucor Corp. chief executive and was a vocal advocate for the steel tariffs Trump introduced in 2018. He also led the transition team that picked Robert Lighthizer for the job of trade czar.
The Trump tariffs have so far hit more than $300 billion in U.S. imports from around the world. And there may be more to come, with the U.S. Department of Commerce now finalizing an investigation into possible auto duties.
The Trump administration and groups such as the CPA that favor greater protectionism say the levies have helped trigger a manufacturing boom that led to the addition of 284,000 jobs in 2018, according to official statistics. “If you look at the evidence, tariffs are contributing to the growth of our economy,” wrote Ferry in a column published on the CPA’s website in December.
Many dispute those numbers. They also argue the tariffs will lead to longer-term economic harm by reducing the attraction of the U.S. as a location for export-oriented plants. Volvo Cars, for example, has scrapped plans to expand a South Carolina plant to ship cars to China. General Motors Co., meanwhile, has said the fallout from duties on foreign steel and aluminum have cost it at least $1 billion. But Ferry dismisses any such complaints. “Tariffs are a step in the right direction,” he says. “The evidence is all around us.” —Shawn Donnan
Libertarianism
Devotees of small government were stirred by candidate Trump’s vow to “drain the swamp” and pull U.S. troops out of foreign quagmires. But President Trump, with his tariffs and deficits, has proved to be “the opposite of a libertarian,” the Libertarian Party declared in March.
Still, the free-market purists aren’t giving up the fight. One of their bugbears is the Federal Reserve and its cheap money—a distortion of the market’s natural efficiency, according to Austrian economist and libertarian idol Friedrich Hayek. When Ron Paul, America’s highest-profile libertarian, ran for president in 2012, he pushed for the Fed’s abolition and a return to the gold standard. “If you want to restrain government, you restrain the power to create money,” he said. “That’s what gold does.”
The Fed can probably rest easy. Americans aren’t exactly clamoring for a return to gold, while hyperinflation and other disasters predicted by libertarians in the easy-money decade since 2008 haven’t come to pass.
Some libertarian ideas are finding a larger audience. Among them are the call for stripping back zoning rules, because they limit the construction of affordable housing, and their criticism of patents that lock in profits for Big Tech or Pharma and licensing requirements that insulate professionals like doctors from competition. A common theme of such critiques—that the economy is rigged in favor of big and established actors—commands growing support among mainstream economists.
And beyond the realms of U.S. policy, the world is evolving in ways that give libertarians hope. Those who deplore the “tyranny” of central banks are rejoicing at the explosion of cryptocurrencies. (The Libertarian Party accepts donations in Bitcoin.) Recreational marijuana use is already legal in 10 states and backed by more than 6 in 10 Americans, according to a poll by the Pew Research Center.
Paul, who outperformed most expectations during his own tilt at the presidency, says a popular Libertarian candidate could well emerge in 2020. It’s a stretch to say he’s cheerful about the wider outlook, though. “It’s a bubble economy in many, many different ways, and it’s going to come unglued,” he told the Washington Examiner. —Andrew Mayeda
Scientists and meteorologists on the front lines of the climate wars are testing a new strategy to get through to the skeptics and outright deniers.
That means avoiding the phrase “climate change,” so loaded with partisan connotations as it is. Stop talking about who or what is most responsible. And focus instead on what is happening and how unusual it is—and what it is costing communities.
That was a main takeaway at the American Meteorological Society’s annual meeting this month, where top meteorologists and environmental scientists from around the country gathered to hear the latest research on record rainfall and drought, debate new weather prediction models and digest all manner of analysis on climatic mutations.
Educating the public and policymakers about climate change at a time when elected leaders are doubling down on denying that it is happening at all or that humans are responsible for it demands a new lexicon, conference attendees told me—one that can effectively narrate the overwhelming scientific evidence but not get sucked into the controversy fueled most prominently by President Donald Trump.
The hope is to persuade the small but powerful minority that stands in the way of new policies to mitigate climate change’s worst long-term effects—as well as the people who vote for them—that something needs to be done or their own livelihoods and health will be at stake.
The new language taking root is meant to instill this sense of urgency about what is happening in ways to which everyday citizens can relate—without directly blaming it on human activity:
The spring blossoms keep coming earlier;
seasonal allergies are worsening and lasting longer;
extreme heat is upending the kids’ summer camp schedule;
crops are drying up or washing away at alarming rates.
And wherever possible, climate specialists told me, they are trying to explain the more frequent and deadly weather events in purely historical terms: These storms, these droughts, these dramatic fluctuations in temperature have previously taken place—once a century, or even once a millennium. But they keep coming.
“Is it humans or is it not? We really need to get beyond that,” Bernadette Woods Placky, an Emmy award-winning meteorologist who directs the Climate Matters program at Climate Central, told me. Climate Matters is tracking climate trends in 244 cities—including a steadily warming Phoenix. “We are still not getting enough people to talk about it in the ways that matter to human beings in their homes, in their communities, for their family,” she added. “So it is making those connections in ways that really matter to people. It’s a jobs story. It’s an agriculture story. Connect it to the farm bill; boom!”
The strategy is being increasingly employed in more conservative regions of the country, where climate doubt still runs deep—even if there are signs of cracks in the resistance thanks to the pummeling pattern of highly unusual and costly weather events.
“They see it firsthand,” Robert Mark Simpson, a professor of geography at the University of Tennessee at Martin, told me. “There is a sort of acknowledgment that the climate is changing. They just don’t think humans are that impactful. [They think blaming humans is] a conspiracy to overthrow the U.S. economy.”
Simpson attended the conference at the Phoenix Convention Center to outline his three-year effort to educate farmers about climate change in western Tennessee and eastern Kentucky, where at some dinner tables the term remains a political curse word. Tennessee just elected a leading climate change doubter, Marsha Blackburn, to the U.S. Senate.
It’s a tall order. So, he is also trying another tack to reach the political and religious conservatives for which farming has been in the family for generations: warning that the family business might be in jeopardy—sooner than they might think.
“Will they be able to farm here 30 to 40 years from now?”
Another line of argument he has found to appeal to conservatives’ personal connection to nature.
“Many are hunters and fishermen. They are really tied to the environment,” Simpson said. He finds he can reach them by trying to tap into their belief that “we’ve been given stewardship” of the Earth.
But the political headwinds that he and others are up against—especially in red states where political leaders are unwilling to accept the scientific consensus that human activity is playing an outsize role in the changing climate—were on display last weekend.
As winter storms bore down on large swaths of the country, Trump took to Twitter to warn Americans to “be careful and try staying in your house. Large parts of the Country are suffering from tremendous amounts of snow and near record setting cold.”
Then the climate science doubter in chief concluded: “Amazing how big this system is. Wouldn’t be bad to have a little of that good old fashioned Global Warming right now!”
Meanwhile, despite the Democratic takeover of the House, and a new commitment to pass climate change legislation, some leading Republican doubters are still chairing major Senate committees with jurisdiction over climate policy. That includes Sen. Jim Inhofe of Oklahoma, the new head of the Armed Services Committee, which just received a Pentagon report that paints a dire picture of the effects of climate change on dozens of U.S. military bases in the coming years.
Nowhere is the challenge of convincing the doubters without being labeled a partisan or environmental zealot greater than in the ranks of broadcast meteorologists. Local TV weather experts were among the last holdouts in the scientific community to accept the consensus that humans are responsible for climate change—so much so that in 2014 then-President Barack Obama met with some of them as part of his effort to sell his environmental policy agenda.
“I think a lot of the broadcasters were concerned that there was such a political divide within the population and if they were very vocal of any aspect of climate change some subset of their audience would not view them with a level of trust,” Keith Seitter, a meteorologist and the American Meteorological Society’s executive director, told me.
Now, some 600 broadcast meteorologists, out of an estimated 2,200 in the United States, are working with Climate Matters to craft new ways to tell their viewers about climate change.
“I have changed my presentation a bit,” Jim Gandy, chief meteorologist for the CBS affiliate in Columbia, S.C., told me. “I used to start with the science. Now I try to show them how it is changing and then I go into why it is changing. That may be a more effective approach. I share the raw data with them that has not been ‘manipulated’ and it throws them for a loop.”
Even in viewing areas considered Democratic strongholds, talking about climate change can be risky.
“You have to be careful,” Bob Ryan, a longtime television meteorologist in Washington who was the first network meteorologist, told me. “If you get into policy you are getting into political quicksand. People don’t want to be lectured to. That doesn’t accomplish anything.”
So he too is in the habit of explaining related weather events in the context of how much more often they are occurring than in the past. “Ellicott City has had a number of 500-year flood events in recent years,” he cites as one example, referring to the Baltimore suburb.
The article “What Can a Technologist do about Climate Change?” [0] by Bret Victor is one of the best things I’ve read in regards to this issue. Not only is it incredibly interesting but it’s also massively inspiring.
If climate change doesn’t take your fancy as a cause, 80000 Hours have put a lot of research into this list of the world’s most pressing problems [1]. Maybe you would like to help tackling one of those.