We Can’t Afford the Green New Deal
She did it. After months of fervor surrounding a potential “Green New Deal” to address the growing problem of climate change, Congresswoman Alexandria Ocasio-Cortez released an official proposal on February 7. The hype surrounding it has already pushed Senate Majority Leader Mitch McConnell to schedule its vote on the Senate floor. Many hope this Green New Deal will help stave off the serious consequences of global warming. Unfortunately, the actual legislation is essentially a progressive policy manifesto—one that will severely damage America’s economy.
The opening clauses of the Green New Deal read as you might expect. They cite recent UN and U.S. climate reports on the various consequences countries could face if the average global temperature rises to a certain point. But then the resolution switches gears with comments on “related crises” such as income inequality and wage stagnation. These issues are supposedly connected because climate change disproportionately affects disadvantaged Americans.
The document itself is a whirlwind of ideology. The solutions it offers range from somewhat new goals, such as “reducing risks posed by flooding and other environmental impacts,” to impossible projects, like “upgrading all existing buildings in the United States” to be more efficient and sustainable. Most of the climate change-related proposals involve increasing the development of clean tech and infrastructure. But the end of the document devolves into an economic agenda seemingly distinct from the resolution’s environmental mission, such as a federal jobs guarantee and anti-monopoly provisions.
Even more concerning is the left-wing approach to enforcing this Green New Deal. In a now-deleted “FAQ” posted to Congresswoman Ocasio-Cortez’s website (some of which is now available here), she says that one of her resolution’s objectives is to guarantee “economic security to all who are unable or unwilling to work.” This hints at removing work requirements for welfare or introducing a universal basic income. Besides income security, Ocasio-Cortez also uses the Green New Deal to theoretically guarantee affordable housing, health care, and higher education to all.
Ocasio-Cortez has since backtracked from the missing FAQ, insisting that an edited version will be released at some future date. But what she deleted revealed a lot about her intentions. If her vision is realized, the Green New Deal will be tremendously expensive. Medicare-for-all alone would require more than $3 trillion per year, nearly doubling current federal spending and potentially lowering health care quality in the U.S. If UBI were to guarantee $10,000 annually to all Americans, federal spending could rise another $3 trillion. Universal college would start by adding nearly a trillion dollars of spending over the next decade, but would likely grow as administrators face even fewer incentives to actually make schools cost-effective. Guaranteeing affordable housing is sure to raise deficits too.
One preliminary analysis calculated the Green New Deal’s cost at $6.6 trillion per year, and that’s ignoring some of the FAQ’s promises. That’s equivalent to a third of our GDP, and presuming no other programs are cut, three quarters of the U.S. economy would then be spent by government, the highest rate among developed countries.
This raises Ocasio-Cortez’s least favorite question—where is the money for the Green New Deal going to come from?
You might expect her to promote a 70 percent tax on the wealthiest Americans, as she originally suggested back in January. But income and wealth taxes don’t show up in the resolution or the online FAQ. Perhaps Ocasio-Cortez decided not to raise the issue after analyses revealed that such a tax on those earning $10 million or more would raise relatively little revenue—just $72 billion a year, enough to keep the federal government open for about one week under current spending levels.
Instead, in her FAQ, Ocasio-Cortez admitted that the Green New Deal would be paid for through borrowing. To defend her position, she posted links to articles promoting Modern Monetary Theory (MMT), a newly popular idea in fiscal policy, which claims that governments can afford whatever they want if they control the currency. Without diving into the details and some of the economic holes, even if a policymaker believed MMT could work in theory, she couldn’t claim it would work in the United States. MMT assumes and requires an independent body that sets fiscal policy, like a Federal Reserve, only for budgets rather than monetary decisions. MMT is internally consistent, but that just makes it an accounting trick. Its assumptions are too unrealistic to justify more spending.
And despite the chipper rhetoric behind the Green New Deal, the American people wouldn’t actually be better off. Ocasio-Cortez insists we should believe the Green New Deal is an economic possibility because several Western European governments also spend a lot on their economies. But those countries impose high taxes on everyone, not just high-income earners. In fact, the U.S. already has the most progressive tax system of any developed country, five times more progressive than the Scandinavian countries. Make no mistake: a more democratic socialist system would require the vast majority of Americans to pay a lot more in taxes.
Excessive deficit financing should be off the table as well. Such drastic borrowing would be disastrous for the U.S. credit rating, which would require much more money to cover interest payments, pushing aside more desirable investments in welfare assistance, defense, and infrastructure. Those interest payments would mean even more borrowing or inflation to fund the deficit, starting a vicious cycle that could accelerate an economic crisis.
Perhaps Green New Deal supporters are willing to sacrifice the economy if it means saving the planet. But we don’t face so dramatic a choice. It is possible to promote green energy and infrastructure without rewriting the entire American economic system. And even if the Green New Deal worked perfectly, a carbon-free America alone will mean little for the trajectory of global climate change. Most of the rising carbon emissions come from China, India, and other countries outside the U.S. and Europe.
Fighting climate change effectively wouldn’t be as sexy as the Green New Deal. Some parts of Ocasio-Cortez’s proposal should be pursued, such as greater research, development, and the advancement of green energy. Carbon capture technology can mitigate damage until cleaner energy is introduced around more of the globe. Economists love carbon taxes, which could be used to encourage development of those green technologies, and revenues could be rebated back to American households.
Democrats serious about promoting environmental sustainability should follow House Speaker Nancy Pelosi in opposing the Green New Deal. The U.S. economy has grown without consideration for its environmental effects for most of its history, and purporting to stave off a planetary problem without giving up anything is silly. But hard problems require hard work, not out-of-touch ideological manifestos.
John Kristof is a research fellow at the Sagamore Institute and a contributor for Young Voices, writing frequently on fiscal policy and other economic issues. Follow John on Twitter.