Green New Deal: Cronyism on Steroids

From a macroeconomic perspective, President Obama’s so-called stimulus was a flop. The federal government borrowed and redistributed almost $1 trillion, yet the economy stagnated.

From a microeconomic perspective, the faux stimulus may have been an even bigger failure. One of the worst features was the laughable and scandal-ridden green energy program, which featured corrupt boondoggles such as Solyndra.

Well, if you liked Solyndra, you’ll love the “Green New Deal,” a proposal to dramatically expand Washington’s power over the private economy.  As I explained in an article for the American Conservative, the plan introduced by Congresswoman Alexandria Ocasio-Cortez (AOC) is cronyism on steroids.

Looking at Representative Alexandria Ocasio-Cortez’s Green New Deal, one is reminded of Voltaire’s comment that the Holy Roman Empire was neither holy, nor Roman, nor an empire. But that might be slightly unfair. There is some Green in the GND, though the ideas aren’t New, and it’s definitely not a Deal. At least not for taxpayers. …budget gurus have examined the GND wish list and they calculate that the 10-year cost could reach $90 trillion. That’s trillion, not billion—a staggering amount of money. For all intents and purposes, Ocasio-Cortez wants to expand the burden of federal spending from 21 percent of economic output to about 50 percent of economic output. …The economic implications of these policies are horrifying. The GND would mean Greek-style fiscal policy in the United States, with concomitant economic stagnation.

But it’s not just bad fiscal policy.

The scheme would give politicians and bureaucrats immense powers to micro-manage the productive sector of the economy.

It’s equally important to consider how the GND would dramatically expand Washington’s power over the economy—above and beyond new taxes and higher spending. …the government would be obliged to end any and all reliance on fossil fuels and shift the nation to 100 percent renewable energy. …the government would be obliged to provide universal and unrestricted access to health care for everyone. …the government would be obliged to provide everybody with a job that includes generous benefits, including paid vacations and a comfortable retirement. …the government would be obliged to create a nationwide system that was so quick and so effective that commercial air travel could be ended. …the government would be obliged to gut and rebuild every single structure in the country so that they all met a zero-net-carbon goal.

What would this mean?

A feeding frenzy of well-connected special interests at the expense of ordinary taxpayers, which would be very unseemly.

That’s the direct cost.

But from an economic perspective, what matters is that labor and capital increasingly would be allocated by political forces (i.e., cronyism) rather than market forces (i.e., the preferences of consumers).

For all intents and purposes, the GND is a form of central planning. Not full Soviet style steering of the economy, but nonetheless a step in that direction.

And this indirect costs imposed by this approach wouldn’t be trivial.

Every single one of these costly ideas will serve as a magnet for consultants, contractors, administrators, and others who will want to profit by “helping” to implement the various pieces of the GND. For those who remember the corruption and cronyism of the Obama administration’s green energy program (part of the failed stimulus), Ocasio-Cortez wants to do the same thing. But far more extensive. …what happens if the “invisible hand” of consumer-driven competition is replaced (or substantially weakened) because politicians adopt something like the Green New Deal? …market forces will get squeezed as politicians directly allocate resources in the economy. …cronyism and regulation undermine the free market just as taxes and spending undermine the free market. The mechanism—direct versus indirect—isn’t the same, but in both cases the preferences of consumers no longer drive the economy.

The bottom line is that the GND is a corporatist scheme using the environment as a pretext.

If you don’t believe me, just look at what AOC’s top aide said about the proposal.

The chief of staff for Rep. Alexandria Ocasio-Cortez stated that her signature Green New Deal was not really about saving the planet after all. In a report by the Washington Post, Saikat Chakrabarti revealed that “it wasn’t originally a climate thing at all … we really think of it as a how-do-you-change-the-entire-economy thing.” …The Green New Deal itself was fraught with complications in its February roll-out, which included confusing language and contradictions in the “Frequently Asked Question” section. …The Green New Deal, which some estimated could cost upwards of $93 trillion to enact, also promised “economic prosperity for all.”

Refreshingly honest on the part of Mr. Chakrabarti, but also a stark warning to the rest of us.

By the way, the excerpt mentions the “confusing language” in the original GND documents. I would call is terrifying language. This section is particularly crazy.

David Harsanyi highlighted 10 of the most bizarre provisions in a column for the Federalist.

It is not hyperbole to contend that GND is likely the most ridiculous and un-American plan that’s ever been presented by an elected official to voters. …the plan’s authors assure us that this “massive transformation of our society” needs some “clear goals and a timeline.” The timeline is ten years. Here are some of the goals: …Ban affordable energy. …Eliminate nuclear energy. …Eliminate 99 percent of cars. …Gut and rebuild every building in America. …Eliminate air travel. …A government-guaranteed job. ….Free education for life. …A salubrious diet. …A house. …Free money. …Bonus insanity: Ban meat.

And remember, all these provisions are enforced by politicians and bureaucrats repressing market forces and replacing them with political pull.

Alex Brill of the American Enterprise Institute summarizes why this is a bad idea.

…funding allocations will undoubtedly be determined by political forces rather than market forces. …final allocation will depend on the relative clout of the lawmakers and will inefficiently differ from the allocations that consumers and producers would demand. In short, the Green New Deal would be a deficit financed expansion of federal bureaucratic power to dictate investment decisions in one of the most dynamic sectors of the economy. …further centralizing energy market decisions puts at risk the free market economy that our nation has relied on for economic growth for more than two centuries.

Exactly right, which is why the GND would translate to fewer jobs and lower living standards.

Here are two real-world examples from the Wall Street Journal showing why green cronyism is a bad idea.

The first is from the United States.

…consider the public housing projects near Rep. Alexandria Ocasio-Cortez’s New York office. The New York City Housing Authority (Nycha)…is switching to LED lighting, which lasts longer than incandescent bulbs and consumes less energy. Sounds smart, until you see how many union workers it takes to screw in a light bulb. One recent project focused on 23 housing developments, and changing the light bulbs and fixtures there cost $33.2 million. Supplies account for a fraction of that cost. Under Nycha’s Project Labor Agreement, electricians make $81 in base pay and $54 in fringe per hour, and overtime is usually time and a half. Add administrative and contracting expenses. All in, Nycha paid an average of $1,973 per apartment to install LEDs. …In the private economy, $1,973 could go a long way toward improving a dilapidated apartment. Only in the world of green government spending is replacing light bulbs for two grand a unit a cost-saving measure.

Don’t forget, by the way, that light bulbs also are more expensive once government is part of the equation.

The second is from Australia.

The Green New Deal…calls among other things for “upgrading all existing buildings in the United States…” We’ve tried it in Australia—on a much smaller scale—and it didn’t go well. On Feb. 3, 2009, Labor Prime Minister Kevin Rudd and his treasurer, Wayne Swan, announced the Energy Efficient Homes Package. “To support jobs and set Australia up for a low carbon future the Rudd Government will install free ceiling insulation in around 2.7 million Australian homes…” There were only 250 registered insulation businesses in Australia when the package was announced. That number quickly blew out to 7,000 because the government was handing out free money to installers. …They received their rebates directly from the government rather than from homeowners, who therefore had little incentive to check if the work had been done well or even at all. …Almost every insulation job went right up to the $1,600 cap, regardless of size or ceiling area. …Nearly 100 houses caught fire. …In February 2010, a year after the Energy Efficient Homes Package was announced, it was abandoned.

I also recommend this column about what happened in Germany.

Let’s close with a bit of humor.

Our first example is a modification of the famous map of the Korean Peninsula showing the difference between capitalism and communism.

In this case, however, we show a “successful” low-carbon economy.

By the way, some people don’t get the joke. Jeffrey Sachs actually ranks hellholes such as Cuba ahead of the United States in part because impoverished people don’t consume much energy.

And some environmentalists put together a grotesquely misnamed “Happy Planet Index” that also ranked the grim disaster of Venezuela ahead of America.

To conclude, here’s a cartoon strip that nicely summarizes how the GND is fueled.

In other words, the middle class will pay a lot more if AOC’s scheme is ever adopted.

P.S. Donald Trump is also at least somewhat guilty of wanting to replace market forces with government intervention.

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Basic Income and Handouts for People Who Are “Unwilling to Work”

When I wrote about Alexandria Ocasio-Cortez’s so-called Green New Deal, I mostly focused on the very expensive fiscal implications. I also noted that AOC’s proposed 70 percent tax rate on the rich wouldn’t even pay for a tiny fraction of the multi-trillion dollar cost (in other words, you and me would be pillaged).

Others focused on some of the inane goals of the legislation, such as phasing out cows and air travel.

But the part of the plan that produced the most controversy was the promise to provide “economic security” to those “unwilling to work.” This generated so much mockery that it no longer appears in any supporting documents and some supporters even claim that it never was part of the plan.

But some true believers aren’t backing down. Let’s look at some excerpts from Christine Emba’s recent column in the Washington Post.

The rollout of the progressives’ Green New Deal has been less than smooth. One major reason: the release of an FAQ that listed “economic security” for those “unwilling to work” as one of the program’s goals. “Unwilling”? The now-retracted FAQ made other eyebrow-raising claims, but conservatives pounced on that word in particular. …welfare as a reward for laziness, it was called extreme, absurd…a “Communist Manifesto, 21st Century.”

Give Ms. Emba credit.

She didn’t pretend, like many other folks on the left, that the promise of no-strings handouts for the indolent wasn’t part of AOC’s original plan. For this reason, we should probably add her to our collection of honest leftists.

But while I applaud the honesty at the start of her column, the analysis that follows is profoundly awful.

She basically argues that the success of welfare should be judged by whether recipients are happy to get free money.

…is the idea of unconditional economic security really so extraordinary? …A state-dispensed, unconditional cash stipend for every single citizen — whether willing to work or not — has been touted as a way to…perhaps end deep poverty …most Americans look askance at the idea of giving anyone anything free, let alone something as intangible as well-being. It’s life, liberty and the pursuit of happiness, after all. Actually getting it is up to you. But what if we thought differently? Well-being — happiness in some sense… Health is a key measure of well-being. Adequate food and housing support it. …Which outcomes do we really care about? …Work isn’t all that matters. Improving well-being is a more than respectable goal.

And she even cites the failed program from Finland to justify her position.

Finland recently completed a landmark basic income project… One of the main goals of the Finnish project was to test whether a basic income would promote employment. …the program wasn’t much of a success: During the first 12 months, at least, basic income recipients fared no better or worse at finding employment than a control group. But it made a radical difference in other ways. “The basic income recipients of the test group reported better well being in every way,” chief researcher Olli Kangas told Reuters.

For all intents and purposes, Ms. Emba is lowering the bar for success. Basic income no longer should be supported because it will encourage more work (as some claim). Instead, we should support it because non-working people will be happy to get more handouts.

Let’s think about what that means. I wrote about socialism a week ago and I shared a very persuasive cartoon that shows why the theory has an inherent practical flaw.

While I’m tempted to recycle that cartoon again, this Wizard-of-Id parody makes the same point.

The bottom line is rather grim. A society that taxes productivity and subsidizes idleness over time will get less of the former and more of the latter.

P.S. While recipients express positive thoughts when they get more handouts, Arthur Brooks has explained that depending on others is not a route to a genuinely happy and fulfilled life.

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The Green New Deal Is a Dangerous Fantasy

If nothing else, Alexandria Ocasio-Cortez gives me a lot to write about…and to laugh about.

I recently pontificated about her crazy idea to impose a top tax rate of 70 percent, which would reverse the very successful experiment we had in the 1980s (and presumably have a reverse effect on revenue as well).

Today, let’s look at the spending side of the fiscal equation.

AOC, as she is known, wants a dramatic increase in the burden of federal spending for her so-called “green new deal.”

Let’s examine the implications.

We’ll start with a supporter. Thomas Friedman of the New York Times has a giant carbon footprint compared to the average person, but that naturally doesn’t stop him from endorsing policies that would put AOC’s onerous burdens on the less fortunate.

Barack Obama picked up the theme and made a Green New Deal part of his 2008 platform, but the idea just never took off. So I’m excited that the new Democratic Congresswoman Alexandria Ocasio-Cortez and others have put forward their own takes on a Green New Deal… The goal is a ‘detailed national, industrial, economic mobilization plan’ to rapidly transition the country away from fossil fuels and toward clean energy, such as a solar, wind, and electric cars.” The Green New Deal that Ocasio-Cortez has laid out aspires to power the U.S. economy with 100 percent renewable energy within 12 years and calls for “a job guarantee program to assure a living wage job to every person who wants one,” “basic income programs” and “universal health care,” financed, at least in part, by higher taxes on the wealthy. …it is time for the green movement to think big and make big demands…a portion of every dollar raised by a carbon tax in a Green New Deal would be invested in two new community colleges and high-speed broadband in rural areas of every state.

Now let’s look at the implications of such policies.

But before looking at fiscal and economic considerations, let’s briefly detour to ideology.

Jonah Goldberg of National Review has some fun examining the philosophical forerunners of Ocasio-Cortez’s plan.

…the Green New Deal…is a triumph of recycling. Not of plastic bags or soda cans, but of ideas. Specifically, Franklin D. Roosevelt’s New Deal and the impulses behind it. To her credit, Ocasio-Cortez (D., N.Y.) is fairly honest about her ideological recycling. …the New Deal itself was largely about war mobilization — without war. Roosevelt campaigned for president promising to adapt Woodrow Wilson’s wartime industrial policies to fight the Great Depression. …Nearly the entire structure of the New Deal was copied from Wilson’s “war socialism.” The National Recovery Administration was modeled on the War Industries Board. The Reconstruction Finance Corporation was an update of Wilson’s War Finance Corporation. …breaking discipline was a punishable offense, which is why a tailor, Jacob Maged, was sentenced to 30 days in jail for charging too little to press a suit. …American liberalism has been recycling the same basic idea: The country needs to be unified and organized as if we are at war… The attraction stems from what John Dewey called “the social possibilities of war” — the ability to reorganize and unify society according to the schemes of planners and experts.

Gee, another New Deal. What could possibly go wrong?

Now let’s contemplate the practical implications.

We’ll start with Warren Henry’s article in the Federalist.

…the darling of democratic socialism proposed eliminating carbon emissions within 12 years. …The “Frequently Asked Questions” section accompanying her draft resolution claims it could be funded in the “same ways that we paid for the 2008 bank bailout and extended quantitative easing programs, the same ways we paid for World War II and many other wars. The Federal Reserve can extend credit to power these projects and investments, new public banks can be created (as in WWII) to extend credit and a combination of various taxation tools (including taxes on carbon and other emissions and progressive wealth taxes) can be employed.” …Ocasio-Cortez now falls back on the comforting myth that everything is affordable by soaking the rich with higher income taxes. …Ocasio-Cortez half-concedes her plan is a fantasy… For an idea of how detached Ocasio-Cortez is from reality, consider that we get only 17 percent of our energy from renewables. …even if the golden geese of capitalism were to continue laying eggs in Ocasio-Cortez’s command-and-control economy, there will not be enough to make her statist omelet. Even if Ocasio-Cortez’s fever dream were technologically feasible, the burden of funding it would land on the middle class as well as the uber-wealthy. …This is not the first time Ocasio-Cortez has tried to pass off a fairy tale as a white paper. She recently claimed the $32 trillion cost of a Medicare-for-all plan could be funded by curbing fraud at the Pentagon. Not even PolitiFact could make that math work, given that our nation has not spent $32 trillion on defense since its founding.

In an article for FEE, Jarrett Stepman looks at the economics of AOC’s plan.

It shouldn’t be a surprise that the avowed “democratic socialist” went with the predictable “tax the rich” formula in order to pay for a massive government program to combat climate change. …such a scheme would mean that her constituents in New York City would pay a max income tax rate of 82.6 percent… Perhaps New Yorkers deserve what they voted for, but does the country? …the tax hikes on the rich would be one of the least radical parts of the agenda. …moving the economy away from fossil fuels to 100 percent renewable energy will come “at a cost of about $5.2 trillion over 20 years.” …this deal would instead rely on the ruthless bludgeoning of private industry and citizens through the levers of the state. …the plan calls for direct government intervention to be its “prime driver.” …The Green New Deal doesn’t just include environmentalist proposals… Among the liberal wish list items included, the Green New Deal contains a proposal for universal health care and a basic minimum income program to make up for all the jobs lost…this will all come with an immense cost. …How do Green New Deal proponents propose to pay for this extreme growth in government? …by massively hiking taxes and then borrowing and ultimately printing money. Then it would use public banks run by unaccountable bureaucrats to carry the whole thing out. …an American version of a Soviet-style five-year plan focused on command-and-control economic solutions that have proven to fail the world over. …The agony of a collapsing Venezuela…is a stark example of how badly this can end.

Milton Ezrati’s column in the City Journal further debunks AOC’s numbers.

…specific goals…include, among other things, expanding renewable-energy sources until they provide 100 percent of the nation’s power…upgrading every residence and industrial building in the U.S. for energy efficiency…eliminating greenhouse-gas emissions for industry and agriculture; funding “massive” investments… Ocasio-Cortez adds a long list of social objectives: providing training and education for the energy transition, including “job guarantees at a living wage for everyone who wants one”; …mitigating racial, regional, and gender-based inequalities; developing universal health-care and income-support programs… there were some 136 million housing units in the United States. Upgrading each unit to high standards of energy efficiency would cost, conservatively, at least $10,000 per home, adding up to a total cost of $1.3 trillion. Doing the same for industrial structures would easily exceed that amount. The single-payer health-care part would cost another $3 trillion or more, annually. Stabilizing carbon dioxide in the atmosphere would add another $1 trillion to $2 trillion to the price tag—and all these still only account for three items on AOC’s list. …she would rely on debt, “printing money,” and government willingness to take an equity stake in some of the enterprises involved.

The bottom line is Ocasio-Cortez wants to dramatically expand the size and scope of government.

Some of her ideas would involve big increases in red tape, especially for the green parts of the Green New Deal (thus underscoring why it is rather naive for anyone to think the left would accept less regulation in exchange for a carbon tax).

But since I’m a fiscal policy person, I’m naturally concerned about what her grandiose plan would mean for the tax and spending burden.

Brian Riedl of the Manhattan Institute has used public sources to estimate the price tag. Here’s the new spending that AOC and her fellow travelers want to impose on the economy.

And below we have a menu of potential tax increases.

There are two things to realize.

• First, even if every single one of the tax increases is adopted, it doesn’t come close to paying for AOC’s wish list for new spending.
• Second, the big revenue sources (payroll taxes, VAT, income tax) are largely taxes on lower-income and middle-class taxpayers.

In other words, politicians talk big about screwing the rich, but the rest of us will be picking up the tab.

By the way, I can’t resist commenting on this second table. I realize Brian is merely following the tradition of budget scorekeepers at the JCT and CBO, but new revenues should not be categorized as “savings.” I would go with “grabbings” or “takings” instead.

Brian’s rhetorical sin doesn’t qualify him for the Bob Dole Award or the Charlie Brown Award, but surely there should be some consequences. Maybe we’ll create a Libertarian Re-education Camp and miscreants will be forced to listen to lectures from Dork 1, Dork 2, and Dork 3?

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Alexandria Ocasio-Cortez’s Fiscal Plan Will Lead to Giant Tax Hikes on Middle-Class and Lower-Income Americans

Bernie Sanders is yesterday’s news.

Yes, he’s still lovable ol’ Crazy Bernie, but he’s now being overshadowed by Congresswoman Alexandria Ocasio-Cortez, another out-of-the-closet socialist who somehow thinks America should be more like Greece or Venezuela.

Brian Riedl of the Manhattan Institute opines in National Review about AOC’s proposed tax hike on the rich. He starts with a very appropriate economic observation.

A 70 percent tax bracket would raise very little (if any) revenue, while damaging the economy and sending income and jobs overseas.

He then points out that we should look at both sides of the fiscal ledger.

And the spending side of the left’s ledger is very crowded and very heavy.

…when assessing the needed tax revenues, a green-energy initiative costing $7–$10 trillion over the decade should be examined in the context of $42 trillion in additional Democratic-socialist proposals that include single-payer health care ($32 trillion), a federal jobs guarantee ($6.8 trillion), student-loan forgiveness ($1.4 trillion), free public college ($800 billion), infrastructure ($1 trillion), family leave ($270 billion), and Social Security expansion ($188 billion). …These spending promises are so stratospheric as to be incomprehensible — except to the far Left, which clings to the myth that simply taxing millionaires can finance a level of socialism that would make the Swedes start a tea-party movement.

Here’s the key part of Brian’s column.

He points out that there’s no way to finance the agenda of Democratic Socialists with class-warfare taxes. Even if the AOC tax plan is dramatically expanded.

…a 100 percent tax rate on all income over $1 million…would raise 3.8 percent of GDP — not even enough to balance the current budget, much less finance a Green New Deal. And even that figure implausibly assumes that people continue working and investing. Slightly more realistically, doubling the top 35 percent and 37 percent tax brackets, to 70 percent and 74 percent for singles earning more than $200,000 and couples earning at least $400,000, would raise roughly 1.6 percent of GDP. That figure also ignores all revenues lost to the economic effects of 85 percent marginal tax rates (when including state and payroll taxes) as well as tax avoidance and evasion. …limiting the 70 percent tax bracket to incomes over $10 million…would raise only 0.25 percent of GDP — about $50 billion annually. …$50 billion is surely too high of an estimate, because the kind of people with incomes over $10 million also have teams of accountants and tax lawyers finding every conceivable tax loophole and overseas income shift.

Everything we know about the real-world impact of tax policy tells us that these soak-the-rich taxes won’t raise much – if any – revenue for the simple reason that upper-income taxpayers will alter the timing, level, and composition of their income.

But, as Brian noted, these taxes wouldn’t come close to financing the leftist wish list even if one makes absurd assumptions that behavior doesn’t change and the economy is unaffected.

So how do European nations finance their large welfare states?

Europe finances its generous welfare states through steep value-added taxes that hit the entire population. …Increasing federal spending by 21 percent of GDP to fund Democratic socialism — even after slashing defense — would require either a 55 percent payroll tax increase, or 115 percent value-added tax, according to CBO data. Acknowledging this brutal middle-class burden would immediately end any public flirtation with “free-lunch socialism.”

This is the most important takeaway from the column.

And it’s something that I’ve noted as well. On more than one occasion.

If you want European-type handouts, you better be prepared to cough up a lot of money.

• Onerous value-added taxes.
• Punitive payroll taxes.
• And income taxes that impose high rates on modest incomes.

Simply stated, there is no way to finance a European-sized welfare state without pillaging middle-class and lower-income taxpayers.

Which helps to explain why European living standards are significantly below American levels.

By the way, there one final point from Brian’s column that is worth sharing.

He explains that high tax rates in the 1950s, 1960s, and 1970s didn’t generate much revenue. Even from the rich.

A common liberal retort is that the economy survived 91 percent income-tax rates under President Eisenhower and 70 percent tax rates through the 1970s. That does not mean those policies raised much revenue. Tax exclusions and high income thresholds shielded nearly everyone from these tax rates — to the degree that the richest 1 percent of earners paid lower effective income-tax rates in the 1950s than today. In 1960, only eight taxpayers paid the 91 percent rate. Overall, today’s 8.2 percent of GDP in federal income-tax revenues exceeds that of the 1950s (7.2 percent), 1960s (7.6 percent), and 1970s (7.9 percent). Those earlier decades were not a tax-the-rich utopia.

Amen.

I made similar points back in 2017.

The bottom line is that Alexandria Ocasio-Cortez’s economic agenda cannot be justified when looking at economic data, fiscal data, and historical data.

But we can say with great confidence that ordinary people ultimately will pay the heaviest price if her proposals get enacted since her class-warfare tax hikes will be a precursor for huge tax increases on the rest of us.

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