Economics – The Green New Deal

Appraising the Green New Deal

The purpose of this blog is not to praise or bury the Green New Deal. We have tried here to show how it could work in practice and provide order of magnitude costs (in practice, shooting for the right number of zeros) for the listed elements of it.

Unsurprisingly, the process of this analysis has left us with some opinions, which we share in this post.

As currently described, the GND is imprecise enough to force us into giving ranges of the costs rather than precise estimates. The fact that the GND does not prioritize specific elements makes it impossible to determine any level of path dependency. To take just one example, if the government takes steps to spur infrastructure improvements and a build-out of green energy–solar panels, charging stations, domestic electric vehicles, etc.–prior to implementing a universal basic income that kicks in at $61K household income, the resulting increased employment will undoubtedly reduce the number of households receiving the UBI. There are many other aspects of the initiative that have path dependency impacts.

The vagueness of the various descriptions of the Green New Deal does more than make life difficult for analysts. It allows for suggestions for improving and listing our own priorities.

If we take as a given that we share the goals of the Green New Deal–an uplifting of living standards for the poorer fifth of Americans and an overall quality of life matching or exceeding those found in Northern Europe, as well as a dramatic decrease in our impact on the environment and our contributions to climate change in a short time frame, then perhaps our suggested changes can be welcomed as well as challenged.

To start, let’s divide the Green New Deal into the obvious two categories–economic uplift and environmental remediation.

We feel strongly that the economic part of the Green New Deal needs to be the top priority. The poor in America need help now, and some of what we do to help them can also help the environment. The converse is not true. Much of what we do to address our environmental deficit of care will divert resources from helping the disadvantaged unless great care is used in implementation. Furthermore, a number of high profile economic elements of the GND are actually inexpensive–$50 billion a year (which we guess is now considered chump change) would address homelessness, housing upgrades, education for all and access to healthy food and nature. And there are existing programs that could take that money from day one and use it effectively.

Providing jobs for all Americans, perhaps through a federal works program, can be directed at the poor and those jobs can include installation of solar panels and charging stations and retrofitting or manufacturing electric vehicles. The training and education needed can be considered as higher education credits leading to re-entry into tertiary (and for some, secondary) education. The poor can be employed in building or renovating social housing, or in environmental remediation of soil and water.

Addressing environmental concerns needs to first consider the elephant in the room. The Green New Deal has no provision for using nuclear power to reduce emissions. The hostility of environmentalists towards nuclear power is as old as nuclear power itself and much of it has been validated by negligent or criminal behavior at certain sites. But the technology of providing nuclear power has advanced considerably and adopting best of breed modular reactors, perhaps sited on federally owned land with federal guarantees for liability, would ease the burden on other strategies to arrive at net zero emissions.

Much of the environmental agenda put forward by the Green New Deal can be achieved by getting out of the way of current trends. Solar power has historically grown at a rate sufficient to meet the needs of the GND, although practically speaking we should shoot for 30% of electricity provision from solar and wind. Continuing policies put in place during the Obama administration would actually get us there. Removing some of the bureaucratic holdups for permitting and licensing would speed it up. Removing tariffs on international providers of solar panels would decrease costs. This is all very low-hanging fruit.

Encouraging the take-up of electric vehicles would again be easy. Provide incentives for both consumers and manufacturers–carrots for electric vehicles and sticks to discourage gas or diesel vehicles. Remember that half the electric cars in the U.S. were purchased in the past two years. That’s a good beginning to build on.

Reversing some of the current administration’s efforts to revive coal would help. Encouraging the decommissioning of the dwindling number of coal-fired energy plants would help more.

These ‘nudge’ type initiatives could be implemented quickly and inexpensively, relative to the overall costs of the entire GND. They would have a noticeable impact and hopefully would pave the way for the more ambitious elements later on.

Imposing a carbon tax at a low level (perhaps $20 per ton) and rebating it to consumers would influence behavior at the margins. Evaluating the correct level of tax every ten years, based on climate and economic metrics, would help shape behaviors while financing parts of the GND. Adding an increased royalty on fuel production and imports and instituting a sovereign wealth fund can provide a capital base for financing the infrastructure of the future.

Or, as they put it back in the halcyon days when Silicon Valley actually was innovative and fun, ‘Start small. Succeed quickly. Scale fast.’

Costing the G vs. the ND

A couple of posts previously I tried to ballpark the costs of the entire Green New Deal.

I wrote, ” The (rough) annual cost estimates of implementing the Green New Deal to range from $2.65 trillion to $5.88 trillion. Almost all of the variance is due to the differences in estimates for healthcare.”

Today I would like to split out the costs, showing what the annual costs are for the environmental portion vs. the economic part. I’ll do it with the high end estimate of $5.88 trillion.

Medicare for All: $3.2 trillion

Affordable, safe, and adequate housing (solving homelessness): $9.3 billion

Upgrading schools and public housing: $6.8 billion

Economic security (universal basic income to those earning less than $61K/year): $768 billion

Providing resources, training, and high-quality education, including higher education, to all people of the United States: $32.5 billion

Total annual spend on non-environmental aspects of Green New Deal, high range estimates: $4.016 trillion.

68% of the annual cost of the Green New Deal is non-environmental.

Rough Look at Overall Costs of the Green New Deal

Since Alexandria Ocasio-Cortez and Ed Markey introduced their resolution for a Green New Deal, a number of people and institutions have tried to put a price tag on it.

The prices they come up with seem to reflect their political orientation more than an objective evaluation of the costs, with conservatives who would naturally oppose the Green New Deal saying it would cost a lot, while progressive Democrats who favor some or all of the elements of a Green New Deal insisting it would not cost very much at all. Before we provide our own estimates, here are some of the costs put forward by others.

Let’s start at the high end. Mises Wire, named in honor of the Austrian School economist Ludwig von Mises, says it would cost $93 trillion[1]—and they say that their estimate is conservative. The estimate relies on other work done by the American Action Forum (whose founder actually estimates a range from $52 trillion to $93 trillion[2]) and does not analyze the whole of the Green New Deal in great detail—from the article accompanying the estimate it would seem they threw up their hands in despair after arriving at such a high figure. They do note that some elements of the Green New Deal are redundant—for example, if the energy grid is powered by 100% renewable sources, why does the Green New Deal call for improving the energy efficiency of every building in America? That’s potentially helpful criticism. But in other places, they estimate a range of costs for elements of the Green New Deal and present the highest end of the range for each.

Defenders of the Green New Deal have been much fuzzier about costs, with Congresswoman Ocasio-Cortez merely remarking that it would probably cost at least $10 trillion[3], with other vague estimates from various sources at ‘around $2 trillion.’

Somewhere in between lies the real number—or numbers, as many elements must be estimated within a range.

Successful Uses of a Carbon Tax and a Sovereign Wealth Fund

We’re back from a lovely vacation in France and are ready to resume our exploration of the Green New Deal from a practical point of view.

Those who have read earlier posts can be forgiven if they start shaking their heads at the amount of money each individual portion of the GND seems to cost. The Green New Deal will cost a lot of money, although much of it will be obvious investments with an expected and forecast-able return.

But housing half a million homeless and offering tax subsidies for solar panels and electric cars doesn’t come cheap. And that’s just two of the initiatives we’ve discussed.

The Green New Deal And A Universal Basic Income

The average rent for a one bedroom apartment is $1,405 a month, or $16,860 a year. Twenty percent (20%) of Americans declared income of less than that last year. America does some of the things needed to compensate for that–food stamps, HUD allowances, etc.–but few would argue we are doing enough.

The nature of work is set to change fairly dramatically over the next few decades, with AI, robotics and other forms of automation quite likely to take on the jobs that people are doing now. And although the care and feeding of these new systems will create new jobs, in all likelihood there will be a permanent net loss of positions, especially for lower income workers.

One of the primary premises of The Green New Deal is “Guaranteeing a job with a family-sustaining wage, adequate family and medical leave, paid vacations, and retirement security to all people of the United States.”

The Green New Deal And Education

The Green New Deal proposes “Providing resources, training, and high-quality education, including higher education, to all people of the United States.”

At present there are about 5,300 universities and colleges in the U.S. In addition, there are about 1,132 community colleges and 8,063 trade or vocational schools. There are a bit more than 28,348,600 people aged 19-25 in the United States.

The Green New Deal: Healthy and Affordable Food

Availability of good food is a problem for the poor in America. It is not a problem for middle class and richer Americans. However Americans of all incomes frequently make poor choices about food.

The Green New Deal proposes to make healthy and affordable food available to all Americans. There are a number of established programs to draw from, ranging from proposed changes to the Supplemental Nutrition Assistance Program (SNAP), which helps get food to poor people, to templates for local planning departments trying to fight food insecurity and hunger.

People have been talking about getting more nutritious food into inner city grocery stores for a generation, though, without much in the way of results. As poverty is just as real and just as pervasive in rural counties, a different approach is warranted.

Affordable, Safe and Adequate Housing

One element of the proposed Green New Deal is ‘affordable, safe and adequate housing.’ Our first post on this subject will concern those who have no homes.

“According to the U.S. Department of Housing and Urban Development (HUD), there were roughly 554,000 homeless people living somewhere in the United States on a given night last year. A total of 193,000 of those people were “unsheltered,” meaning that they were living on the streets and had no access to emergency shelters, transitional housing, or Safe Havens.”

The Green New Deal and High Quality Healthcare

A lot has been made in the media about the accelerated schedule of the Green New Deal–the sponsors of the Congressional resolution want us to get there in 12 years.

To us, what’s more interesting is the fusion of progressive economic and social goals with the environmental initiatives to get to zero emissions. And again, in the formative stages of all this, it’s easy to look at it as disconnected. We might even be permitted to speculate that a firm connection did not exist in the minds of the plan’s creators. But we think over the course of this blog’s existence that we will end up showing a very firm connection between the social, the economic and the environmental elements.

Progressives began labeling healthcare a human right about a decade or so before the Green New Deal. Old school opponents were quick to object–how can infrastructure and services painstakingly built up over centuries at great cost to companies and individuals be re-characterized as providing something (healthcare) that their customers (patients) all of a sudden have a right to?