Alexandria Ocasio-Cortez has finally unveiled her proposal for an economic mobilization of resources to combat climate change, known as the ‘Green New Deal.’
After its release on Thursday, 7 February 2019, it has ravaged media headlines. Many publishers have offered the proposal a well-deserved criticism.
After reading through the resolution, I maintain that the proposed stipulations are unrealistic and, to be frank, absolutely asinine. Disregarding the absurd FAQ document that was supplied with the resolution, which included an excerpt providing economic security “for those unwilling to work,” we will instead introduce a critique on the contents of the resolution itself.
Before moving forward, to prevent an argumentum ad logicam, it should be stated that since the Earth is our home, it is necessary to maintain its wellbeing. The discussion does not beg if human tendencies have harmed our environment, rather how we choose to address our environmental impact and through which medium; being the free market or one of government management. We will refrain from discussing the validity of climate change, and instead focus on the economic conditions of this Green New Deal.
The first excerpt that caught my eye was on page 2. In section 3, Ocasio-Cortez claimed that climate change would cause “more than $500,000,000,000 in lost annual economic output in the United States by the year 2100.” My initial thought was where did she obtain this arbitrary number from? Perhaps an economist utilized mathematical models that supplied her with a rough estimate, however, there are simply too many undetermined factors that one is unable to input into these models. How can one possibly measure the polluting tendencies of a population 60 years from now? How can they foresee the innovations that may alter every aspect of human life decades from now, or even a few years? In fact, the economics that Ocasio-Cortez adheres to have an extensive track record of being flat out wrong in many of their predictions, such as the assumptions of a post-war depression after WW2, which instead manifested into a boom.
Many mainstream economists have attempt to measure or predict economic activity, and seek to manufacture mathematical models, rather than observe and explain the outcomes of particular actions of humans. This is not to say mathematical models have no purpose. Rather, they should be seen as estimated probabilities, and not treated as facts that legislation should be based upon. It is a faulty method of approaching economic science.
For the rest of section 3, Ocasio-Cortez lists a number of odd claims that will manifest if her Green New Deal is not passed. Among these are: $1 trillion dollars in damage to public infrastructure and 350,000,000 people being exposed to deadly heat stress. Again, I am curious to view the data that led to these bizarre numbers, and what negated factors could have possibly distorted them.
On page 3, she says that the United States is experiencing several crises. In section 1, she claims “life expectancy declining while basic needs, such as clean air, clean water, healthy food, and adequate health care, housing, transportation, and education, are inaccessible to a significant portion of the United States population.”
We will not address all of these for the sake of expediency. My only question is: Disregarding clean air and water, how does climate change directly affect the rest of these factors? I’m sure she has her justifications, but it is a perplexing notion we will simply disregard.
On page 3 in section 2, Ocasio-Cortez makes the claim that “a 4-decade trend of wage stagnation, deindustrialization, and anti-labor policies that has led to…” and she then proceeds to list a number of effects from our economic environment, among the most widely discussed are: Stagnant wages, socioeconomic mobility, and vast amounts of income inequality.
Let us first address wage stagnation.
The assertion is made that labor productivity and output has increased since the 1970s, while wages, adjusted for inflation, have remained stagnant. There are many factors that can explain this phenomenon, but the most visible explanation is the increase in capital goods investment.
Many fail to deduce that labor is not the only productive factor, and choose to negate the productive prowess of capital. The increase in production from capital investment delivers a greater output at a reduced production cost, allowing consumers to purchase goods at a lower price. This can be reflected by a steady increase in GDP per capita.
Real wages and purchasing power are paramount, not money wages. This maintains significance if inflation is suppressed to a minimal level, allowing the purchasing power of real wages to remain intact, ensuring a respectable quality of life. It should be noted that inflation must be inhibited in order to preserve the PPM, which conflicts with Ocasio-Cortez’s suggestion that the Federal Reserve extend credit to fund her proposition, as credit expansion promotes further inflation.
Regarding the United States’ socioeconomic mobility problem, I find myself in agreement, and see this as a potential issue. But where we diverge is on the question of what is causing this problem.
I can say with the utmost confidence it is not the free enterprise aspect of our economy, where I assume Ocasio-Cortez places blame.
In free exchange, one’s increase in wealth does not translate into a decrease of another’s wealth. This would insinuate a zero-sum game, which is contrary to how market systems function. An entrepreneur or producer cannot obtain profits without first making another better off. They can only acquire profits and generate wealth if a consumer prefers to spend their money on the producer’s products. If they didn’t, then the exchange wouldn’t take place. Not to mention the multitude of inexpensive, quality goods producers have supplied at lower prices for consumers due to the profit motive.
Additionally, contrary to the widely-held belief, wealth is not hoarded; unless, of course, the wealthy choose to hide vast sums of cash under their mattresses. But why would savvy billionaires hoard money when they can earn interest on investments?
Even if they maintained a “liquidity preference,” they would utilize checking and savings accounts, short-term treasury bonds and other liquid assets. If the money is deposited or invested in any of these mediums, it is through the banking system. To earn income, the banks only keep a fraction of the money in their vaults, otherwise referred to as vault cash, and loan out the remainder to investors or individuals who seek credit. These loans allow people like John Doe to jumpstart his local business, Jane Smith to purchase a minivan for her new family, or perhaps a loan is directed towards a research company searching for the cure for cancer.
On the other hand, one can present that the decrease in socioeconomic mobility can be directed in part towards government social programs that are intended to alleviate poverty. Unfortunately, many of the programs utilized by the government do not cure poverty; instead, it enables it through a system of disincentives. Many of these social programs require particular conditions that disallow many citizens from receiving the assistance if they choose to be productive and further increase their income. Obviously, many would prefer not to work and maintain their minimal income level in exchange for leisure, thus removing their ability to produce and ultimately save in order to increase their standard of living. Regardless of the steady increase in government spending to alleviate poverty, the poverty rate has minimally fluctuated.
Very little needs to be discussed regarding income inequality in the United States.
Income inequality has existed since the dawn of civilization. Some put more effort in their labor, act on their innovative ideas, practice abstinence from consumption and invest in capital and assets, and so forth.
Also, wealth inheritance isn’t as predominant as many think, as 67% of the world’s billionaires are self-made.
Now, I am not stating income inequality cannot be a problem; but its origin and causes are being disregarded: That being government’s increased meddling in the marketplace. With the increase in intervention, a system of cronyism has surmounted in which the government and businesses are mischievously colluding. With the increase in regulating power, lobbyists are incentivized to direct large sums of money towards politicians in exchange for protection by legislating in their favor. This grants them monopoly protections, creates barriers to entry, and other practices that suppresses the companies’ competitors.
In the absence of government’s excessive regulating, the wealthy would be left to compete in the cut-throat economic environment without legislative security, as they should be. The government is choosing the winners and losers, and the winners remain at the top 0.1%.
With the introduction of further regulations and anti-business legislation that Ocasio-Cortez is advocating, she is trying to cure a problem that was caused by historical legislation similar to her own.
Climate change as a threat multiplier
Her resolution continues to exaggerate these claims on page 4, with her insinuation that climate change is a threat to national security and is a “threat multiplier”.
We will simply neglect it being a threat to national security, as I find the notion unworthy of any attention.
Regarding the threat multiplier, it insinuates that if issues are left unaddressed, over time its effects will increase and enact further consequences. Obviously, if you leave something unchecked, its repercussions can be expanded into further detrimental effects. Although the term threat multiplier may technically be correct, I do not see the words’ purpose other than fearmongering.
Government job creation
At the bottom of page 4, Ocasio-Cortez says that the New Deal will “create millions of good, high wage jobs in the United States; provide unprecedented levels of prosperity and economic security; and counteract systemic injustices.” The government may technically create jobs, but a more appropriate term would be displacing them, as the job would be instilled by siphoning wealth and resources from the private market.
Essentially, if labor for a particular job is in demand, then the market would have already supplied it. Its current absence illustrates the market demand for that particular job is non-existent. Therefore, creating it through reallocation is a waste of scarce resources. Unless, of course, Ocasio-Cortez and her researchers have some mystical knowledge that savvy investors do not.
Wealth and prosperity
The claim that her proposals would create unprecedented levels of prosperity and economic security is quite peculiar. We already have extraordinary levels of prosperity, and maintain one of the most productive economies that the world has ever witnessed.
There has never been a system of greater wealth generation than that of free enterprise. Its success is owed to an arrangement that emphasizes free exchange, private ownership of capital and well protected property rights.
If Ocasio-Cortez had her way with her wealth redistribution policies, absolute devastation would be inflicted on the producers who keep the economy well-rounded. Not to mention, it would ultimately turn away future domestic and foreign investment, as I predict a large exodus of the successful seeking opportunity in an economy that is friendlier to their efforts.
The statement on “systemic injustice” needs serious elaboration. Is a government robbing its citizens through burdensome taxation and subjugating them to its decrees not an injustice?
Page 5 further elaborates on the above content, and in section E she insinuates that climate change is negatively affecting oppressed minority demographics in one way or another, which I find completely bizarre.
Proceeding to page 6, Ocasio-Cortez lists the projects that will be required to implement her ideas, finally reaching section C that requires we meet a 100% clean and renewable energy demand in the United States in a mere 10 years.
The costs of this are bottomless, effortlessly burdening the taxpayers trillions of dollars to implement. This doesn’t even begin to touch on the decrease in economic activity in the abolished energy industries, and the industries that rely on its products.
For perspective, in 2015 a group of Stanford engineers proposed a repowering plan that would essentially restructure our power supply to that of one utilizing completely renewable energy, costing roughly $7 trillion dollars, while the Information Technology and Innovation Foundation estimates a cost of roughly $13 trillion. Depending on which number one chooses to adopt, this would be approximately 30-70% of the total US GDP which currently sits at $19 trillion, while the current US budget sits just over $4 trillion.
Though she asserts her raised taxes on the wealthy would fund this, Hauser’s Law states otherwise.
This economic occurrence demonstrates that regardless of the tax rate, the government has consistently only managed to collect roughly 20% of the gross domestic product since the 1950s. Though I personally find this law suspect, it has held true in the United States.
Ocasio-Cortez further elaborates on climate change for the next few pages, and we reach a pondering statement on section 3 of page 10.
She demands that the federal government ensures appropriate returns on investment and other stipulations that ensure communities and businesses are rewarded for their cooperation. Assuming many of these business and individuals do not leave from this massive government redistribution scheme, how can one possibly measure a return on investment in this aspect?
It is impossible to measure the millions of subjective costs and losses of those affected. What of the wealthy’s funds and assets she plans to displace in order to fund this plan. Will they have a ROI? I am doubtful of this.
For the remainder of her Green New Deal, Ocasio-Cortez proposes programs that would invest in high quality education for all citizens, union job creation, investing in community ownership, and a multitude of other policies that are met with repercussions that not even the greatest central planners could effectively manipulate.
We will briefly address the above listed-proposals; however, one should have concluded earlier that this entire resolution is ludicrous.
Program proposal: Quality education
Firstly, the government has done a poor job of providing its citizenry with quality education. Since 1966, the US has increased spending on public education by 300% with very little increase in overall education. In 2011, the US spent nearly $12,000 per student enrolled in public schools, the 5th highest in the world, and yet among OECD nations we are not even in the top fifteen in math, reading or science.
That is an exorbitant amount of money being spent, which could otherwise be directed towards private schooling if we adopted a voucher program.
Program proposal: Union job creation
Regarding union job creation, it is widely acknowledged by economists that high union wages create price floors, which in turn ignites unemployment, and discriminates against unskilled workers. I suppose she intends to alleviate this consequence by a rise in the minimum wage for non-union workers. Conversely, when the wage rate is mandated to be set above its equilibrium price, there is an introduction of a labor surplus. With each additional unit of supplied labor, the utility of each additional laborer decreases. This is otherwise known as the law of diminishing marginal utility. Entrepreneurs utilize the amount of labor required to fulfill the marketplace demand for a good or service.
In due time, with each additional worker enacting their labor, a point will ultimately be reached where an additional input of labor will generate no return, and instead increase the cost of production. This concept is known as the law of diminishing returns.
Program proposal: Community ownership
Finally, we will touch base with her proposal that deserves close attention: Community ownership.
Based on her rhetoric, one can only assume this means public ownership of the means of production, being the epitome of a socialist economics.
After reading the so-called Green New Deal, I am in the opinion this is not merely a means of relieving the environment of negative human tendencies. It is rather a complete overhaul of our economic system, removing the market and all of its substance and replacing it with one that is centrally-planned by bureaucrats that seemingly preserve the hidden knowledge that professional businessmen and investors lack.
One can conclude this was nothing more than a layout for Ocasio-Cortez’s idea of an imaginary utopian land blooming with limitless bliss and prosperity.
It’s simply not realistic.
Although I do admire Ocasio-Cortez’s childlike enthusiasm for her beliefs, I have no choice but to hold her means of acting on them with disdain. While I do not believe her constituents would ever pass such an outlandish proposal, I maintain a sense of uncertainty for the future economic stability of the United States.
The populist rhetoric from politicians such as Alexandria Ocasio-Cortez has gained quite the influence, and I fear those who support her policies fail to acknowledge the repercussion of these outlandish proposals.
Latest posts by Logan Davies (see all)
- House Passes Federal Minimum Wage Increase – Eccentric Economics - July 21, 2019
- Economic Laws are Apparently Sexist – Eccentric Economics - July 14, 2019
- The Petrodollar’s Influence on US Foreign Policy – Eccentric Economics - June 30, 2019