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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.

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

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Image credit: Pedro Xing | CC0 1.0.

Originally published by The American Conservative on July 16, 2019.

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.

Many experts have pondered the likely fiscal burden of the GND. This is a speculative exercise since Ocasio-Cortez has a resolution rather than a bill. In other words, there’s no legislative language. She simply wants fellow lawmakers to conceptually endorse her wish list of policies, much as they periodically pass resolutions for things like National Dairy Goat Appreciation Week.

That being said, 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.

So how’s this fiscal orgy going to be financed? There are three potential options: 1) Lots of tax increases: Ocasio-Cortez and other GND supporters are very ecumenical about potential revenue sources. Higher income tax rates are on the list, as are energy taxes and levies on financial transactions; 2) Lots of new debt: even huge tax increases would be incapable of generating enough money to finance the items on the wish list. This presumably means the economy also will be saddled with a large amount of additional red ink as well; 3) Printing money: many of the advocates of the GND are also supporters of “modern monetary theory,” which is a bizarre theory that big expansions of government can be financed by printing money. Suffice to say such an approach didn’t work for Weimar Germany.

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 this is just part of the problem.

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. Consider some of the explicit goals of Ocasio-Cortez’s proposal.

• Zero-carbon economy: the government would be obliged to end any and all reliance on fossil fuels and shift the nation to 100 percent renewable energy.
• High quality healthcare: the government would be obliged to provide universal and unrestricted access to health care for everyone.
• Guaranteed jobs: the government would be obliged to provide everybody with a job that includes generous benefits, including paid vacations and a comfortable retirement.
• National high-speed rail: the government would be obliged to create a nationwide system that was so quick and so effective that commercial air travel could be ended.
• Retrofitting every building in the nation: 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.

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.

Let’s take a look at why this is misguided. And that means we have to endure a lesson about the economics of growth.

In a market-based economy, consumers are ultimately in charge. Businesses can only earn profits if they provide goods and services that meet the needs of people.

And businesses compete with each other to offer the best products at the best prices in hopes of capturing a slice of the market.

To use economic jargon, this competitive process drives the allocation of labor and capital, which are the “factors of production.” In everyday language, it simply means that jobs and investment naturally gravitate to industries and companies that do a better job of satisfying consumers.

Competition also drives innovation. Entrepreneurs are constantly putting money at risk in hopes of finding new and improved goods and services that will capture the interest of consumers.

Yes, many new products and most new businesses will fail, but it only takes a few successes to drive the economy. And those successes disrupt incumbent firms, causing them to lose market share, and maybe even go out of business.

In other words, capitalism is sometimes not very pleasant for capitalists. Consumers simply care about getting more for less, not whether an established company fails.

That’s the bad news, so to speak. The good news is that this process, known as “creative destruction,” is what makes societies richer over time. The invention of the electric light bulb displaces products such as candles and enables a big boost in productivity. The invention of the automobile displaces horse and buggy transport and enables a big boost in productivity. The invention of the personal computer displaces the typewriter and enables a big boost in productivity.

This is the way a healthy economy operates.

But what happens if the “invisible hand” of consumer-driven competition is replaced (or substantially weakened) because politicians adopt something like the Green New Deal? As noted above, Ocasio-Cortez’s proposal envisions a massive expansion in both the size and scope of government.

Taxes and spending will consume a much larger share of the economy, which means that market forces will get squeezed as politicians directly allocate resources in the economy.

But the fiscal burden of the GND is just part of the story. There will be a substantial increase in the amount of regulation, cronyism, and red tape, according to major provisions of Ocasio-Cortez’s plan. And this also means that market forces will get squeezed as politicians indirectly allocate resources in the economy.

The key thing to understand is that 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.

Instead, the crowd in Washington tilts the economic playing field. And it’s quite possible that regulatory cronyism can do even more damage than taxes and spending.

Consider, for instance, the economic impact of a carbon tax. It would be bad for growth, since energy is a very important input for major portions of the economy. But both companies and consumers will adapt to the new burden and hopefully figure out ways to become more efficient to minimize the burden of the new levy (indeed, proponents of the tax explicitly hope and expect to see this happen).

But now contemplate the likely economic impact of a bunch of bureaucrats promulgating new regulations in hopes of artificially generating a particular change in energy consumption. The new rules and red tape will add costs to the economy, but almost certainly in a very haphazard fashion. Different interest groups will seek special treatment and politicians will put their thumbs on the scale as well.

Equally worrisome, many companies will decide that manipulating the levers of power in Washington is a shortcut to “earning” a profit. Suffice to say it won’t be a positive development if companies decide that pleasing Washington is more important than pleasing consumers.

During the Obama administration, a failed company called Solyndra became a symbol of ineffective and wasteful cronyism. The firm received hundreds of millions of dollars in goodies from Washington, money that was then squandered. Consumers didn’t benefit. Taxpayers didn’t benefit. And the economy didn’t benefit.

The Green New Deal would be Solyndra on steroids. Politicians and bureaucrats would have immense new powers.

This would create a feeding frenzy of cronyism.

This will mean more corruption, given the nature of politics. But from an economic perspective, the worrisome outcome will be stagnation. That might lead to a backlash and better policy. But we’ve also seen many examples around the world of voters responding to economic unease by demanding even more “help” from government. Americans tend to be more freedom-oriented, so hopefully it will be the former outcome rather than the latter.

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Image credit: nrkbeta | CC BY-SA 2.0.