A serious Green New Deal would take up one-third of the economy — are we ready for that?

Society is right to make decisions about sustainability, but the costs of those decisions must be borne equitably

Published February 4, 2019 7:30AM (EST)

Alexandria Ocasio-Cortez (AP/Susan Walsh)
Alexandria Ocasio-Cortez (AP/Susan Walsh)

This article was produced by Economy for All, a project of the Independent Media Institute.

Even though the issue of environmental sustainability has finally broken beyond the policy think tanks, and is now reaching critical mass with the public as a whole, there is still profound disagreement as to how one tethers environmental sustainability to economic growth in a manner where the costs are borne equitably. Or as an early thinker on these questions, Brian Kohler, once framed it, the means by which the solutions gain political legitimacy rest on “how society will make decisions about sustainability, and who will pay the price of those decisions. Will it be those who have the deepest pockets or will it be those who can get the best press?”

There’s no question that deep pockets will be needed, given the scale of the task at hand. Multi-trillion-dollar levels of spending, in fact, will be necessary if we want to follow what the science is telling us needs to be done. The increasingly dire warnings from the Intergovernmental Panel on Climate Change (a group that, if anything, has consistently underplayed the scale of the threat) and countless other scientific findings have introduced a new sense of realism in terms of the policy response required. Democrats in particular are embracing proposals that would require running the entire American economy on renewable electricity within a few decades, although they have yet to coalesce around a single policy proposal.The most comprehensive is this one, which calls for the federal government to spend around 10 percent of GDP per year — close to $2 trillion — in order to directly build a green infrastructure that will guarantee that in 20 years the United States will be virtually greenhouse-gas-free. An ambitious plan predicated on FDR’s original New Deal, it calls for a Full Employment Program (not unlike the “Job Guarantee” program) that will purportedly create about 25 million new jobs, via a revived manufacturing sector (assuming that most of the manufacturing is done in the United States, not abroad). It also calls for the establishment of an Interstate Renewable Electricity System, modeled after the Interstate Highway System, that would replace all of the coal, oil, and natural gas that currently generate electricity as the U.S. transitions to a fossil fuel-free economy.

The scale of government involvement marks a decided break from the market-driven proposals that have hitherto characterized most earlier green proposals (most controversially, it advocates a 50 percent cut in defense spending to fund these future expenditures, which is almost certainly politically impossible, given the scale of existing militarization in the U.S. economy today, along with the Pentagon’s iron grip over policy-making). On the other hand, if the problem is as dire as much of the science suggests, the policies must match the rhetoric. If that seems like an insurmountable challenge, it is worth recalling that during World War II a much less technologically advanced society managed to survive quite nicely while allocating about one-third of national output for the war effort. If the political class is serious about a Green New Deal, they must also be honest about the scale of the challenges and the question of a “just transition” for those most affected by the resultant displacement and disruption. Former California governor Jerry Brown, for one, has likened the threat to fighting the Nazis in World War II.

Perhaps this document won’t be the finished product offered up by our political class, but its very detail highlights the scale of the challenges that match Governor Brown’s analogy, if we’re going to transition to a post-fossil fuels economy. Among the questions raised are the following.

It envisions more than a 40-fold increase in renewables within a decade. But the United States no longer has any significant capacity to produce solar panels or wind turbines and only has an insignificant capacity for batteries, notwithstanding Tesla’s ambitious plans. That means in the first years, all the increase will be supplied by China, Korea, Taiwan and other overseas producers, unless production is re-domiciled (which will take time — a problem given the urgency of the threat).

Seymour Melman and other advocates of what came to be known as “economic conversion” proposed a similar concept for potentially moving workers and engineers from military factories to civilian work. The idea is to set up what Melman called “alternative use” committees in each facility, which would draw up plans for a two-year transition to other lines of work. In the case of the Green New Deal, this should entail plans to facilitate fossil fuel industry workers shifting to specific new renewable energy factories, such as for wind turbines, or in new industrial machinery factories. From a practical standpoint, it would make sense to offer parallel incentives to the fossil fuel investor class; rather than have them drag their heels, why not entice them into a profitable line of business?

Absent this alternative use, the source of the demand will be met by the Far East, and the Green New Deal will become a job creation program for Asia, not the United States (as well as creating huge unemployment). We will therefore face a very difficult trade-off between heavy protectionism (at much higher prices) to stimulate investment in productive capacity in the United States or much larger trade deficits.

The viability of making this green transition is questionable if it doesn’t also include a degree of nuclear power, geothermal, or fossil fuel plant alternatives, at least for a time, as the environmentalists Jesse Jenkins and Samuel Thernstrom argued in a recent New York Times op-ed:

“The Green New Deal will be no deal if all it buys us is solar and wind power. . . So-called firm low-carbon technologies such as nuclear, carbon capture, or reliable but often overlooked renewables like geothermal or hydro dams with large reservoirs. . . makes them a critical complement to weather-dependent wind and solar, as well as resources like batteries or strategies like demand flexibility (which permits consumers to reduce their electricity use in periods when supplies are strained) that are best suited to fast bursts of use.”

A related problem is that over the past decade, the oil and gas industry has accounted for a disproportionately large percentage of economic, business investment and middle-class jobs, precisely the kinds of highly paid, highly skilled jobs that are rapidly being shipped overseas as U.S. manufacturing is increasingly eviscerated. And consider what share of U.S. military spending concerns the price and supply of oil. These jobs are located in the American heartland, which (given the realities of the Electoral College), the Democrats will have to win back, if they are to have any chance of securing power, and implementing their proposals. How exactly is the plan going to offset this huge loss, especially if much of the demand for renewables leaks out to overseas producers?

The increase in oil and gas production has led to a dramatic improvement in the trade balance (whose deficit would have grown much larger had it not been for the improvement in energy). Additionally, the low cost of energy over the past decade has led to an improvement in U.S. competitiveness in a number of industries. It has also created a significant consumer stimulus by allowing households to reallocate spending on heating/cooling and transportation to other consumer purchases.  Relative low energy costs are a major consideration in German and European companies relocating production to the United States. This is a comparative advantage that should not be disposed of without offsetting benefits.

Speaking of cheap power, it is also worth recalling that in the original New Deal, many political leaders pushed for rural electrification to decentralize power—take it away from the utility holding companies and distribute it to rural areas.

They did just that, and today the United States has the most diffused ownership of any electric grid on the planet. There are some 900 rural co-ops in the United States. By decentralizing the economic and political power that comes along with electrification, they also assured low-cost electricity for generations. The Green New Deal risks doing the opposite if the main incentives to encourage transition are carbon taxes (see the French “yellow vest” protests), or trading carbon credits (which amounts to a “privatization” of the atmosphere).

Related to this, the potential increase in the cost of electricity and transportation will disproportionately impact lower- and middle-income Americans who do not live in the few urban areas with decent public transportation. Absent significant increases in this area, it will take more than a decade for alternative transportation networks to develop to serve this large population in those places where alternative transportation is economically feasible. Otherwise, the Green New Deal risks raising both energy costs and existing forms of transport.

Ironically, as Jon Rynn, a fellow at the CUNY Institute for Urban Systems, notes in his book, "Manufacturing Green Prosperity: The Power to Rebuild the American Middle Class," “suburban sprawl” came about by virtue of hundreds of billions of dollars of federal government spending via Eisenhower’s Federal Aid Highway Act of 1956, and the G.I. Bill that provided loans to millions of returning soldiers to buy homes (and make builders like Fred Trump rich), the build-out of suburban water and road infrastructure. An infrastructure bill therefore cannot simply modernize existing structures, but can and must help to reverse these trends by featuring more public transport and more public housing in densely populated areas.

Above all else, labor must not simply be treated as a rounding error in this process. As Brian Kohler put it, if environmentalists and politicians aiming for a sustainable economy “fail to understand the jobs issue, you will create a confrontation that you cannot win. You will force us into an alliance with our employers and you, we, society and the environment will all be the losers.”

Likewise, with business leaders, Kohler continues, “if you continue to treat us as commodities instead of human beings, if you continue to shed jobs at every opportunity using the excuses of globalization, automation, downsizing, mergers, and contracting out; if you continue to poison our bodies and then fight our attempts to obtain even workers’ compensation in return, you will have to forgive us for being somewhat skeptical when you promise to save our jobs.”

Although the term “Green New Deal” has great historic resonance, it is a bit of a misnomer: FDR proposed aggressive fiscal stimulus to address the problem of existing excess capacity (labor and capital) created by the Great Depression. The New Deal involved very little displacement of existing technologies. By contrast, much of the Green New Deal is about displacement of existing technologies, which threatens existing jobs and livelihoods, as Kohler eloquently points out.

Thus, the choice cannot be framed in a manner that forces workers to choose between saving the environment vs. safeguarding their economic livelihood. Kohler is right: workers will vote for jobs every time. We cannot simply dismiss these protesters as retrograde “deplorables.” Recall that we are looking at a technologically disruptive program that will substantially alter historic patterns of industry output, employment and the consumption patterns of households and firms.

The government, therefore, be it Democratic, or Republican, cannot afford to play “small ball” here, a characteristically timid knee-jerk reaction of both parties afflicted by years of deficit hysteria and the corresponding desire to shrink the state. Nor can it rely on “the market” as the optimal means of organizing allocation, the New York Times columnist Thomas Friedman’s nonsensical notions to let “Father Greed,” as he puts it, solve the problem, to the contrary. Similarly, economist Paul Krugman wants to provide “positive incentives like tax credits or not-too-onerous regulations,” but those market centered ideas are too late. Or, as Rynn argues, “the government ‘doing something’ should not mean that the government does something to help the market to do something.” After all, we didn’t subcontract World War II to “the market.”

FDR understood and had the requisite political will and courage when he ushered in his New Deal and shaped the Democrats political legacy for generations. Likewise, in the spirit of JFK’s famous “Moon Speech,” the United States must choose to recognize and embrace the challenges of the Green New Deal “not because they are easy, but because they are hard, because that goal will serve to organize and measure the best of our energies and skills.” Kennedy was frank enough to admit that attaining the moon landing was hard, and a comparable degree of honesty is required from today’s leaders. The goals are not simply ones of relief and recovery (as was the case in the original New Deal), but a wholesale transformation of the U.S. economy, and a reconfiguration of the government’s role in a manner not unlike what occurred during World War II. This will require a permanently larger government role in the economy for many years, not simply as a regulator, “umpire,” or redistributor, but as a builder.

Certainly, it would mark a significant break from the market fundamentalism that has grown to dominate the existing policy framework of the past 40 years. But if the crisis is as great as the science suggests, then the actions must match that degree of urgency, both in terms of scale and equity. The critics might well say it’s pie in the sky. At times, however, leaders need to be aspirational rather than “reasonable” to get anything remotely close to what is required. “Reasonable,” after all, is what got us Obamacare rather than Medicare for All. We need to do better this time. It might be our last chance.

By Marshall Auerback

MORE FROM Marshall Auerback