On The "Cost" Of The Green New Deal

A few weeks ago on February 7 and 8, I had a couple of posts (here and here) commenting on the so-called Green New Deal, which had just been dropped on Congress by the team of Socialist it-girl Alexandria Ocasio-Cortez and long-time Massachusetts Congressman and now Senator Edward Markey. In those posts, I did not attempt to put any “cost” figures on these proposals, but rather offered this general reaction:

In short, in the aggregate, this would be the total takeover of all economic activity in the United States.

According to the FAQ released along with the GND resolution, at least the following Democratic candidates for President support the GND: Elizabeth Warren, Cory Booker, Kamala Harris, Jeff Merkeley, Julian Castro, Kirsten Gillibrand, Bernie Sanders, Tulsi Gabbard, and Jay Inslee.

In the interim, a few intrepid souls have gone where I had not, and have put some fairly specific cost estimates on the socialists’ proposals. Most notably, there is something called the American Action Forum, headed by Douglas Holtz-Eakin. On February 25, AAF came out with a Research Report titled “The Green New Deal: Scope, Scale, and Implications,” with Holtz-Eakin as the lead author. Holtz-Eakin is not nobody in this game, having headed the CBO for about three years (2003-05) during the George W. Bush administration. If there’s anybody who ought to be able to put credible cost figures on proposals for new government programs, it would be a former head of CBO. The fact that CBO is a non-partisan operation would also seem to give an added level of credibility to the conclusions of its former leaders.

After introducing their Report with a series of qualifiers (e.g., many of the changes “are impossible to quantify at this point”), the AAF guys nonetheless forge ahead with the exercise to at least put some broad ranges on the potential costs. In the aggregate the sums of the lows and highs of their ranges come to about $51 trillion to $93 trillion over the course of the 10 year span of the GND. The $93 trillion figure is the one most frequently attributed to the Report in subsequent press accounts.

$93 trillion compares to total U.S. GDP currently running at about $20 trillion per year. In other words, if you think that Holtz-Eakin and AAF are right, or even close to right, then they are saying that the GND will “cost” close to half of the entire U.S. GDP over the next decade or so.

Needless to say, the $93 trillion figure has brought some push back. The substantive push back has not much come from the politician proponents of the GND like AOC, Markey, or the presidential candidates — all of whom talk about things like “bold aspirations” to create a fair and just society while pretending that costs do not exist — but more from left-of-center commenters trying to preserve the credibility of the effort and of the candidates. For example, from factcheck.org we have a lengthy March 14 post titled “How Much Will the ‘Green New Deal’ Cost?” The thrust of that post is to belittle as Trumpian misinformation any and all efforts to seek to put cost figures on the proposals. For example:

In the past two weeks, the cost of the Green New Deal has been a relentless focus for Republicans, including during a Feb. 27 Western Caucus forum and press conference organized by Arizona Rep. Paul Gosar that was devoted to denouncing the proposal. At the annual Conservative Political Action Conference on Mar. 2, Trump said the Democrats would “completely takeover American energy and completely destroy America’s economy through their new $100 trillion Green New Deal.”

Hey, there aren’t any proposals here that are specific enough to even try to associate costs with them!

It may surprise readers here, but I’m going to partially agree with factcheck.org and other similar critics, but not for the reason they give. But first, I do not agree with them that the AAF/Holtz-Eakin effort is fundamentally illegitimate. When somebody makes a pie-in-the-sky proposal like the GND and seeks to evade accountability by keeping the proposal sufficiently unspecific to have real costs associated with it, I think it is completely appropriate for guys like AAF to apply some reasonable specifics to the proposal in order to estimate its costs.

But where I do at least partially agree with factcheck.org is that there is a fundamental problem with putting specific hard-dollar “costs” on a proposal like the GND. It’s not just that the GND is intentionally vague. More fundamentally, the whole concept of associating costs in dollars with proposed new government programs proceeds from a large body of assumptions rarely stated explicitly — and not applicable here. Those assumptions include: that the program can be implemented by hiring workers and buying materials that will be generally available in the existing market economy at existing prevailing pay rates or resource prices; and that there is sufficient unemployment or turnover of employment out there in the workforce for enough workers and other resources to come available in the ordinary course to staff and supply the new program without disrupting everything else that is going on in the economy.

These assumptions are reasonable for almost any new government program you might consider, even an enormous one that might cost a trillion dollars over ten years. But the GND? Now we’re talking about remaking the entire energy and electricity sectors of the economy; plus total government takeover of health care; plus redoing or reconstructing every house and building in the country; plus government-guaranteed housing for all; plus government-guaranteed jobs for all; plus high-speed rail projects everywhere; etc., etc., etc. In other words, we are not talking about some incremental add-on to the existing economy, but rather a transformation of a high-percentage — likely the majority — of the entire private economy.

And don’t forget that government spending and programs already constitute about 40% of the existing economy. Clearly the GND would be the majority of the remainder.

You can’t take half the private economy and devote it to something else by just hiring incrementally from the 3.8% of current workers that are unemployed. You would need to take tens of millions of workers away from what they are doing and put them to building new windmills or new railroads or rebuilding buildings or whatever. And what happens to the things these people are currently doing? Many of those things could no longer be done.

In other words, the real “cost” of a massive economic transformation like the GND is only very poorly captured in the form of dollars of government spending on new programs. The much more significant cost is the massive loss of high value economic activity that gets displaced. As people are commandeered into the new government priorities, there is no one left doing the work of producing the basics that make life go, from food to household products to automobiles to clothing and on and on. Toilet paper always seems to be the first thing to disappear. Just ask Venezuela.

But finally, if we must talk about attaching actual “costs” to the GND, I have a huge quibble with the work of Holtz-Eakin and the AAF. In their $93 trillion figure, they have included a lousy $5.4 trillion for the “low carbon electricity grid.” Go to the AAF Report’s details, and this figure consists mostly of costs of new nuclear plants and wind and solar facilities, plus battery storage for a big 4 hours. The Green New Dealers will never go along with getting most of the power from nuclear. And in a fully wind-and-sun system, you need backup battery storage not for four hours, but for more like 30 days. Per a calculation discussed by me at this post, that cost would be in the range of $5 trillion for California alone. Since California is about one-tenth of U.S. population, multiply by 10, and you get about $50 trillion for the country. So, better take that $93 trillion and make it $143 trillion.