Alexandria Ocasio Cortez is to reveal the details of her Green New Deal in the next few days – the one thing we absolutely know about this being that it won’t work. This isn’t a commentary upon climate change nor the desirability of doing something about it. This is just a simple statement of fact about the universe we inhabit. As with the climate the economy is a complex, even chaotic, thing. Plans to substantially reform it therefore don’t work, no matter how egghead the planners nor pure in motive the instigators.
All of this being why the very reports which tell us we should do something about climate change – say, the Stern Review – tell us that we shouldn’t try to have those detailed plans for what we’ll do and how we’ll do it. Instead we’ve got to use the only management technique we’ve got for something this complex, markets and prices. Which is why near every economist who has even thought about the problem advocates either cap and trade or a carbon tax.
This is, of course, just a rerun of Friedrich Hayek’s point in his Nobel Lecture, The Pretence of Knowledge. That universe out there is a complicated place. There’s just no manner that the planner can gain enough information about it, in anything like real time, to be able to plan it. We’ve thus got to use other methods to bend that reality to our will. We can jam a crowbar into prices with a carbon tax for example, but we can’t start planning who should be taking how many car journeys in what sort of vehicles powered in what manner.
So, the Green New Deal from Alexandria Ocasio Cortex, it fails at this first and basic hurdle. She’s using the wrong method to try to solve the agreed upon problem. Central planning just doesn’t work.[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]“Next week, we plan to release a resolution that outlines the scope and scale of the Green New Deal,” Ocasio-Cortez said in the letter to her colleagues. “In it, we call for a national, social, industrial and economic mobilization at a scale not seen since World War II.”[/perfectpullquote]
Government can just about mobilise the resources of a society to do something simple like fight a war. And yes, that is simple – we want to go kill enough of them that they give up. A reasonably simple aim. “We want to reduce carbon emissions” isn’t simple in that manner.
For example, lets’s say that too many people commute too far in gasoline powered cars. We’d like to reduce this. OK.
Should people move closer to their work and reduce the length of their commute? Maybe they should just work from home more often over this new internet thing? Maybe smaller engines is a good idea? Better mass transport systems? It’s possible that a non-gasoline power train for the cars would be a better idea? Maybe we should all just be poorer by not working so much?
Now we’ve got to add one more level of complexity. We want to do all of this at lowest cost. In a manner that going off to kill Nazis wasn’t. And yes, the cost of climate change and its solution is important. As that Stern Review tells us, it’s the heart of the matter. For what we are told, the very reason for doing anything at all, is the calculation that not solving the problem will be more costly than solving it. But this is only true up to a point. That, of course, being the point at which the solution is more expensive than the problem.
Stern does make this entirely clear. The reason we want cheap solutions to climate change is that this justifies producing more of a solution. Again, the justification of doing something about climate change is that it will be expensive. So, we should spend up to the amount of the damage to prevent it. Say it will cost $100, then we’re willing to spend up to $99.99 to stop it. This makes us one cent better off. We’re not willing to spend $200 to stop those $100 damages, that would make us poorer.
And more – we should spend that $99.99 as efficiently as we can because that means we’ll stop more climate change for our dollars. That also makes us richer.
Don’t forget, we’ve all already agreed that we’re going to have some climate change. Our arguments are over how much and how much are we willing to do to stop how much of it?
Now add costs back into that problem about commuting. Which is the best method there? The answer is we don’t know, we’ve not a Scoobie. Nor do the planners. They can’t in fact. So, stick on a carbon tax and use, as Hayek tells us, that only calculating engine we’ve got to chew through the problem for us – the market suitably incentivised with the carbon tax.
Do note this isn’t some left – or right – field wibble. This is the settled science about the economics of climate change. Stick on a carbon tax and let the market sort the rest out. It’s just all too complex – and too important – to do it any other way.
But, you know, Alexandria’s got a plan:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]New York Democratic Rep. Alexandria Ocasio-Cortez on Monday unveiled new details on the so-called “Green New Deal” she plans to introduce in a matter of days, as she worked behind-the-scenes to rally congressional support for the proposal that could cost as much as $7 trillion.[/perfectpullquote]
$7 trillion, eh? We’d all like to see the calculations showing that’s worth it, wouldn’t we? There’s worse here, of course there is:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Rep. Alexandria Ocasio-Cortez (D-N.Y.) and Sen. Ed Markey (D-Mass.) are expected to introduce a resolution outlining elements of the plan within days, which will include a goal for eliminating the U.S. carbon footprint by 2030, according to multiple sources.[/perfectpullquote]
We don’t even need to do that and we most certainly don’t want to. As last years’ Nobel Laureate, William Nordhaus, has spent some decades pointing out trying to do all of this too fast and destroying the current installed capital base is the expensive way of doing this. And as above, the more expensive it is then the less we’ll do of it. In more detail, as the original studies underlying the IPCC reports say, we don’t need to kill off what we’ve already got. We just need to, when the time comes to replace them, replace them with non-fossil fuel alternatives.
If you like, the basic idea is that current coal plants aren’t a problem, let’s just not build any more.
We can also more to more detailed critiques. For example, the Green New Deal was in part and originally designed by Richard Murphy so we know it’s wrong just from that point alone. But we’ve more empirical data too. People have tried these schemes and still they don’t work:[perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””] But much more than theory or haggling over technical details, we have excellent empirical evidence that a Green New Deal just does not work. It’s been tried, twice, on different sides of the world and it didn’t work either time. The first time it was Australia. The global recession hits, so as a nice bit of Keynesian pump-priming they figured: Why not insulate the houses of the nation and thereby protect, or even limit, climate change? This plan from the central government meant that every bodger, crook, and incompetent got grants and tax money to ruin houses. They even had a Royal Commissionto tell us all what a disaster it was. It is not a usual belief that either Britain or the U.S. have fewer chancers than Australia. Despite this report, the British government decided to do the same thing. A central plan, with targets, disbursing rivers of tax money, to insulate the houses of the nation. This was then done so badly that there are fears that as many as a million houses have been ruined, and certainly thousands have been turned into entirely useful mushroom farms and not useful dwellings. [/perfectpullquote] [perfectpullquote align=”full” bordertop=”false” cite=”” link=”” color=”” class=”” size=””]Now Ocasio-Cortez and others are demanding the U.S. makes the same mistake. The problem is that we know it just doesn’t work. But, you know, progressives.[/perfectpullquote]
We know from basic economic theory that the Green New Deal won’t work. We know from climate change theory that the Green New Deal won’t work. We even know from simple observation that the Green New Deal won’t work. Because people have tried the Green New Deal and it didn’t work. Which leaves us with whatever Alexandria’s aims Ocasio Cortez’s Green New Deal won’t work.
Unless the aim is that we should all just jolly well get on with what Alexandria tells us to do. Which does seem to be the reason most people go into politics, that we should do as they say because.