Common Cents for February 8, 2019

February 8, 2019, by John Norris

This week, freshman Representative Alexandra Ocasio-Cortez sponsored, I guess you could call it that, a resolution she called: “Recognizing the duty of the Federal Government to create a Green New Deal.” The Green in this instance means ‘environmentally friendly.’ The phrase New Deal harkens back to Roosevelt’s New Deal programs during the Great Depression. As such, a Green New Deal is/would be a massive government undertaking to create a more environmentally friendly society and economy.

First things first: bully for her. For a US Representative to make such a splash in their first month in Washington is pretty darn impressive, if not unprecedented. Second, Representative Ocasio-Cortez has undeniable moxie, energy, and enthusiasm. The world needs more of that, a lot more. Third, all of the end aims in said Resolution are arguably noble and idealistic. Fourth, I laughed out loud several times while reading the thing, and laughed again upon rereading it, such was what I believe to be the lack of basic economic understanding and the inability to anticipate obvious consequences.

However, this resolution wasn’t necessarily surprising, nor was the multitude who scrambled to attach themselves to her celebrity and powerful presence.

I won’t belabor all the particulars, but I will start by saying the Green New Deal will probably make airline travel either non-existent or outrageously expensive, far beyond the reach of the average individual such is the mandate to eliminate pollution and green-house gas emissions within 10 years. While we could perhaps use batteries for ground transportation, it is unlikely they would be able to provide the necessary thrust to keep a plane in the air for any meaningful amount of time, if at all. However, this is just the tip of the proverbial iceberg.

Then there is the section which reads: “upgrading all existing buildings in the United States and building new buildings to achieve maximum energy efficiency, water efficiency, safety, affordability, comfort, and durability, including through electrification.” At first glance, that doesn’t seem too bad until you realize that means YOU Mr. or Mrs. Home Owner. You get to buy new windows, a new roof, all new appliances, new insulation and ductwork, a new furnace or heat pump, a new hot water heater, new doors, televisions, computer monitors, thermostat, electrical wiring (particularly on older homes), plumbing, etc. Yessir, by making your house as energy efficient as is possible, as outlined in the Resolution, what is that going to set you back? It would seem true and full compliance would run into the tens of thousands of dollars. Hmm…what about those folks which don’t have the financial capacity to comply to the new rules then?

What’s more, what will all of these improvements probably mean for the value of your home? Understanding EVERYONE else will have to make the same improvements? Intuitively, you won’t get much, and why would you? If all you have is what you have to have by law? As a result, you will have spent a lot of money on compliance without a commensurate increase in the true market value of your home. What does that do to your balance sheet? Your equity?

That’s right, it goes down. Given the fact home equity is the most ubiquitous form of household wealth in the United States, this simple, almost innocuous, section would cause a massive erosion of ‘middle-class’ wealth.

Then there is the following: “providing and leveraging, in a way that ensures that the public receives appropriate ownership stakes and returns on investment, adequate capital (including through community grants, public banks, and other public financing)…” Hmm. The public gets the appropriate ownership stakes and returns on investment? Okay. This then would seem the Resolution is advocating the ‘public’ control of capital in society. That is the only way this makes sense, if sense is what you want to call it, as the potential for return is greatly diminished, if not completely eliminated, if the private sector has to share the ownership of its capital and the investment returns thereof. Otherwise, the flow of capital would freeze up due to the potential, if not likelihood, for diminished returns.

Am I reading too much into this? Naw, probably not as on the next page the Resolution states the Green New Deal will require: “directing investments to spur economic development, deepen and diversify industry and business in local and regional economies, and build wealth and community ownership…” Essentially, the Green New Deal requires the directing of capital for the expressed purpose of building up community ownership of industry. I am not making this up…it is right there.

Hey, that sounds great, doesn’t it? I mean building up community resources for the public good which WILL result in economic growth and everyone locks arms under the direction of the Green New Deal’s auspicious 10-year plan. What is not to like?

While supporters of the Resolution would certainly blanch at the following, I kind of like (and believe) what Milton Friedman had to say about collective ownership:

“When everybody owns something, nobody owns it, and nobody has a direct interest in maintaining or improving its condition. That is why buildings in the Soviet Union – like public housing in the United States – look decrepit within a year or two of their construction.”

Even if you don’t much care for Friedman’s views or economic theories, it is hard to dismiss that comment out of hand. In my personal life, and undoubtedly your own, I take better care of my own stuff/property than my neighbor’s, if you catch my drift. In fact, I don’t much care what my neighbor does with his property providing it doesn’t detrimentally impact the value of mine.

If this is true on the individual level, why would it not be so in the aggregate? I would argue it would. As such, listen to Friedman’s words when politicians propose governmental control of the means of production and capital in society: “when everyone owns something, nobody owns it.” True that.

In all candor, I could spend the next 3000 words shredding the Green New Deal’s wish list, not because the wishes themselves aren’t noble, but because they aren’t realistic. They would also require either a significant transference of capital/wealth from the private sector OR the printing press to work. If history serves as a guide, or even contemporary Venezuela or Zimbabwe, this wouldn’t work out terribly well. Just because we are the United States doesn’t mean anything when you reduce the value of capital in the private sector.

In the end, while it might not seem like it, I really appreciate Representative Ocasio-Cortez’s willingness to upset the proverbial applecart, even with flawed economic ideas. NOW, it is up to someone on the right side of the aisle to come up with a counterproposal. Far from being a stalemate over the next couple of years, this could be kind of fun…as long as we don’t get too carried away with it.

Oh yeah, one last thing, I would be remiss if I didn’t close with the following about being or going green, and this is my opinion only: the only surefire way, and I mean 100% effective, of reducing mankind’s detrimental impact on the environment is to reduce mankind. Period, and I am not volunteering to go first.

 

Have a great weekend

John Norris