Michael Meeropol: How To Pay For The Green New Deal

Jun 7, 2019

In my last commentary delivered in March, I focused on critics of the Green New Deal.  I argued that the demonization of federal budget deficits was a red herring not to taken seriously when discussing the pros and cons of the series of proposals called the “Green New Deal.”

Before we get into that discussion, let us recall what the Green New Deal (henceforth I’ll abbreviate it as GND) is.  First and foremost it calls for a transformation of how we generate energy so that within ten years the US will generate all of its energy from renewable sources --- completely ending the use of fossil fuels.   Many critics argue that the proposal ought to end there.  But instead, there are a series of guarantees of employment, health care, decent wages, and other allegedly unrelated social programs.  In fact these proposals are very much inter-related as I will argue below.

Recently, economists from the Levy Institute have published a study which sees significant parallels between the choices faced by governments confronted with the need to totally mobilize their countries to fight World War II and the proposals in the GND.   These economists use methodology of John Maynard Keynes who wrote in 1940 “How to Pay for the War.”  The working paper argues that the same approach should be used in answering the question how can we “pay for” the GND.

[The working paper is available at http://www.levyinstitute.org/pubs/wp_931.pdf.]

The first step in the analysis is where I left off at the end of my March commentary.   Just as I argued, they state that the issue is NOT how to find the money to pay for the GND.   A sovereign nation printing its own currency NEVER has to worry about “finding the money” to pay for anything.   (Lincoln did it during the Civil War by printing Greenbacks.  The federal government ran gigantic deficits during World War II --- reaching 26% of GDP.   These deficits were so big that by the end of World War II the US National Debt was larger than the US GDP.)

So all the arguments that give some large number to the “cost” of the GND are beside the point.   There are, however, two possible issues involved in spending government money to either fight a war or to fund the GND.  The first is the one that the Levy Institute economists focus on.   They argue that the government needs to devise ways to MOVE RESOURCES now employed using fossil fuels to generate energy to equally well-paying jobs and to create jobs and supportive infrastructure for the new sustainable technologies.

The second issue is the potential generation of inflation.   If the government prints more money (as Lincoln did with greenbacks) or runs deficits (as the US and Britain did during World War II), that puts a lot of money into people’s pockets.   When they attempt to spend that money, once full employment is reached, inflation will be a potential problem.   Inflation if unchecked depresses consumption by creating “forced savings.”   The writers of the working paper propose a number of policies to prevent inflation from accelerating.  We will return to the discussion of the inflation problem after developing the issue around transferring resources. 

In 1940 while Great Britain was locked in a life or death struggle with Hitler’s Germany, the government’s challenge was to move resources from the civilian economy to the war economy.   Initially, especially in the US, there was residual unemployment that still had not been sufficiently reduced because the recovery from the Great Depression which began in 1929 had not been completed.   Once the war began, the unemployed people went back to work.   The problem then became, where were all the rest of the workers needed for defense production to be found?   How were resources previously used for civilian production to be redirected??

This applied to physical resources – machines and buildings as well.  In both the US and Britain, it was relatively easy to turn car and truck making factories into places were tanks and planes could be built.  IT was perhaps harder to expand the capacity to produce munitions and other war oriented products.  Nevertheless, both countries figured out how to transfer millions of workers and millions of dollars worth of physical resources to the war effort.

The same principle is at stake in instituting the GND.   And the stakes as I argued in March are even more important than they were during World War II.  If Hitler had won the war, humanity would have survived, even if under the tyranny and genocide of the Nazis.   If we do not stop global temperatures from blowing past the 2 degree Celsius barrier (or, heaven forbid, the 4 degree barrier), it is possible that all of humanity will be killed off if enough methane gas escapes into the atmosphere as a result of melting permafrost.

The changes required to our system of generating energy require massive transfers of human and physical resources (just as at the onset of World War II.)  There are millions of people employed in fossil fuel industries all over the world.   Cutting back and ultimately eliminating all energy production from fossil fuels will require relocating these people to other equally good jobs.  The requirement to sustain the incomes of those people and create equally good jobs elsewhere in the economy is why the “social programs” associated with the GND – that some critics erroneously argue “don’t belong” in the GND – is essential.

This is first and foremost essential based on simple justice.  It wasn’t the coal miners, the oil drillers or the refinery workers who spent decades misleading the public about the so-called “hoax” of global warming.

That was done by slick PR firms aided and abetted by well-compensated intellectuals-for-hire selling out their grandchildren for thirty pieces of silver – “silver” provided by executives of fossil fuel companies.  The decision makers in these companies spent billions spreading junk science to create skepticism about the scientific consensus about global warming, even as their own research departments were revealing that the scientists warning about global warming were in fact, correct. 

[Historian of science Naomi Oreskes teamed up with Erik Conway in 2010 to write Merchants of Doubt:  How a Handfdul of Scientists Obscured the Truth on Issue from Tobacco Smoke to Global Warming.  The handful of scientists who sold their souls to tobacco companies and other companies attempting to pull the wool over the eyes of the public helped these companies dodge their responsibilities for years.  In the case of tobacco it led to the deaths of countless individuals before the weight of accumulated evidence broke through the defenses erected by these soulless scientists-for-hire.  IN the case of global warming, their success can be measured in massive death as the world’s temperatures climb more than 2 degrees Celsius.]

There is a special place in Hell for all the individuals who helped delay for over forty years any serious action to combat global warming.  But we must distinguish the executives who hired the scientists who hookwinked the public from the workers in these industries.  The workers did not commit these crimes against humanity.  It was their bosses and the enabling intellectuals and PR flacks.  Therefore, as we move human resources out of fossil fuel production, those workers need to be guaranteed equally well-paying jobs with health insurance, etc.   Absent a good job, they need a floor to their incomes.

The effort to create new jobs is not only a question of simple justice, it is also a POLITICAL necessity.  The climate change deniers utilize the fears of job loss to create a political coalition to resist the efforts of the world’s population to force governments to take action to protect the planet.   It is gross to see coal miners supporting the coal companies (which couldn’t care less about their workers given the miserable job safety record of that industry) as they attempt to cram more carbon into the atmosphere increasing the dangers to the grandchildren of those miners.  If every coal miner were guaranteed a job that pays as well as coal mining or a guaranteed income as high as she/he earns in that dirty dangerous occupation, they might no longer support the burning of coal.   It is the promise of good jobs and income support in the GND that is necessary to break that unfortunate coalition of fossil fuel workers and the executives trying to continue to hoodwink the public.   The GND includes promises to make sure that job losses are matched by job creation.  This is an essential political element in the effort to combat global warming

The important role for government – whether during World War II or today – is to use their regulatory powers as well as the money they raise -- either from taxes or deficit spending -- to move resources from where they harm our grandchildren – fossil fuel based energy – to where they stop adding carbon to the atmosphere.

Now, let us turn our attention to the problem of inflation.   There are a number of ways to deal with that problem.  During World War II, the governments of Great Britain and the US created a system of wage and price controls and made sure that reductions in consumption were equitable via rationing.   The economists from the Levy Institute suggest that targeted taxation can reduce consumption temporarily.   (Inflation reduces the consumption of those whose prices don’t keep up with generalized inflation – a so-called “inflation tax.  Their proposal defers consumption.)    They do this by raising the payroll tax for social security and the rest of the US system of social insurance and RAISING THE BENEFITS.   This means that during the working lives of the generation that will actually combat climate change via the GND without suffering unemployment, their incomes will grow more slowly than they would absent the GND but this slower growth in income will be made up upon their retirement with higher pensions.  (They will also, via the creation of a truly universal health insurance system have better benefit packages.)

Here is how the authors of the Levy Institute study summarize their arguments:

“we can either be reactive and respond to the calamities created by climate change as they happen (as we already do with droughts and hurricanes), or we can use this crisis as an opening for progressive change. This is why the GND includes a wide range of social initiatives: jobs for all, ending forever wars, taxing the rich, student debt relief, free public colleges, access to child and elder care, and so on. At the same time, we need to plan for the implementation of these GND components on a pace that does not significantly raise inflation. If we do have to fight inflation, we need to ensure the battle is not waged on the backs of workers. The inflation tax permanently lowers consumption; deferred compensation only postpones it.”  (Page 49)

We can do this if we have the political will.   Furthermore we MUST do this.   Our grandchildren demand it.

[For a particularly pessimistic view of what lies in store for our grandchildren if we FAIL to take dramatic action, see ‘Humans will perish in 31 years, warns latest climate change study … 90% of mankind will be annihilated, says report released ahead of World Environment Day” available at

https://www.cntraveller.in/story/world-environment-day-humans-will-perish-31-years-warns-latest-climate-change-study/]

Michael Meeropol is professor emeritus of Economics at Western New England University. He is the author with Howard and Paul Sherman of the recently published second edition of Principles of Macroeconomics: Activist vs. Austerity Policies.

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