The new Democrats in the US Congress already have done something no American politician has managed for decades: to get people talking about massive — and massively transformative — public investment as a real prospect.
Representative Alexandria Ocasio-Cortez’s plan for a Green New Deal to fight climate change envisions massive spending on carbon-free products, services and infrastructure. It would be larger than any other American government undertaking since Franklin D Roosevelt’s original New Deal and the US mobilisation for the second world war. This is true no matter which measure is used: real expenditure or expenditure as a percentage of gross domestic product.
Ambition on such a scale always draws naysaying from the timid, the cynical and the economically uninformed, and this time has been no exception. Predictable expressions of scepticism have been accompanied by jibes of “how will you pay for it?”.
But we must remember that in this case, size matters — and matters in a way that critics seem to miss. The problems the Green New Deal addresses require solutions where bigger is better, imperative and, paradoxically, more affordable. Climate scientists tell us that average global temperatures have now crossed a threshold, and are still climbing at a rate that leaves us no option but to reverse course. Further foot-dragging will lead to astronomically high costs from more frequent environmental calamities. There is also massive environmental degradation being wrought by contamination from chemicals, plastics and other materials.
The question now is not whether to address these threats but how — and how quickly. Green New Deal supporters recognise not only that we must act but also that going big here is actually to go more affordably too. That might seem counterintuitive but there are three reasons why this makes sense.
Firstly, there are economies of scale: like all productive activities, climate mitigation occasions both fixed costs and variable costs. Fixed costs tend to diminish proportionally as the scale of activity rises, reducing average cost per unit, at least until the law of diminishing returns kicks in. Where climate mitigation is concerned, the scale of the threat that we face is so monstrous that we are unlikely to run into that threshold for many years to come.
A bigger Green New Deal would also will be more affordable in the long run because of what is known as the snowball effect. The pace of climate change will accelerate as early harms damage the environment’s capacity to compensate for later ones. This leads to accelerating costs and negative feedback. As a consequence, it is clear that acting faster will yield greater impact than acting sluggishly. And acting faster here means spending more now rather than later.
The third reason to “go big” on the Green New Deal is connected to the question of making it affordable. For countries such as the US that run a deficit, governments essentially create money when they spend it. The danger is that if too much money is created, inflation will rise rapidly and make the money worth less. But this is actually a reason to spend more to increase production and productive capacity. The key here is that inflation occurs when there is too much money in relation to a given stock of goods and services. Supporters of Ms Ocasio-Cortez’s plans understand that spending will be absorbed without causing inflation if we ramp up production and installation of everything from solar panels and batteries to new plants and “smart” power grids.
Not since the US moved to a wartime economy in 1942 has America seen such productive enhancement. And the comparison is apt. When you are fighting for your very survival, you do not pinch pennies. That would be false economy. In this case it would also be suicide.
The writer is a law and finance professor at Cornell Law School and advises Ms Ocasio-Cortez
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