In Defense of a Green New Deal

            One of the platforms for the incoming House Democrats, now empowered with a majority in the chamber, is a ‘Green New Deal’. Harkening back to FDR and his New Deal, this plan would put a focus on educating our work force, heavy investment in green tech, and a federal job guarantee, among other things. While I have not done an enormous amount of research on the details of the plan, I cannot help but think about the rebukes surely to come. In the age of Trump and Twitter, it is important to have a set group of quick, marketable talking points that a voter can easily grasp. This is one of the reasons why I always say Democrats win debates, Republicans win elections: they always have an easily digestible message that Dems don’t. But, not heeding my own advice, I want to take on two common talking points that conservatives claim will kill jobs: environmental regulation and wage increases.

            To begin, let’s start by putting aside the obvious need for environmental regulation due to the dangers and destruction of global warming. The entire planet, including the Trump administration, agrees that this is a big problem. That being said, conservatives consistently drag their feet on any regulation, claiming that it kills jobs. This talking point works for their voters and it works for elections. But does it really kill jobs? The answer: like any problem in the real world, is complicated, but overall: no, it doesn’t. Environmental regulation is basically a system of taxes and fines that are placed on businesses to ensure that they are behaving properly. According to their yearly practice, they get a tax bill, which they can often negate with their other benefits to still pay zero taxes. They are doing this, not illegally, but by using legal loopholes and offshore tax havens to shift their money somewhere else, thus not ‘registering’ on the US tax system. Larger environmental regulations via taxes thus won’t have too much of an effect on these companies.

The other option is fines and fees imposed on companies from state or federal agencies. These are imposed directly on the companies and cannot be completely ‘offset’ by fancy tax maneuvers. But these can be disputed, litigated, and sometimes won by the company itself. Yet, these companies can also use the system to reduce the amount of fines imposed by the government, B.P. for example reduced its fine after the Deepwater Horizon disaster from ~$62 billion, to ~$44 billion. And the most important thing to keep in mind, is these fines are almost always tiny, compared to the actual income of the company. B.P. registered a $4.2B loss in 2015, but was right back up to $83M in profits the next year. 99.9% of the time, these environmental fines are not going to be for huge disasters like Deepwater. They are going to be for thousands, not millions or billions. The idea that these fines will stunt a company so much that they will have to cut jobs is simply not true. 

There are other categories of companies that might feel a larger share of these fines than others. There is usually a steep initial cost to environmental compliance, with a small upkeep afterwards. Smaller companies, and companies only operating in the US may feel a larger sting at first but there are many ways around this problem as well. If the companies have less than 250 workers, give them a longer timeline for compliance, or reduce the fine to a per-head basis. If companies have an average yearly revenue below a certain number, adjust the compliance timeline given the nature of the business, prioritizing certain pollutants while pushing others back. The idea that this system is as simple as revenue – regulation = job loss, is ridiculous. The dichotomy of their views have always been puzzling: we have the strongest companies and workers in the world, but if there is a 1% increase in their taxes, they will go under.

           

           Second fallacy: increasing the wages of workers will kill jobs. Also, not true. When you are looking at the health of the economy, like nearly every system, you need to look at the trend over a long period, rather than a snapshot. While the actual number might look good: $2.50 per hour in ’64 to $22.65 per hour in 2018, the real worth of those wages has not moved since then. A basic calculation of inflation puts this to shame: if wages had kept up with inflation since 1964, the average hourly wage would be a whopping $1789.40 per hour. In the 60’s wage growth was higher than it is now, with GDP growth and job creation keeping up. But now, conservatives and companies have found that voters believe them when they say they will need to close up shop if they have higher wages forced upon them. This is just not true. There are two basic reasons why this is not the case: companies have a choice, and market forces.

            Companies, like all organizations, have a fundamental choice of what to do when they receive more or less money. The President claimed this large tax break would result in companies increasing wages and giving more to their workers. While there has been a tiny amount of this, it has resulted in larger stock buybacks and increases in the leaders, rather than a growth in wages. If we pass laws requiring companies to pay a federal minimum wage, they will have a choice, just like every other time. Will they take fewer corporate profits and less money in the board of directors pockets for the benefit of their workers? Or will they pick up their toys and go home? The former is not a stretch for companies to make if they are forced. Companies want to make money for their shareholders, there is nothing wrong with that, it is their purpose as a company. But we have the ability to force them to do the right thing, and we should because of the obvious reality of the market.

            Capitalism is a pretty fantastic system when done right. At the moment, we are lagging behind what we must do as a society. The system itself is inherently unsustainable without a healthy middle class. In order for the system to work, it requires a majority of the population constantly buying things. If the middle class has no money to buy, it cannot sustain the system. There are basically two ways to ensure the continued buying, give the buyers more money, or decrease the price of the sellers. It is important to note that we have given companies the chance, over and over, to lower their prices and give more benefits to the middle class. But we have come to a point where even at bedrock prices, the amount of money the middle-class has at its disposal is not enough. We are approaching a point where we may have no choice but to increase wages. And, just like environmental regulations, we can impose the new system on companies so that it works for them. Would it destroy everything you know and love to have a 50 cent increase every year over 10 years? Unlikely. But as people gained a better ability to buy, so they would. This would continue to spur production without overwhelming companies with rising costs.

            This Green New Deal is a fantastic jumping off point for our new and invigorated Democratic party. Conservatives and the old guard, as well as the Trump Administration, are going to fight tooth and nail to prevent our country from moving forward into the ear of caring for the planet and the people. I promise, you will hear naysayers claiming the new regulations and wage growth will kill jobs. But think hard, not only of this post but also the overall reality. We can do this as a country, if companies cannot keep up, they will fall, and new companies will always take their place. It is time to move forward and take our problems head on, instead of kicking them down the curb, or trying old ideas. Now is the time to be bold!