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The Economic Incidence of a "Green New Deal"

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Catherine Wolfram’s excellent blog post about the proposed “Green New Deal” (GND) nudged me to write out a few thoughts.  I recognize that we do not have a clear definition of what policies would be bundled into such a GND.  At its heart, it must be a Keynesian large scale expenditure of federal $ to jump start the green economy.

When government spends $, balanced budget conditions require someone’s taxes to rise.  I will not comment further on this issue here.  Let’s focus on the winners from this increased government expenditure.

Can empirical economists working in the Chad Jones, Paul Romer endogenous technological change literature,  estimate the marginal increase in patents as a function of new government expenditure?  Patents can be measured both in terms of quantity and quality.  David Popp has done some of the best work here.   Will our scientists now be able to finance new equipment and launch great new projects because of the GND?

In past work, Austan Goolsbee argued that NSF budget expansions raised the salaries of scientists as they are inelastically supplied in the short run and a demand increase for basic science thus raises their wages.

The GND can be thought of as a  “Big Push”.   Such a “Big Push” can switch the equilibrium an economy achieves in an economy where there are fixed costs to launching new green ventures.  In the presence of fixed costs to creating a production line, entrepreneurs will only enter the “green space” if they anticipate that there is a market for new devices (such as solar panels) that they will produce.  If the federal government commits to the Green Big Push, then more companies will enter this space and some will succeed.   An open question here is whether the Federal Government can resist the urge to “pick winners”.  Who in the Congress will make the allocative decision concerning which firms will receive GND subsidies for their own nascent idea?

If the Congress could delegate the allocative decision of $ to experts, then would more voters be comfortable with launching the GND?   David Weinstein’s past work on MITI in Japan shows that this agency has not been effective at “picking winners” in its industrial policy approach to boosting the Japanese economy.

As Catherine discusses in her article, a carbon tax would direct economic activity towards the efficient allocation of resources.  Will a command and control Keynesian expenditure increase achieve the same outcome?


Source: http://greeneconomics.blogspot.com/2019/01/the-economic-incidence-of-green-new-deal.html


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