Category Archives: Economics

The Trump administration’s trade war gave economics teachers countless real-world examples of bad policy they can use in the classroom. A new open letter encourages President Biden to provide a similar service by becoming the “climate president.” Signees include prominent business leaders and activists such as Jeff Bezos, Leonardo DiCaprio, and Bill Ford.

Here are a few basic lessons of economics and politics they should have considered before signing on:

• Green policies are Trump’s trade war in fancier packaging. This is an important, but overlooked, theme in the new administration. The climate doesn’t care if new technologies or business models come from America, Europe, Asia, or Africa. But politicians and their donors sure do. This is why President Biden is continuing President Trump’s “Buy American” policies. The main difference is that Biden is adding a green label to the nationalist branding. Businesses see climate legislation as a weapon against foreign competitors, the same as Trump’s tariffs. Politicians see ways to do favors for these companies, harm enemies, and appeal to voters’ patriotism, all at the same time. But this would raise consumer prices and leave supply networks less resilient—not a good idea during a pandemic and amidst a still-reeling economy.
• Rent-seeking is a thing. Rent-seeking is the technical term for getting special favors from government. Political connections are often less risky and more profitable than gambling on a new technology. Solyndra was not an isolated incident. When Washington puts millions of dollars up for grabs, many companies will compete in Washington rather than in the marketplace. This leaves fewer resources available for developing new technologies. It also shifts priorities toward what Washington wants, rather than what might actually work.
• Policy is made by the government we have, not the government we want. It is naïve to believe that Congress, with people like Mitch McConnell and Josh Hawley on one side, and Charles Schumer and Nancy Pelosi on the other, would actually pass climate legislation with the public interest as their top priority. That’s not the way real-world politics works. They’re going to jam in climate-unrelated pork and special interest giveaways. They will lock in today’s technologies so innovators who are less politically connected don’t displace them, as nearly happened with CFL light bulbs and LEDs. In Washington, even the best-meaning policies—especially the best-meaning policies—will not pass in anything resembling their intended form.
• Green jobs aren’t new jobs on net. They replace other jobs. Putting a million dollars into one project means taking away a million dollars from somewhere else, as Frédéric Bastiat’s broken window parable points out. Calling a project green does not change this. Some green projects are worthwhile. Some are not. But Congress and the president are in a poor position to be able to determine which ones are which—not all the way from Washington, and not without prices and supply and demand giving them feedback. Nor do legislators have any incentive to listen to these signals, with 2022 and 2024 election preparations already underway.
• There are better ways to address the issue. Even without a carbon tax and a Green New Deal, pre-COVID carbon emissions in the U.S. had been declining for several years. This is because entrepreneurs, wherever they are allowed to, are figuring out how to do more with less. New farming technologies are reducing the need for farmland, leaving more left over for wildlife. Smartphones and tablets are replacing music players, paper maps, VCRs, cameras, newspapers, compasses, metronomes, and more. This dematerialization is reducing demand for metals, plastics, paper, and other resource-intensive materials. As a result, the economy has already passed “peak stuff” for many resources, as Andrew McAfee points out in his recent book More from Less. As CEI founder Fred Smith likes to say, you don’t have to teach grass to grow, but you do have to take the rocks off of it. Congress and President Biden will achieve more of their environmental goals by removing regulatory rocks than with top-down planning, taxes, and subsidies.

The open letter signers’ hearts are in the right place. But no president can do what they ask. Our political structures cannot deliver those things. The letters’ signees would be better off putting their talents and resources to use exploring bottom-up solutions than in a top-down political system that is structurally unable to deliver on its promises. Bottom-up processes are messy, and filled with trial, error, and failures. They also don’t look as good at press conferences. As we’ve already seen with America’s declining carbon emissions and dematerialization, it works. But it will only continue if Washington lets it.