Sandy’s Plan

New York Rep. Alexandria Ocasio-Cortez (“Sandy”) proposes that America build a new stock of capital goods to meet certain energy requirements she thinks we should have. Our current capital stock is worth something like $50 trillion. Sandy has spent years studying how toothpaste, hats, computers, keys, can openers, computers and everything else are made. She now believes that Pelosi can appoint a committee of 15 representatives (9 Democrats and 6 Republicans) and these 15 people in 2 years can produce a PLAN to change everyone’s production techniques to achieve Sandy’s energy goals. These goals are clearly stated in her proposal and need not be copied out here. Let’s just say that they are as ambitious as they are arbitrary and that they amount to building a new capital stock. If a Central Committee of this sort reminds you of the 20th century totalitarian states that failed their epic experiments with socialism, you are not alone.

One of her goals is “upgrading every residential and industrial building for state-of-the-art energy efficiency, comfort and safety…” It seems that Sandy lacks the concept of COST. She also does not understand that investments are supposed to have positive net present values, that is, the discounted stream of future returns is supposed to exceed the discounted stream of costs. All of her energy proposals take for granted that the “investments” are worth their costs. How does she or any committee, even after consulting with various groups, know this? There is a role for entrepreneurs that Sandy misses altogether. Sandy completely lacks the concept of entrepreneurship and what entrepreneurs do. The word “Green” stuck in front of “New Deal” apparently makes such matters irrelevant. Someone should tell Sandy that the first New Deal was a failure.

Once every company is subjected to the new energy mandates, the value of its existing capital stock will tumble. Much of existing capital will be unusable and unable to cover the costs of changing the energy structures now in place. Vast amounts of wealth destruction will occur.

Congress has the power to do everything Sandy proposes. All of it would be constitutional. This sad fact shows us to what depths this country has sunk in departing from its philosophy of freedom. It is why we would do well to consider dissolving the federal government altogether. Freedom is a mockery in Sandy’s plan.

Sandy proposes more. She proposes “a job guarantee program to assure a living wage job to every person who wants one.” Who guarantees, hires, trains, monitors the work and pays for it? Her plan says “the Plan (and the draft legislation) shall” do this.

Who pays for new energy techniques and systems? This is unclear. One passage suggests that bonds will be issued. They will be marketed to banks and the Federal Reserve. Presumably, companies will issue them via government guarantees, which means they are really government bonds. The hitch is that the new energy investments are not destined automatically to be profitable. Their costs are unknown. They are not routinely incurred by profitable companies at this time, and foreign locations might out-compete American companies forced to undergo the green treatment idolized by Sandy. It’s not clear that these bonds can be sold without bankrupting the federal government, raising interest rates steeply and creating inflation. The experiences of Nazi Germany, the Soviet Union and Venezuela will prove instructive, as they instituted their widespread plans.

The uncertainty in all of this massive change will mean a depression that will tie the hands of government and Federal Reserve.

Somehow, by putting everyone to work who wants to work at investments whose payoffs are unknown (likely negative) and whose financing is uncertain (likely entirely infeasible), prosperity is supposed to result that eliminates poverty.

Sandy’s plan is a cousin to Elizabeth Warren’s plan to turn the capital of companies over to their employees and other stakeholders.

What these plans have in common, besides destroying what’s left of capitalism and free markets in America, is amazing ignorance of economic realities. Plus ignorance of financial and investment realities. Plus ignorance of the processes by which profitable and useful capital is accumulated to serve consumers. Sandy’s plan is something like what a leftist-educated 10th grader who knew nothing of economics and finance might devise, giving full rein to wishful thinking, immature idealism, ignorance of history and mis-education about capitalism. These plans endorse massive socialism with nary a reservation about its values, its feasibility and its actual history. These are truly astonishing exercises in ignorance.

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8:11 pm on January 3, 2019