Are you truly concerned about the poor’s economic welfare? If so, you should be celebrating President Trump’s announcement that the United States will withdraw itself from the Paris Agreement.
The Paris climate accord, which was ratified last year, attempts to “bring all nations into a common cause to undertake ambitious efforts to combat climate change and adapt to its effects.” Supporters of the agreement claim it is necessary to avert the disastrous consequences of climate change.
Regrettably, the plan’s supporters are committing the greatest economic fallacy, which Henry Hazlitt, the acclaimed economics writer, warned about in his most prominent work, Economics in One Lesson (1946):
“The bad economist sees only what immediately strikes the eye; the good economist also looks beyond. The bad economist sees only the direct consequences of the proposed course; the good economist looks also at the longer and indirect consequences.”
While laypeople, pundits, scientists, and economists have focused their attention on what Trump’s decision might mean for climate change, these groups have largely ignored the effect of the agreement on poorer American households. Here are three reasons why withdrawing from the Paris Agreement is good for the poor:
1. The Paris Agreement raises energy costs for hardworking American households.
Under the agreement, the United States pledged to reduce its greenhouse gas emissions by 26-28% below its 2005 level by 2025. This would be accomplished by transitioning from fossil fuels to renewable sources of energy.
Although renewable energy will likely become the technology of the future, prematurely transitioning to “greener” sources creates a problem for Americans struggling to make ends meet.
Right now, these alternative sources of energy are far more expensive (and less reliable) than traditional sources. A study published last year found that “electricity from new wind and solar power is 2.5 to 5 times more expensive than electricity from existing coal and nuclear power.”
Until the cost of green energy declines through technological advances and increases in productivity, transitioning to renewable energy too hastily will necessarily cause energy prices to skyrocket. Rising energy prices disproportionately affect those who already have the hardest time affording energy.
Every additional dollar that lower-income families spend on lighting and heating their homes is a dollar that is now no longer available to pay for housing, food, clothes, and books. By raising energy prices, the Paris Agreement would make it harder for these families to afford the things they need.
2. Regulations promulgated under the aegis of the Paris Agreement increase prices and harm the economy.
The Paris Agreement saddles producers with burdensome regulations that increase the cost of doing business. Ultimately, these costs are either passed to consumers or are absorbed by businesses, resulting in lower employment and less investment for the capital goods necessary to produce the goods consumers need.
Furthermore, developed economies like the United States rely on affordable, accessible, and reliable energy. Machines on the assembly line and the trucks transporting goods alike require energy to produce and deliver products to consumers.
Most affected by onerous environmental regulations are energy, manufacturing, and shipping firms. Imagine the mom and pop machining shop that would have to pay tens of thousands of dollars to comply with increased regulations originating from the Paris accord. That’s tens of thousands of dollars that now cannot be used to raise wages for their workers, hire new employees, purchase more inventory, or invest in capital (think: technology and machines) to produce tomorrow’s goods.
In the long run, total production will decrease, employees will make less money in wages and benefits, and consumers will face higher prices at the market. There will be less wealth, less prosperity, and fewer opportunities, especially for those struggling to find jobs or climb the economic ladder.
3. The Paris Agreement redistributes wealth from American taxpayers to international corporations and less developed nations.
The Paris Agreement also initiates a massive redistribution of wealth from developed countries to less developed countries. This will be orchestrated through the United Nations Green Climate Fund, which seeks to help developing countries purchase and construct alternative energy infrastructure.
The Green Climate Fund is the worst form of crony capitalism, guaranteed to benefit politically connected firms, especially those that stand to make millions of dollars in selling green energy technology. Like all government infrastructure programs, it will likely be highly inefficient and rife with corruption.
To make matters worse, the Paris Agreement assures that a significant portion of the multibillion dollar budget for the Green Climate Fund will be financed by American taxpayers. Astoundingly, the agreement places American taxpayers on the hook for bankrolling pricey green energy technologies for other nations.
Where do supporters of the agreement think this money will come from? Have they forgotten that the United States is already $20 trillion in debt with unfunded liabilities (promises of future services) totaling over $200 trillion?
Remember that every dollar taxed by government is a dollar that American families and businesses cannot use to purchase the things they need. Taxes divert money and resources from the private sector, where it is spent more efficiently and according to the needs of consumers, to the public sector, where it is spent inefficiently on programs (like green energy) deemed “worthy” by central planners (in this case, the international community) without concern for the needs of the people in these different countries.
The eventual result of increasing taxes will be less capital available to meet the future needs of producers and consumers. There will be fewer total goods produced and fewer jobs. Prices will rise, and families and small businesses will find it harder to get the credit they need for mortgages and small business loans.
Decades ago, Henry Hazlitt alerted his contemporaries about the error of ignoring unintended consequences when analyzing policies. His warning still rings true today:
“The long-run consequences of some economic policies may become evident in a few months. Others may not become evident for several years. Still others may not become evident for decades. But in every case those long-run consequences are contained in the policy as surely as the hen was in the egg, the flower in the seed.”
Regardless of the truthfulness of claims made by climate alarmists, it is important to look beyond good intentions to see how policies, like those springing from the Paris Agreement, would affect the most vulnerable people in society in unintended ways. It is tragic that government policies designed to alleviate one problem create further problems that end up harming people.
It is indisputable that the Paris Agreement would have negatively affected lower-income American families. Fortunately for them, the United States is no longer beholden to the agreement, and it can now pursue environmental policies it considers to be in the best interests of Americans.
This article was originally published by the Mises Institute: https://mises.org/blog/withdrawing-paris-agreement-helps-most-vulnerable.