Smart economic development policy for the 21st century 4

The following is an elaborated version of the brief talk I gave at my Netroots Nation panel.

The U.S. economy is in serious trouble, mired in a period of slow growth and high prices -- i.e., stagflation. Worse, high prices can largely be traced to escalating fossil fuel costs that are almost certain to continue rising for the foreseeable future.

Our trade debt is enormous, as we, in Gore's words, borrow money from China to buy oil from Saudi Arabia. We're shedding jobs -- according to economist Dean Baker, it's increasingly possible that total job growth under eight years of Bush will come in under the average single-year job growth under Clinton. Median wages have barely kept pace with inflation. The inequality gap is enormous and growing. Consumers are swamped in debt and losing confidence. This generation may be the first in a long while to leave the U.S. worse off than they found it.

It's grim. What should be done?

We have to attack both sides of the stagflation problem, by boosting growth and taking the sting out of energy costs.

Where can we find new sources of economic growth?

One obvious answer is energy itself, which according to VC guru John Doerr is a $6 trillion global business (makes IT look like peanuts). Right now that industry is almost completely dominated by fossil fuels (80 percent worldwide, 85 percent in the U.S.), and every country on the planet is looking to rapidly diversify. In other words, there's a market for non-fossil energy sources and energy efficiency that is, for all intents and purposes, unlimited.

And the shift away from fossil fuels is just getting started. That means there's a chance to get on board the rocket just as it takes off. Three strategies suggest themselves (sketched here in the most general terms):

1. Seed the cutting edge. In the energy revolution, we're where the internet was in about 1995. There's an enormous wave of innovation coming. We should make sure a good chunk of it happens here by dumping big money into R&D, opening our absurd immigration system to engineers and entrepreneurs from abroad, and making our cities attractive to the "clusters" that foster innovation.
2. Nurture nascent industries. Too many new ideas get stuck in the lab and never make the leap across the "valley of death" to market viability. Public policy can help remedy this problem in a number of ways. Directly, it can offer tax credits and subsidies that encourage nascent technologies (think Germany's feed-in tariff). Indirectly, it can create favorable market conditions by driving demand (public procurement, efficiency and output-based standards, RPS's) and internalizing fossil fuel externalities (carbon tax or cap-and-trade). Policy can also help foster rapid scale-up by sending money to community colleges, vocational schools, and job training programs, to help labor supply keep up with demand (it already isn't, and we're barely getting started).
3. Drive down energy demand. There is no faster or more reliable way to help consumers get back on their feet than to help them reduce their exposure to volatile, rising energy prices that fluctuate based on events completely out of their control. And what helps consumers also helps the economy as a whole. Methods of increasing energy efficiency -- providing the same standard of living uses less primary energy -- are all but limitless. While the public generally thinks of efficiency in terms of individual products like lightbulbs and vehicles, there are also ways of making buildings, neighborhoods, and cities more efficient, with retrofits and higher building standards, more transportation options like car sharing and public transit, improved materials and water management, and smarter electrical grids. To wring these efficiencies out, we'll have to spend a great deal of money on infrastructure, thoughtfully remove regulatory barriers, and boost output-based standards in every sector.

These strategies will create new industries and new jobs, allow us to reduce the trade deficit, strengthen the dollar, and give the U.S. economy a stability and resiliency it can never achieve while its fate is tied to the vagaries of increasingly brittle international fossil fuel markets.

If you think of the U.S. "productivity recipe" as some mix of labor, energy, and capital, you can think of the way forward as using less energy and more labor. (The fossil fuel sector demonstrates extraordinarily low labor intensity. A dollar of investment moved from that sector to virtually any other -- in this case R&E -- yields up to seven times more jobs, according to Skip Laitner, an economist at ACEEE.)

Consider, for instance, retrofits: If we kick off a nationwide effort to retrofit the building sector for energy efficiency, we're trading a whole bunch of work (i.e. jobs) for a whole bunch of energy. With energy prices rising and a jobs crisis looming, that's an increasingly smart trade -- and as a bonus, money that would have gone to scarcity rents paid to foreign owners of oil will now go to productive domestic work. We'll be moving from a low-wage, high-waste economy to a high-wage, low-waste economy, and getting economic growth, security, and resilience in the bargain.

As economic development policy, as industrial policy, as urban policy, it's a no-brainer. And here's the punchline: Nowhere in the pitch do I use the word "green." Nowhere do I mention climate change or polar bears. You don't need them, and they don't help.

As Van Jones once told me, "For people with a bunch of opportunity, you tell them about the crisis. For people with a bunch of crisis, you tell them about the opportunities." America has a bunch of crisis. These are the opportunities.

• Comments