I'm no expert in macroeconomics. You probably aren't either. But there's a battle over macroeconomics shaping up, and everyone keen on shifting the U.S. toward sustainability has a vested interest in how it turns out. (Which is why I keep writing about it.)
The question is how to react to the financial crisis and what increasingly looks like the global recession to follow.
On one side, Republican lawmakers, laissez-faire economists, and the Very Serious keepers of Beltway conventional wisdom agree: time to tighten the belt. Trim spending. Avoid inflation. It's oh-so-regrettable, of course, but Serious People realize that now is the time for fiscal conservatism. The establishment's éminence grise, Washington Post columnist Dean Broder, sounded the cry -- or rather, the concern-trollish tut-tutting -- on Sunday. He followed in the footsteps of Jim Lehrer and Tom Brokaw, moderators of the first two presidential debates, both of whom solemnly inquired what priorities the candidates intended to jettison.
On the other side, congressional Democrats and economists who have read Keynes -- James K. Galbraith, Nouriel Roubini, Dean Baker, Larry Summers, Barry Eichengreen, George Soros, Robert Reich, and probably others -- say that deficit spending is exactly what's needed in an economic downturn. In fact, according to some of them (e.g., Roubini), a massive government spending program (Roubini says $300 billion) may be the only thing between us and the collapse of the global financial system.
Every progressive and green who wants to see substantial climate and energy legislation passed by the next president better add their voices to the latter chorus.
Okay, so assume we need deficit spending. What kind? What offers the best returns, in terms of short-term stimulus, employment benefits, and long-term value creation?
I'm sure you can guess where I'm going with this.
In terms of short-term stimulative effect, check out this chart from Moody's (via Matt):
As you can see, spending wins over tax cuts hands down. In particular, note that infrastructure spending and aid to states ranks high (this is exactly what Dems propose).
How about jobs? Recall the Center for American Progress "Green Recovery" report, which showed that $100 billion over two years would create 2 million jobs. Or the U.S. Conference of Mayors report, which predicted 4.2 million new jobs in renewables and efficiency by 2038. Or the many, many other reports and studies that conclude that green jobs are a huge growth area.
And long-term benefits? Start with the fact that everyone agrees we need to use less oil and more renewable energy while cutting GHG emissions. One of the best ways to enable quick growth in renewables is to systematically improve the U.S. electrical grid. And one of the best ways to reduce oil consumption over time is to boost public transit. So there's your infrastructure spending right there: the grid and public transit.
Before conventional wisdom hardens in the other direction, greens need to get out and start arguing that the current financial mess is not a reason to trim back our green ambitions, but to accelerate them with liberal spending on a smart grid, public transit, and other job-creating, emission-reducing, capital-intensive projects. Save the economy, save the planet.
The whole reason I wrote this post is to make a point about current climate politics, but it's too long already, so I'll go there in a subsequent post.
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Comments
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Russ Posted 5:05 am
13 Oct 2008
These are now the same issue, and can all be tackled by the same programme: a keynesian new New Deal for energy and farming. Renewables, efficiency-maximizing infrastructure and policy, assistance toward food localization and permaculture.
What will this give us? Sustainable good jobs, a far more robust grid and food distribution system, cleaner air and water, the renaissance of vibrant and beautiful ecosystems, a healthier diet, and eventually a lower cost of living for a higher quality of living.
Most of all, a sense of purpose, a vision around which a true community and society could cohere.
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Jon Rynn Posted 5:24 am
13 Oct 2008
How come the global economy all of a sudden got together and came up with trillions? I thought climate change mitigation was too expensive because it would cost trillions. For the financial system, sure, but to save Shanghai, Florida and Calcutta, no can do?
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Sean Casten Posted 5:40 am
13 Oct 2008
Amongst the more economically literate though, there is a valid argument that says that (a) in the short-term, government spending stimulates more activity than tax cuts, but (b) in the long-term, economic growth is best served by a smaller government where entrepreneurs can flourish. The latter case is encouraged with a much broader swathe of tools than just tax policy, but it is at odds with long-term increases in government spending as a % of GDP.
As I said, I don't disagree with your basic point in the short-term - just that one ought not lose sight of long-term economic impacts either, or of the fact that those who argue in favor of tax cuts instead of increased spending are not always doing solely on the basis of short-term economic stimuli.
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Jon Rynn Posted 5:46 am
13 Oct 2008
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zencarver Posted 5:50 am
13 Oct 2008
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Erik Hoffner Posted 7:29 am
13 Oct 2008
I was just in Poland for a while, and there's no investment whatsoever in renewables so far as I could see, a couple wind generators is all that was visible.
But I didn't see many incandescent light bulbs. CFLs are the rule.
Erik
The Orion Grassroots Network: supporting grassroots groups working for conservation, justice, & more
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Gar Lipow Posted 9:04 am
13 Oct 2008
Amongst the more economically literate though, there is a valid argument that says that (a) in the short-term, government spending stimulates more activity than tax cuts, but (b) in the long-term, economic growth is best served by a smaller government where entrepreneurs can flourish. The latter case is encouraged with a much broader swathe of tools than just tax policy, but it is at odds with long-term increases in government spending as a % of GDP.
As opposed to economically illiterate folks like Warren Buffet, James Galbraith, Paul Krugman and Robert Riech? Really, when giving your opinion you don't need to implicitly call people who disagree people with you names. The fact is a hell of a lot of this nation's long term economic growth tool place when the taxes were a high percent of GDP.
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Jesse Jenkins Posted 4:32 am
14 Oct 2008
Excellent post. I think you are exactly right that a new era of Keynesian economic spending could be our best - if not only - hope of advancing serious action to curb emissions growth in the next year. But only if we focus on direct investments that both stimulates the economy and helps drive climate solutions: i.e. the massive deployment of clean energy technologies and a dramatic increase in end-use energy efficiency.
Unfortunately, Eric Pooley, who's "Save the Economy, Save the Planet" piece you link to, gets the analysis of the political climate right but the strategy wrong. Pooley prescribes a full-on Cap and Dividend program as the right strategy, which is an approach I fear is full of folly in today's political climate.
I've explained my concerns with Cap and Dividend here, and welcome any comments and/or defense of this strategy: "Cap and Dividend? Sorry, Wrong Answer"
Keep up the good writing,
Jesse Jenkins
WattHead - Energy News and Commentary
The Breakthrough Institute
Jesse Jenkins
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http://watthead.blogspot.com
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Sean Casten Posted 2:10 pm
14 Oct 2008
Let's review what I said:
There is a valid argument (note: I did not say universal) that long-term economic growth requires small government, even while short term economic growth requires government stimulus. One may agree or disagree with this perspective, but still acknowledge that it exists. My point in raising this to David's initial post is that except amongst the most rabid polemicists, I don't think the comparison of deficit spending vs. deficit belt-tightening is based on long-term economic considerations, but rather on short-term stimuli. This is consistent with David's table that shows one-year changes in GDP. But the reasonable arguments for small government - which I accept you disagree with, but that doesn't mean they aren't well reasoned - are typically not made based on short-term stimuli, but on the long-term impacts of an economy that is dependent on government investment.
I didn't say taxes as a high percent of GDP. I said government spending. Not the same. In fact, government spending as a % of GDP has tended to be highest during republican administrations of late - part of why fiscal conservatives are uncomfortable with the party. Not that that matters, but I doubt you are suggesting that the massive increase in the size of government under Bush is good for long-term (or short term) economic growth.
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Gar Lipow Posted 3:14 pm
14 Oct 2008
Not that that matters, but I doubt you are suggesting that the massive increase in the size of government under Bush is good for long-term (or short term) economic growth.
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Sure, but it was not the size, but how it was wasted. If we'd put what Bush spent on war and tax cuts into green investment I think we'd be a lot better off than we are today. And the people I cited are saying much the same thing.
As to crankiness, if you say something provocative, you should not complain when people are provoked. You did not say "some economically literate people". You said "the economically literate." I take it that this was clumsy phrasing, and that you did NOT mean to imply that people like Stiglitz and Galbraith who do in fact argue for long term large scale government investment and spending, not just short term stimulus are economically illiterate. Not that you have to agree with them, but that you are not accusing them of economic illiteracy.
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Sean Casten Posted 1:20 am
16 Oct 2008
My point about economic literacy is not to bash the right or left, but simply to differentiate those who reach reasoned conclusions (no matter how different they may be) from those who are simply polemicists, arguing that tax hikes are always bad or increased gov't spending is always good - or that what's economically good in the short term is identical to that which is economically good in the long-term.
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