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Building a New, Green Economy, Part 1: Calling Dr. Obama¦

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"Building a New, Green Economy, Part 1: Calling Dr. Obama¦"

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[Update: The Green Recovery event at CAP will be webcast live here Monday, noon EST.]

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When Barack Obama introduced us to his economic team in Chicago this week, you could almost hear an intercom blasting in the background: “Dr. Obama, please report to 1600 Pennsylvania Avenue, stat.”

The new advisors gathered around the President-elect looked like a crew of brilliant doctors about to go to work on a patient who is flat on his back and suffering a heart attack together with a bunch of strange and confusing symptoms — an apt description of the our economy today.

[JR: Thankfully, Barack is not cantankerous, misanthropic, and Vicodin-addicted, like a certain TV doc modeled after Sherlock Holmes. And hopefully, unlike both George Bush and Gregory House, team Obama won't nearly kill the patient several times before finding the right cure.]

How the Obama team chooses to diagnose and treat the patient will mean everything for the long-term prognosis. The economy needs more than a jolt from a defilibrator; it needs a heart transplant. The doctors should use the paddles if they must, but the patient needs a lot more treatment, both short and long term.

As Obama’s team begins work on a recovery package, I hope they’ll keep a few guiding principles in mind.

First, there’s an important difference between economic stimulus and economic transformation, and the latter is what we need. The Big Three are a case in point. We shouldn’t give them an infusion of taxpayer money just so they can continue their unhealthy habits. Similarly, we should aim for fundamental changes in the old economic order; otherwise, sooner rather than later, it will go into cardiac arrest again.

Second, and closely related: There is an important difference between spending taxpayer money and investing it. On a personal level, buying a big-screen television is an example of spending. The purchase will enhance your couch time, but it won’t earn an economic return. Putting more insulation in your home, on the other hand, is an investment that gives you the equivalent of new tax-free income with every month’s utility bill.

The recovery package must be much more than another check to every household. Some type of instant relief on Main Street may be needed — but the much larger expenditure should be invested rather than spent.

Third, every dollar must multi-task. We cannot engage in trade-offs between a ruined planet, oil wars and a crumbling, third-world infrastructure. There are ways to solve these problems simultaneously and in the new White House, single-purpose investments should not be welcome.

Our transportation infrastructure is a case in point. Obama says his recovery package will include “rebuilding our crumbling roads and bridges.” There’s no denying that bridge safety is important and that traffic congestion harms productivity. But the principal goal of a recovery package should not be to accommodate more cars, with their oil consumption and carbon emissions. The goal should be to give people better alternatives to cars, including safe and convenient mass transit.

Energy efficiency is another multi-purpose investment. It has been our biggest source of “new” energy over the past 35 years.

Efficiency improvements reduce greenhouse gas emissions, take pressure off the electric grid and slow the hemorrhage of wealth from every household, automobile and community, as well as from the national economy. Efficiency is the economic stimulus that keeps on stimulating.

Fourth and finally, we must phase out investments in the old economy. There is no question that the federal government will have to go further in debt to finance an adequate economic recovery package. But Congress can avoid some of that debt by creating a “National Energy Subsidy Reform Commission” similar to the military base-closing commission of the 1990s. Its job would be to identify carbon subsidies that should be eliminated and reinvested in clean energy. Following the base-closing model, the commission’s recommendations would have to be accepted or rejected as a package.

In addition, Congress and the new administration should review and revise the government’s more than 200 loan, loan guarantee and grant programs to make sure that they are investing in a sustainable economy.

Not long ago, investments like these might have been considered radical medicine. Not any more. One indication that the idea of a new energy economy has moved into the mainstream is a letter sent to President-elect Obama on Nov. 20 from a part of the country whose economy was built on fossil energy production. The two top officers of the Western Governors’ Association — Republican Jon Huntsman of Utah and Democrat Brian Schweitzer of Montana, wrote:

An enormous national commitment is necessary to transform our energy infrastructure and our economy as we shift to low-carbon-emission energy sources that include wind, solar, geothermal, biomass, hydro and other renewables, as well as fossil fuels with carbon capture and storage.

With investments such as these, the economy not only will recover, it will emerge from the hospital stronger, more stable and richer with opportunity than ever before.

– Bill Becker

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16 Responses to Building a New, Green Economy, Part 1: Calling Dr. Obama¦

  1. sherry says:

    Not enough credit is being given to the high gas prices this past year and it’s serious damage on our economy..A record number of homes and jobs have been lost as a direct result. And, while we are doing the happy dance around the lower prices at the pumps OPEC is announcing cuts to manipulate the prices upward again.We can’t take another year like this past. There is a wonderful new book out about the energy crisis and what it would take for America to become energy independent.This book is profoundly informative and our country needs to become more informed and move forward with becoming energy independent. Green technology would not only provide clean cheap energy it would create millions of badly needed new jobs. The Book is called The Manhattan Project of 2009 Energy Independence NOW. http://www.themanhattanprojectof2009.com I highly recommend this book if you are distressed about our economy, would like to see new jobs created and see our country become energy independent.

  2. Mark Shapiro says:

    You hit this one out of the park, Joe. Thanks for outlining a terrific plan.

    YES: to economic transformation: from dirty to healthy, from mean to clean.

    YES: pour recovery dollars into investment, especially energy efficiency, not just consumption and more pollution.

    YES: phase out investments in fossil fuels. Politically, this is VERY tough, so remember to ease the burden on laid off coal miners on the way out.
    There is a simple economic truth here: If the coal, oil, and gas industries stopped making capital expenditures, that would put us on a “glide path” to zero carbon emissions. It would be economically efficient (no “stranded assets”).

    And cultivate allies in high places. Seeing Republican governors, from fossil fuel producing, conservative states, beg the Obama team to go low carbon is astounding. And beautiful.

  3. paulm says:

    1st commercial ship sails through Northwest Passage
    http://www.cbc.ca/canada/north/story/2008/11/28/nwest-vessel.html

    “That was the first — that I’m aware of anyway — commercial cargo delivery from the east through the Northwest Passage.”

  4. Joe says:

    Mark — Oops. This is a Bill Becker post. Sorry for the confusion

  5. Wes Rolley says:

    If there is one statement that you made which should make is think more it is your third point: ‘We cannot engage in trade-offs between a ruined planet, oil wars and a crumbling, third-world infrastructure. There are ways to solve these problems simultaneously and in the new White House, single-purpose investments should not be welcome.”

    Unfortunately, we have to deal with a Congress whose continued re-election is dependent on show their constituency what they have done for them lately. That is why we get farm bills that destroy the family farm, increase fossil fuel use and blow health care costs out of sight. The same point about the interconnectedness of problems was the center of Michael Pollan’s conversation with Bill Moyers last night.

    Rather than putting all our hopes on Obama and aiming all our talk in his direction, we should be putting just as much pressure on Nancy Pelosi. If Minnesota’s Collin Peterson remains Chair of Agriculture, we have little hope. Pelosi signaled the willingness to change when Waxman replaced Dingell at Energy and Commerce. She needs to finish the job.

    Besides Peterson, she might also look at Natural Resource. While in a total different and much better universe from his predecessor (Pombo) Nick Rahal is from West Virginia where all of the politicians are in the pocket of big coal and being aggressive about taking on that industry would be political suicide for Rahall. We need to have that committee chaired by someone who does not come from a state dominated by an extractive industry.

    Pelosi will always include the electoral calculus in any such decisions and that is a habit we can no longer afford.

  6. Mark Shapiro says:

    Correction: Thank you, BILL BECKER, for the great post. So the only thanks that you, Joe, deserve for this post, is for hosting the site and for gently pointing out my confusion; so a reduced thanks to you.

    I’ll stand by the rest of my points — especially about disinvesting in dirty while reinvesting in clean, and getting allies in high places, like the Republican western governors asking to lower carbon emissions.

    Speaking of allies, I glanced at Jeff Wilson’s web site recommended above by Sherry:

    http://www.themanhattanprojectof2009.com

    WIlson looks like an engineer who came up to speed quickly and mostly accurately about oil. Though he doesn’t even mention warming on his web site or table of contents, the outline of his plan looks solid.

    That makes him a good ally. He apparently makes the case for efficiency and renewables even without global warming, using ONLY economics and security. I can’t see his opinion on warming from here, but he is clearly a fast study, and educable.

  7. red says:

    “First, there’s an important difference between economic stimulus and economic transformation, and the latter is what we need. The Big Three are a case in point. We shouldn’t give them an infusion of taxpayer money just so they can continue their unhealthy habits.”

    Rewarding failure is always a danger with government bailouts (and with politics the way it is, most government programs).

    In its latest weekly roundup of news on efficient cars, X PRIZE Cars blog

    xprizecars.com/2008/11/axp-news-nov-19-2008.php

    has a link to an article “Pressure to Bailout Big Three Grows, But What About Startups?” by Gas 2.0 with some suggestions to level the “bailout playing field” between startups and the Big 3 while also generally encouraging electric vehicles:

    1. Low-interest loan guarantees (so startups get access to capital too)
    2. Fair application of tax credits (for EVs not favoring GM)
    3. Government assistance for purchase financing
    4. Immediate efforts to begin construction of a nationwide charging network

  8. Bob Wallace says:

    It seems that people need to take a look at GM and Ford 2009 vs. GM and Ford 1995.

    A few years back (it takes a few years to bring new vehicles to market) both companies started putting more emphasis on efficient models.

    Chevy has seven 2009 models that deliver greater than 30 mpg performance. Their Impala delivers roughly the same mileage as the slightly smaller and lighter Camry. They have the PHEV Volt coming to market in 2010.

    Ford has had the Escape hybrid SUV on the market since 2004. They are bringing some of their efficient European cars to the US market.

    As best as I can tell these are companies that are in transition from providers of large vehicles (which the American market wanted) to more efficient vehicles (where the market is headed).

    (BTW, I don’t drive Detroit. Haven’t since the mid-1960s. Except for my firewood pickup, used Toyotas were too expensive for what I needed .)

  9. hapa says:

    @Bob W.: disagree.

    As best as I can tell these are companies that are in transition from providers of large vehicles (which

    …were a debt-financed national splurge, like mcmansions, and shopping malls in the desert, before them…

    ) to more efficient vehicles (where the market

    …has been in more sensibly-run economies for decades…

    ).

    in other words, the SUV demand was driven by policy. cheap, unlimited credit policy. the US car companies got beat because they were really in the loan business and they were selling vehicles with that in mind, in a speculative credit market, to a group of people who think “down payment” and “cost” are the same thing.

    now the bubble’s popped in their faces and no surprise at all, they’re the worst off of any automotive manufacturers on the planet and on top of their inventory grief their past is haunting them, as loan defaults.

    in other words, fine, there was a market, but it wasn’t a sustainable market in the financial sense and their overcommitment to it shows they stink at business.

  10. hapa says:

    bill becker/joe: good stuff.

    there’s a “blockquote” missing at the end of the story? which part’s the quote?

  11. hapa says:

    sorry for the third comment. it occurs to me that where other car companies are offering rates and prices, GM — one of the world’s largest finance companies — is advertising that they will help people secure outside loans. this says to me that GMAC’s reputation as a loan originator is utterly destroyed.

    which would be a direct result of overselling their customers in both the showroom and the credit market. KABLOOIE.

  12. Joe says:

    Blockquote missing? Don’t know what you mean.

  13. hapa says:

    one or both of the last two paragraphs is an unindented citation?

  14. Did anybody notice how Diamler-Benz bought out Chrysler so they could ruin the Dodge Diesel? At 165 horsepower, that engine was medium duty, meaning it would go about 400,000 miles. Dr. Z offered it in a choice of horsepowers, knowing that the average consumer is stupid enough to think that more horsepower means heavier duty. The end result is that Dodge makes that engine put out 325 horsepower, making it LIGHT duty, meaning that it will be worn out in only 100,000 miles. It won’t do you any good to try to get less horsepower out of it by staying off the gas pedal. When the peak horsepower goes up, so does the idle horsepower. Now that the Dodge diesel is ruined, Diamler-Benz sold Chrysler. There is a Mack truck near here with 1.7 Million miles on without an overhaul. Mack doesn’t make them that way any more because the drivers wanted more “efficiency.” There is no possible way to make a heavy duty engine out of a medium duty engine. If you want a car that will go a million miles, buy an SAE Class 8 truck, like the tractor part of an 18 wheeler. To get insurance, you will have to put a camper on it so you can register it as a motorhome. There is no engineering reason why cars can’t go a million miles between overhauls. It is purely that management won’t allow it.

  15. Bob Wallace says:

    Well, you might be right.

    But people bought SUVs rather than other types of vehicles offered because they wanted SUVs. GM would have been quite happy to sell/finance minivans or station wagons or sports cars if that’s what people wanted.

    And please separate Detroit’s moves to more efficient models from the current financial crash. They started working toward more efficient models years ago. The crash is a scant few months old.

    Ford started selling their hybrid Escape in 2004. That means that development must have started not long after 2000. Chevy has been actively working on the Volt for several years.

    GM isn’t selling product. No one is. Not selling product while having a huge overhead that must be met means that there’s no money to fund loans.

    Look at all the businesses that are closing. The list of retailers is immense. Old names are going away. Were all those companies terrible at business or have we run up against something outside the boundaries of normal financial planning?

    Normally during recessions corporations borrow money to get them through. It’s part of their financial plan.

    This time there is no money to borrow. First time since the late 1920s. Things financial were supposed to be different than then….

  16. hapa says:

    what the people want: we all had that argument ten years ago. what i’m talking about is the many ways encouraging and catering to that taste was a terrible business decision.

    separating the crash from good gas mileage: (1) for GM and company the crisis started sometime last year, after the home ATM system vanished and the home building boom ended. that would be when defaults and inventory started climbing.

    (2) american car makers build many high efficiency cars throughout the world. they used to build them here. they own shares in companies that still build them here. if they wanted to build them here, no ten-year high-tech conversion plan was necessary.

    (3) the escape hybrid and the volt are easy to paint as greenwash. they have all the hallmarks.

    something outside the boundaries of normal financial planning: yes. but companies as big as these, in the finance business themselves, big scale loan originators in the credit derivatives scenario, they have more to do to explain their actions and their problems than singing the recessionary blues. unlike mpst participants in the real economy they knew the backroom dirt and IMO they went with it because it let them avoid the inevitable squeeze. their risk was “distributed.”