Smart Spending

I never expected a massive Keynesian stimulus to be easy. But the fact that the Obama transition needs to allay fears about the package is worrying. What economy are these neo-Hooverists looking at? Jobless claims keep jumping - expect another half-million to be out of work by next month. The housing market is still crippled with no sign of recovery. And even the lead economist of the IMF, no left-wing liberal, is warning of another Great Depression if governments don't replace consumer spending with massive spending of their own.

Dominique Strauss-Kahn, the head of the IMF, is pushing governments to increase their own spending in order to support growth. The IMF has always been a big enemy of deficits. Why the reversal?

We are facing a crisis of an exceptional breadth, the basis of which is a collapse of demand. The consumer and business confidence numbers have never fallen this much since they've first been recorded. We've NEVER seen this!...

It is imperative to curb the this loss of confidence, to relaunch it and, if necessary, replace private demand, if we want to avoid a recession that turns into a Great Depression. Of course, in normal times, we would recommend that Europe reduce its budget deficits. But these are not normal times.

The fears that the Obama team is responding to are largely about limiting pork-barrel spending in the final bill. I think the nation can survive if a pet project makes its way into a trillion-dollar bill. Somebody has to build that pet project, too, and the whole point is to get money into people's hands in exchange for public works. However, that's not to say that we shouldn't be careful about the spending. On the contrary, I believe that funneling money to build more highways and roads that perpetuate unsustainable suburban sprawl is a bad idea. The opportunity of the stimulus is that we can create new economic opportunities based on building green industries and projects that can reduce our dependence on fossil fuels.

"We've let our infrastructure crumble for a long, long time from water to roads to bridges. It makes sense to invest in them now," Biden said.

But environmentalists and their allies view old-fashioned highway construction as encouraging longer commutes and increasing the energy-consumption crisis of the past year. "They're going to put a bunch of money through a broken system to stimulate the economy. That doesn't make sense to me," said Colin Peppard, a transportation expert for Friends of the Earth.

Peppard's group recently began a "Road to Nowhere" campaign, saying that new roads would lead to "new pollution -- keep the economic stimulus clean."

This doesn't mean that existing infrastructure shouldn't be upgraded in the meantime. But projects like rail, smart energy grids, building out broadband, and developing alternative energy need to get their share of the pie. And there are examples of where "old infrastructure" and "green infrastructure" can work together. The best example is in the building trades. The commercial real estate industry wants their own bailout, and they're going to be the next of many industries seeking one. Now, just handing over money to developers who bought high and are underwater, when the default process works perfectly well and wouldn't disrupt the greater economy much at all, makes no sense. However, if we offered developers a deal like the Architecture 2030 proposal, which would save money in energy costs and have a societal good, that would be worthwhile. And it could be extended to ordinary homeowners as well.

An outfit called Architecture 2030, founded by Edward Mazria, suggests that we offer homeowners not just low-interest loans, but a sliding scale of low-interest loans that's conditioned on renovating their homes to increase energy efficiency. Their proposed scale is on the right. The nickel explanation is below:

"Mazria walked me through a hypothetical example that highlighted the huge incentives the plan could unleash. Say you're a homeowner with a $272,000 mortgage at 5.55%, paying about $1550 a month. You decide you want your mortgage rate to drop to 3%. In order to qualify for the reduction, you have to improve the energy efficiency of your home 75% below code, and it's going to cost you a pretty penny: about $40,000.

Existing tax credits would take care of about $10,000 of that cost. The rest would get tacked on to your existing mortgage, bringing it up to $302,000. But, at 3%, you'd be paying only about $1280 — saving almost $300 a month on the mortgage alone, plus another $150 in reduced energy costs. The value of your home rises, you have more disposable income, you've given work to someone to do the upgrades for you — and s/he's now paying federal taxes, and you've reduced your carbon footprint."

The Architecture 2030 folks claim that their program (which has a component for commercial buildings as well) would cost a mere $170 billion over two years, and in return would create over 8 million new jobs, jump start a new $1.6 trillion renovation market, save consumers a boatload of money, and reduce CO2 emission by about half a billion tons. What's not to like?

I think they're being a little sunny about the positive impact, but not very much.

We definitely need to be smart like this, but it's a tough job. There are a lot of competing interests at play, and nobody's going to be totally happy. At the very least, however, this cannot look like a highway bill.

...Matt Stoller has a good piece on the politics of this. The Blue Dogs appear to favor highway and road projects, but the question is whether they have enough clout to get what they want. Also, a bill like this includes Congresscritters seeking money for their districts that split ideological lines. For instance, the major green jobs repositories in California are Bakersfield and Palm Springs, which have Republican members. I don't think the Blue Dogs are going to be able to dictate this so easily.