Archive for the ‘Stimulus’ Category

Obama’s green energy plan

October 7, 2010

It’s characteristic of the climate of opinion in Washington, D.C., that some of the most constructive actions of the Obama administration were slipped in under the radar, and may not have been enacted if President Obama had made a big deal out of them.

President Obama at Florida solar panel factory

I have in mind the $90 billion appropriated in the economic stimulus bill for investments in green energy.  As we use up the world’s easy-to-get fossil fuels, we will be thrown back on nuclear energy or on environmentally destructive practices such as hydrofracking for natural gas, surface mining for coal and deep ocean drilling for oil, unless there are alternative technologies.  And we want to be able to buy these technologies from fellow Americans rather than from the Chinese, the Scandinavians or other foreigners.

A recent article in Time magazine said that Obama administration hopes to use the simulus money to accomplish the following goals.

1. Lower solar power’s cost 50% by 2015, to put it on par with the retail cost of power from the existing grid

2. Cut the cost of batteries for electric vehicles 50% by 2013 and eventually reduce the sticker price of an electric car to match that of its gasoline-powered counterpart

3. Double the U.S.’s renewable-energy-generation capacity (wind, solar and geothermal) as well as its renewable-manufacturing capacity, by 2012.

And also:

4. Lower the cost of sequencing an individual human genome to $1,000, enabling scientists to map 50 genomes for the same price as mapping just one today

via Recovery Act – TIME.

None of these things are economic “stimulus” as most people understand the word and as the economist John Maynard Keynes advocated.  The idea of a “stimulus” is that when the economy is stalled, you can jump-start it just by getting money into to circulation or creating temporary jobs (it doesn’t matter what).  Unfortunately for this theory, most Americans are so far in debt that if they get a little extra money, they’ll use it to pay off their debt rather than buy goods and services.  It’s good that Americans individually reduce their indebtedness, but it doesn’t make sense to do it by increasing their debt in their capacity as taxpayers.

But the green energy plans are something else.  If they work (a big “if”, of course), they’ll increase the nation’s wealth and pay for themselves.

One of the big engines of economic growth in the past was the Defense Advanced Research Projects Agency, or DARPA, later shorted to ARPA.  It financed a lot of blue-sky research projects which resulted in the development of new technologies and new businesses.  The managers of ARPA realized that military technology required a strong national high technology base, and so they financed a lot of things that didn’t have any obvious military applications.  The Internet and the Global Positioning System came out of ARPA.   Part of President Obama’s plan is an ARPA-E, an Advanced Research Projects Agency for Energy.

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Let’s stop acting like a Third World country

September 7, 2010

We’re the Americans!  We’re the people who once did things nobody else could do.  We built the tallest buildings, the biggest dams, the spaceships that sent people to the moon.  We created mass prosperity on a scale the world had never seen before.  We took as our national motto the slogan of the Seabees (Navy Construction Battalions) during World War Two – “The difficult we do immediately, the impossible takes a little longer.”

Minneapolis bridge collapse (2007)

Now we act as if we are some Third World country waiting to be bailed out by the International Monetary Fund.  Our roads and bridges, dams and levees, water and sewer systems are all wearing out and we have no plans to replace them.  Some cities are turning out the street lights, some countries are digging up paved roads, some school boards say they can’t keep schools open the full year.  Our new national mottoes are – Nobody could be expected… and Nobody could have predicted…

Our present situation is that we as a nation have an enormous backlog of work that needs to be done.  We have nearly 15 million unemployed who need work.  And interest rates are at their lowest level in a generation, giving a once-in-a=generation opportunity to finance the work.

So I applaud President Obama’s announcement of his plan to rebuild the nation’s transportation infrastructure.  It is a good first step.  The next steps would be to rebuild the nation’s communications, energy, water and sewer infrastructure.

Click on America Goes Dark for an eloquent and justified rant by economist Paul Krugman.

Click on Obama’s Labor Day Remarks in Milwaukee for President Obama’s announcement of his infrastructure plan.

Click on White House fact sheet for the details of President Obama’s plan.

Click on New Republican Highway Bill Nixes National Infrastructure Bank for a report on Republican opposition to infrastructure spending.  [7/12/11]

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The trouble with us liberals

August 11, 2010

Robert Gibbs

Evidently we liberals are like a bunch of whining little children.  No matter how much President Obama does for us, we’re never satisfied.  That’s what I hear from pundits on TV and what I read in off-the-record comments by White House staffers, and now on the record as well.

During an interview with The Hill in his West Wing office, White House press secretary Robert Gibbs blasted liberal naysayers, whom he said would never regard anything the president did as good enough.

“I hear these people saying he’s like George Bush. Those people ought to be drug tested,” Gibbs said. “I mean, it’s crazy.”

The press secretary dismissed the “professional left” in terms very similar to those used by their opponents on the ideological right, saying, “They will be satisfied when we have Canadian health care and we’ve eliminated the Pentagon. That’s not reality.”

Of those who complain that Obama caved to centrists on issues such as health care reform, Gibbs said: “They wouldn’t be satisfied if Dennis Kucinich was president.”

via TheHill.com.

Let’s stipulate, for the sake of argument, that we liberals are a bad lot, and that I myself am the worst of the bunch, and that it is a waste of time to consider what people like me think.  This doesn’t really matter.

What matters is whether President Obama’s program is enough to make a difference to Americans who are out of work, worried about their savings or unable to pay medical bills.  Was the stimulus bill enough to jump-start the economy?  Will the financial reform bill avert another financial meltdown?  Will the health reform bill actually make medical care more affordable and available?

The answers to these questions, as it seems to me, are (1) clearly not, (2) clearly not and (3) it’s hard to tell.  I could be wrong, and, for the sake of my fellow Americans, I hope I am wrong.  In a few years the facts will show, one way or another, who was right.

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Keynesian medicine for a sick economy

July 27, 2010

John Maynard Keynes was a very smart man.  Bertrand Russell, who was no dummy himself, said that whenever he argued with Keynes, he felt he was taking his life in his hands and generally emerged feeling like a fool.

John Maynard Keynes

Prior to Keynes, the accepted thinking among economists was that the working of the free market always brings things into balance, and the best cure for recessions is to leave things alone and allow the balance to restore itself.  What Keynes noticed that his predecessors didn’t was that the economy could come into balance at a high level of unemployment and low level of economic activity, and stay there for a very long time.

A economic crash creates a domino effect.  When people lose their jobs, they stop spending money, which means that business is bad, which means that more people lose their jobs.  Bank failures beget bankruptcies, and bankruptcies beget bank failures.  Recovery can be slow, because businesses aren’t going to hire people unless there are potential customers.

Keynes thought governments could help speed up recovery by putting people to work on public projects, by cutting taxes, by running temporary budget deficits to put money into circulation, and by trying to push down interest rates so people could more easily borrow to buy things and businesses could more easily borrow to expand.  He thought government to stop the cascading effect of depression by creating social safety nets, such as unemployment insurance and deposit insurance.

The second part of his philosophy was that when times were good, governments should pay down their debt and try to keep inflation under control.

His ideas came to be accepted wisdom during the 30 or so years following his death in 1946, and recessions during that period were milder than in the pre-Keynesian era.  However, the first part of his philosophy was more popular than the second part.  The Clinton administration raised taxes and reduced civilian spending when times were good, but this was the exception rather than the rule.

A lot of smart people think the sick U.S. economy needs a stronger dose of Keynesianism than President Obama or the Democrats have been willing to propose.  I think the Keynesian medicine may not have as strong an effect as in the past.

We are coming down from an over-stimulated economy.  Under President Bush, the government cut taxes, especially in the upper brackets, while increasing government spending.  Government debt mushroomed, and consumer debt and the U.S. trade deficit continued their long-term upward trend.  This is something that could not go on forever, and so it stopped.  This limits the effectiveness of any stimulus.  People who get any extra money over and above what they need are going to use it to pay down debt.

We live in a global economy.  If we import increasing amounts of goods from foreign countries, any increased consumer spending is as likely to benefit foreign manufacturers as our own.

So it looks as if we have two bad alternatives.  One is to do nothing and let the economic stagnate.  The other is to try things that may have little effect.

I think we need to maintain the social safety net.  I don’t think we can cut off unemployment compensation for the long-term unemployed when there are five job-seekers for every job opening.  I think the federal government has to provide state aid to keep local government functioning.  You don’t foster a vibrant economy by laying off school teachers, closing public libraries and raising state college tuition. Budget problems have forced at least 38 of Michigan’s 83 counties, and an unknown number in other states, to give up paved roads.

Beyond that, I think we as a nation need to invest in things we need for our future – in infrastructure, education and scientific research.  And what better time to do it than now, when so many people are out of work and when interest rates are at near-record lows?

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Whitewashing vs. global warming

July 24, 2010

One of the simplest ways of slowing down global warming would be to paint the world’s roofs white or pastel shades and maybe the world’s asphalt highways as well.  White reflects heat; black absorbs heat.  A study released this week by the U.S. Department of Energy says that if all the roofs in the temperate and tropic zones were painted white, it would mitigate global warming as much as taking all the world’s automobiles off the road for 20 years.

If you want to stimulate the economy, why not put people to work painting roofs and roads.  It would be a more straightforward way of stimulating the economy than giving tax credits to businesses and home buyers; it would be a more straightforward way of mitigating global warming than cap-and-trade or subsidies for the windmill industry.

Now maybe there are technical objections to this that I don’t see, but I think that main problem with it is that our dysfunctional political and economic system is incapable of implementing simple and obvious solutions to problems.  Until the white paint industry forms a powerful lobbying group, there is no way of even getting this discussed.

Our politicians and political commentators take it for granted that it is impossible for government to actually achieve anything, as if this were a law of nature, like the impossibility of faster-than-light travel, which only whining liberals would ever complain about.  But I am old enough to remember that things weren’t always this way, and they don’t have to be this way.

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Money down the drain

June 28, 2010

The Democrat and Chronicle this morning had an excellent article on how the aging Rochester, N.Y., water distribution system allows 24 percent of the treated water to leak out before it reaches customers.  The corresponding figure for the Monroe County Water Authority, which serves the Rochester suburbs, is 15 percent. This range is not unusual for cities in the Northeast.

Wouldn’t this be a good time to start work on repairing these deteriorating stuctures?  Since this work is going to have to be done somehow sometime, why not now, when our country needs to create jobs to keep our recession from becoming a full-blown depression?

The financially strapped City of Rochester and Monroe County governments aren’t in a position now to start big infrastructure projects. The pressure on them is to do the reverse – to defer maintenance.  The American Recovery Act of 2009 did provide some funds for infrastructure improvements, mainly of roads and bridges, but there is much more to be done.

And, yes, since we’re in the middle of a recession, the federal government would have to borrow to provide funds to help repair municipal water systems. But we, the taxpayers, would get a return on this investment, in the form of a more efficient and less costly water supply.  And the longer the wait in making these repairs, the more costly they’ll be.

Obama’s tax cuts

April 13, 2010

When Barack Obama ran for President, he promised tax reductions for working people and the middle class.  This promise was kept. The vast majority of Americans got tax reductions for last year under President Obama’s Economic Recovery Act.

Only a few of us are aware of it.  That’s partly because the tax cuts were so small and the legislation was so complicated. And among conservative Republicans, the only tax cuts that matter are those given to corporations, holders of financial assets and upper-bracket earners

My own income tax liability is about $5,000 less for 2009 than it was for 2008.  I think most of this was due to last year’s holiday from taking required distributions from my Individual Retirement Account.  I’m not entirely sure because my tax returns are prepared by an accountant.

About a third of the economic stimulus in the Recovery Act was in the form of tax cuts. Was it worth it?

I’m in favor of tax relief for families who are struggling to pay rent or put food on the table. I don’t fall in that category.  I don’t live high on the hog by American standards, but I’ve never had to worry about where my next meal was coming from or how I was going to pay the heating bill.  I’m going to get a nice income tax refund this year (unlike last year), and all other things being equal, I like low taxes better than high taxes. But my tax refund won’t stimulate the economy; I’m going to put the check in the bank.

Except for the relief being given to families on the margin of survival, I think it would have been better to leave tax rates the same and use the money to rebuild the nation’s crumbling bridges, levees and other infrastructure.  All this work is going to have to be done sometime, and paid for sometime.  Why not now, when so many people are out of work?

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Dropping dollar bills out of airplanes

March 28, 2010

A friend of mine who bought a new house was surprised and pleased that he will receive a $7,000 subsidy under the government’s stimulus plan.  A lot of the stimulus is like this – rewarding people for doing things they would have done anyway.  You could say that anything that gets more money into circulation helps stimulate the economy, but you could say the same thing for a policy of dumping bushel baskets full of $100 bills out of airplanes.

The United States has a lot of things that need doing – replacing deteriorating water and sewer systems, repairing deteriorating bridges and other infrastructure, bringing out broadband Internet services up to international standards – and we have a lot of people who need jobs.  So why not put the unemployed to work doing things that have to be done anyhow?

Work that needs doing, men who need work

March 15, 2010

We have cities dependent on antiquated water and sewerage systems, many dating back to the 19th century.  We have millions of able-bodied men who are out of workWhat is the problem in putting the men to work replacing water and sewer pipe?

The problem is an ideology that says that everything that is done by government and supported by taxes is unnecessary or bad, especially if rich people are taxed and poor people benefit.  When public water and sewer systems were first proposed in the 19th century, they were opposed by affluent people who had their own private systems, until it was pointed out that contagious disease doesn’t necessarily limit itself to one economic class of people.

Selling the stimulus

February 20, 2010

President Obama is trying to sell the idea that the stimulus package is a success in reviving the economy, which suggests that he has more or less given up on trying to accomplish anything more than he already has.  The Democrats point out that the rate of job loss is slowing down, but what people experience is the still-increasing cumulative job loss whose effects will be with us for years to come. While the President is still popular, “things could be worse” is not a winning slogan.

What can be done about jobs?

February 10, 2010

The recession hit so hard and so fast it is hard to see how we can dig out any time soon.

The United States lost 8.1 million jobs during 2008 and 2009. Just to keep up with population growth, it would have been necessary to add a little over 1.2 million jobs a year, so the actual job deficit is 10.6 million jobs. To get back up to pre-recession levels, the USA would have to add 4.8 million jobs a year for next three years – a better performance than in any year of the past 20 years.

Compared to the enormity of the problem, President Obama’s $85 billion second stimulus bill seems more like a gesture than anything else.

During the next couple of years, state and local governments plan tocut spending by $350 billion which is a – what is the opposite of stimulus? depressant? – program which far exceeds the stimulus.

President Obama hasn’t called to ask for my advice but if he did, this is what I’d advise.

1. Bail out state and local governments, not the banks. You can’t have a thriving economy when local governments can afford to repair the streets, provide police protection or keep the schools open.

2. Repair our deteriorating national infrastructure – the bridges in danger of collapse, the levees in danger of breaking. “Deferred maintenance” is not an economy; it is borrowing against the future. This work has to be done and why not do it now?

For the longer haul, I’d advise:

3. Invest in education. One of our great national economic assets is our universities, which attract students from all over the world, many of whom stay in this country and contribute to our economy. But there are all-too-many American students who can’t afford higher education, or can’t afford it without taking on a crushing burden of debt.

4. Invest in research. Another of our great national economic assets is our research institutions such as the National Institutes of Health and the Defense Advanced Research Projects Agency, which create new technologies and transfer them to business. DARPA, for example, created the Internet (and then-Senator Al Gore sponsored the legislation that made it available to the public); without DARPA, there would be no Google or Amazon.com. Our best research institutions have specific missions, which give them focus; they don’t just hand out grants willy-nilly.

5. Provide a market for new technologies. In the past, the federal government has successfully fostered the growth of new business not by subsidies and tax breaks, but by making a market for their contracts. Air mail contracts helped U.S. airlines get started. The Defense Department’s need for electronic components provided the basis for the semiconductor industry. Today we need green technologies to slow down global warming and wean us from foreign oil; the federal government could help by greening itself, and providing a market for the best energy conservation and renewable energy systems.

President Bill Clinton used to distinguish “investments” from other kinds of government spending. This is a distinction that can easily be abused, but I think it is a valid one. Refusing to spend money on things the nation needs for the future is not good economy.

Obama’s challenge and FDR’s

February 8, 2010

During President Obama’s first year in office, the unemployment rate climbed to 10 percent. During President Franklin Roosevelt’s first year, the jobless rate was around 25 percent, and never got below 10 percent during his first two terms of office, although it did fall some.

But in some ways, President Obama has a tougher problem that President Roosevelt did. In Roosevelt’s time, the challenge was how to restart the U.S. industrial machine. In the present era, the industrial machine is not only stalled but broken. The challenge is how to repair and rebuild it.

President Roosevelt inherited from President Hoover a government that was solvent and efficiently administered. The federal government had a budget surplus during most of the 1920s. The nation was at peace, and the United States had the smallest military budget of any of the great powers. The United States was the world’s leading creditor nation. Our manufacturing industries led the world. When President Roosevelt took office, the reason those industries were laying off workers was not because they couldn’t compete, but because, with the world economy at a standstill, people couldn’t afford to buy their products..

Obama’s situation is different. The United States is now the world’s leading debtor nation. U.S. manufacturing industries are falling behind foreign competitors.  In 2008, the last year of the Bush administration, U.S. government debt already was 69 percent of U.S. output (gross domestic product); by contrast, the highest it ever got in New Deal years was 44 percent. We Americans spend nearly as much on our military as the whole rest of the world put together, and Obama took office with U.S. armed forces bogged down in two stalemate wars.

So, in contrast to FDR, Obama doesn’t have much freedom of action. His choices are not good. I believe that sooner or later the United States is going to have to reduce the size of its military to a reasonable level, say, twice the size of any rival nation. But the U.S. armed forces are an important employer and an important contractor. To cut the armed forces budget in the middle of a recession would cause the economy to contract further.

The United States came out of World War Two with debt equal to 121 percent of U.S. annual output (gross domestic product). The debt was brought down to a reasonable percentage not so much by raising taxes or cutting spending as by growing the economy. The debt was still there, but it was a smaller and more manageable part of the total economy.

During the Obama administration, debt will grow to the highest levels since the 1940s. The only way out of it will be to grow the economy. This will be a lot harder to do than in the post-World War Two era, when the United States had the world’s only intact industrial economy. But there are things that can be done to help. I have some thoughts on how to do this, and I will put them, for whatever they’re worth, in an another post.

Why the stimulus isn’t stimulating (enough)

February 4, 2010

Before the Great Depression of the 1930s, the prevailing wisdom among British and American economists was that the best thing you could do when the economy turned down was to let things alone until they came into balance. The great British economist John Maynard Keynes is famous for showing what was wrong with that kind of thinking.

What he pointed out was the “multiplier effect.” When a factory closes, it doesn’t just throw its former employees out of work. They stop spending money at the local supermarket or department store, and pretty soon those businesses have to lay people off soon. If a lot of things go wrong all at once, a country’s economy can go into a nosedive very quickly. The law of supply and demand may bring things into balance all right, but it is balance in which large numbers of people are out of work and few people can afford to buy anything.

But the “multiplier effect” can work the other way. Put people back to work, or get money into circulation in some other way, and they will buy goods and services that create even more jobs, and so on. This was called “priming the pump” back when most people had enough of a farm background to know how a water pump worked; now it is called “jump starting” the economy.

President Franklin Roosevelt is considered the pioneer Keynesian, although he evidently never read Keynes’ books and articles. They met once. Roosevelt thought Keynes an overly-theoretical impractical intellectual, and Keynes thought Roosevelt not very bright. The vindication of Keynes’ ideas was not so much FDR’s New Deal as the U.S. economic resurgence that came about as a result of war spending.

There are two sides to Keynes’ ideas. One is that the government spends more money and banks ease credit when the economy is turning down. The other is that the government spends less money and banks tighten credit when the economy is booming. It is the opposite of what an individual would do – spend a lot when he has a lot and cut back when he doesn’t. It is more like Joseph’s advice to Pharaoh in the Bible, to store up grain during the fat years and pass it out during the lean years.

The U.S. government followed Keynesian policies during the 30 or so years following World War Two, and recessions were fewer and less severe during that period than they had been prior to 1929. But these policies aren’t working so well now. Unemployment is at 10 percent and is likely to stay there for at least a year. What went wrong?

One problem is that the economy was over-stimulated already. During the past 10 years, American consumers have been going more deeply into debt, as has the government. It is as if somebody collapsed after staying awake for a week on amphetamines; giving such a person a cup of coffee isn’t going to help much. Any prudent person who gets an a little extra income isn’t going to go out and spent it; he or she is going to pay down their debts. Similarly banks who get government assistance, loan guarantees, below-market loans and the like aren’t necessarily going to lend it out; they’re going to bring their balance sheets into business.

Another is that in our new global economy, a dollar that is put into circulation in the U.S. economy is not necessarily going to stay in the U.S. economy. The “Cash for Clunkers” program may have had some benefit in reducing pollution, but most of the new cars bought under that program were made by foreign companies.

That doesn’t mean Obama’s stimulus program last year was wasted, or at least not all of it. About two-fifths of it went to tax cuts for individuals and businesses. My guess is that most of the benefit of tax cuts either went to things that people would have done anyway, or else was wisely put away. Another two-fifths went for infrastructure improvements, which are sorely needed and directly benefit Americans. The rest went to keep local and state governments functioning.

But if the real problem is that a day of reckoning has come for a nation that consumes more than it produces, borrows more than it saves and imports more than it exports – a stimulus program, aimed at putting things back the way they were before, isn’t going to be enough.