Against the universal and natural tendency to shift future needs for the benefit of present needs, I want to dwell on the disposition of American public investment. I insist on using investment in the economist’s sense: expenses that provide benefits in the future.
Liberal supporters tend to describe absolutely everything as an investment, perhaps to be stubborn and pragmatic. I doubt anyone is convinced.
The time left to prevent catastrophic climate change is running out. But the Green New Deal has a political problem: Most people have more immediate concerns. Rather than a Green New Deal, we want a New Deal that is green.
Of course, the bulk of federal spending is intended for consumption; and consumption — food, clothing, and shelter — is life and death. I myself have written for the Center for Economic and Political Research on the immediate priority of injecting purchasing power into the economy by providing more cash assistance to households and state and local governments.
The political problem
When it comes to investing, you need more than cash. All the rage today revolves around the Green New Deal (GND), and for good reason. The time left to prevent catastrophic climate change is running out. But the GND has a political problem, the same as the one mentioned above. Most people have more immediate concerns. My conservative in-laws in Florida agree that in the future the state might be half underwater, but hey, that’s 50 years from now.
The political failure to focus on a green campaign with a reduced addendum – there is also something for you skeptics – is best addressed with a different heading. Rather than a Green New Deal, we want a green New Deal.
Public investment would only be one component of such an agreement. The basis would be a high employment economy, universal health insurance coverage and an adequate safety net for those unable to work. Being “green” would not limit these goals. To achieve GND, ensuring economic security must be the first priority.
We are supposed to be horrified by the high prices, but blind to the costs of inaction. It is know-nothingism, unfortunately not new in American political life.
President Barack Obama’s Chief Economist Jason Furman writes that gross domestic product is currently 5% below trend. It could be understood as a production gap, and it’s huge. There are many different types of jobs the government could create with an expansionary fiscal policy, but to stay on mission they would have to be green jobs. The current hole in the economy is also an opportune time to launch new permanent spending programs.
Most of the infrastructure is local
As regards the stock of public capital (roads, bridges, railway systems, public buildings), most of it is the responsibility of state and local governments. Upgrading existing fixed capital is more of a job for states, who are not in a financial condition to launch new investment programs. Federal grants will be required.
Stock market aficionados understand that in a well-diversified portfolio there will be clunkers and stars.
Many modernization works could be started relatively quickly depending on the “ready to go” concerns. Painting roofs white, adding charging stations for electric vehicles, instituting dedicated lanes for zero-emission buses, weathering residences, all would be a godsend in the current economic downturn.
A humorous political commentator once remarked that the federal government is like a huge insurance company with an army. Aside from defense, this mainly involves sending checks to defense contractors, social security recipients, and medical providers.
For the federal authorities, the GND will lead to new public enterprises. These organizations should not be constrained by requirements to cover their costs with user fees. The customer for carbon reduction is the world’s population. No one will pay a company for their own share of the reduced emissions.
Invest in basic R&D
With regard to public enterprises, Solyndra’s failure comes to mind, and if not, surely someone will talk about it. Stock market aficionados understand that in a well-diversified portfolio there will be clunkers and stars. The risk-return trade-off in green investments lies between reducing emissions and spending. If you don’t have failures, you aren’t trying hard enough.
The federal government must establish a diverse portfolio of projects, with an emphasis on what the private sector does the least: disinterested basic research and development placed in the public domain.
Besides basic science, what investments does a GND require? One area is emission-free electricity generation. Solar panels are increasingly cheaper, to the point that the electricity produced could become too cheap to measure. Federal influence could accelerate their proliferation. The other investment priority of GND is the large investment project of a “smart grid” which rationalizes and saves the use of electricity.
The “economy of care”
The most overlooked investment priority is what has been called the “care economy”. No one is getting any younger. Various groups will need the help of trained personnel to carry out basic activities of daily living. In most cases, they will not have the financial means to purchase such services. The United States must expand long-term care facilities for the indigent elderly, for child care, for the homeless and for people with disabilities. Many immigrants arrive here as victims of human and labor trafficking. They will need transitional housing and decent social services, not hell cages.
We can afford a GND. Its detractors are inclined to deploy cost-benefit analyzes in jars. We are supposed to be horrified by the high prices, but blind to the costs of inaction. It is know-nothingism, unfortunately not new in American political life.
When it comes to financing investments, the state of interest rates, which goes to the cost of capital, is a key factor. The rate of return on a profitable investment must exceed the cost of servicing the debt that would finance it. As John Quiggin points out, with real interest rates close to zero, this calculation changes dramatically. We have arrived at John Maynard Keynes’ “annuitant euthanasia” nirvana.
Another source of funding is cuts to the arguably obsolete US defense budget inflated in the name of fighting massive land wars, the odds of which defy the imagination.
And finally, there is the potential for deficit spending. The extraordinary production gap cited above indicates the massive free lunch that awaits the Biden administration over the coming year. A deficit of 5% of GDP allows for a planned increase in the federal budget of $ 1 trillion, easy, escaping the need for any new taxes. The deficit-timid could be recalled that in 2020, the increase exceeded 3 trillion dollars.
If we ever truly left the era of big government, the current economic crisis and the emerging climate crisis are basically bringing us back to face it.
Max B. Sawicky is a senior researcher at the Center for Economic and Policy Research. He is the author of the recent CEPR Guide to Federal Budget Activism: How To Improve Joe Biden’s Budget Part I: Send Money Now! and How to Improve Joe Biden’s Budget Part II: Public Investment and the Green New Deal: Do it all!