Sunday, January 11, 2009

The Economy and the Environment

politics from SLATE
The Green House
The recession is the best thing that could have happened to Barack Obama.By Christopher BeamPosted Tuesday, Dec. 16, 2008, at 8:22 PM ET
For President-elect Barack Obama, the sagging economy is the gift that keeps on giving. First, it helped get him elected. Now it's giving him a mandate to spend more than he ever could under normal circumstances.
Nowhere is this more apparent than on climate change. When Obama rolled out his "green team" Monday, he made it clear that he doesn't see saving the environment and saving the economy as incompatible. Quite the opposite: He thinks they're complementary.
Take the example of green buildings: "We know that there are buildings—school buildings, in particular, but I think public buildings generally—that need to be retrofitted to make them more energy-efficient," Obama said. "We will get that money back so that not only are we creating jobs, but we're also making those operations more efficient and saving taxpayers money over the long term." In other words, "green-collar jobs"—jobs created when government policy encourages people to install solar panels or research wind power or "weatherize" homes—are a kind of magic puzzle piece. They'll stimulate the economy in the short term (by creating jobs) and save money in the long term (by reducing emissions and making us more energy-efficient).
That sure sounds good. But there are a few complications. For one thing, you may have heard we're in a recession. If people are cutting back on food, clothing, and gas, are they really going to pay more for pricey doodads like solar panels and wind turbines? Obama's answer is that they won't have to. He says the efforts will be paid for by revenues generated by a new cap-and-trade bill, which will make energy companies pay for their emissions. Never mind that the last cap-and-trade bill to land in the Senate never gained much traction. Obama promises this one will be more aggressive.
Consumers may also avoid paying more for their energy use because the government is covering it. Obama has pledged to commit $150 billion over 10 years for a "clean energy future"—which includes paying for infrastructure, often the costliest part of alternative energy. The idea is that since the government is paying for the new equipment, energy companies won't pass the costs on to the consumer. (At least, not initially.) So, in theory, you won't have to pay more for electricity.
And even if you did, some economists argue that you won't be for long. As the price of bad, dirty energy goes up, the price of good, clean energy will come down, and "those lines will cross because of economies of scale," says Dan Weiss of the Center for American Progress. In other words, the only reason solar panels and such cost so much is because no one makes them en masse. Yet. Not everyone is convinced. "It's not an economy-of-scale problem," says Patrick Michaels of the Cato Institute. "It's a physics problem. … If the sun got hot enough to be an efficient provider to solar energy, we'd burn up."
So can the government really afford to pay for all this? Surely we can't spend and spend without future generations picking up the tab. Ah, but we can, say economists on the left.
Newly Nobel-ed economist Paul Krugman has taken the lead in arguing that "the usual rules of economic policy no longer apply." Normally, if you wanted to retrofit a building or weatherize a home, you'd have to get the money from somewhere. The usual way is to increase revenues or reduce spending. No longer. With the economy in freefall and interest rates as low as they can go, the only hope for recovery is to spend—and to err on the side of spending too much.
The best part: Even though we have to borrow money, eventually the government can pay itself back by printing more. Yes, that would devalue the currency and therefore would not be, to use a technical economic term, free. But the way Dean Baker of the Center for Economic and Policy Research sees it, we have to spend the money now, anyway, to stimulate the economy: "It's like what Keynes said: Even if we pay people to dig holes and fill them up again, it's still good." And if we're going to spend, we might as well spend on something that's going to save us—both economically and environmentally—in the long term.
Then there's the problem of regulation. Sure, spending is fun and stimulating and possibly the only thing that will prevent total economic collapse. But regulation can slow growth. How can Obama implement a cap-and-trade plan without hurting the economy? Obama has admitted in the past that cap-and-trade isn't cost-free. After all, the whole point is to drive up the cost of electricity. In a debate on Jan. 5, he said, "We have an obligation to use some of the money that we generate to shield low-income and fixed-income individuals from high electricity prices, but we're also going to have to ask the American people to change how they use energy. Everybody's going to have to change their light bulbs. Everybody's going to have to insulate their homes. And that will be a sacrifice, but it's a sacrifice that we can meet. Over the long term it will generate jobs and businesses and can drive our economy for many decades." That was easy to say last January. It may be a harder sell in the midst of a recession.
Finally, energy efficiency may come at the cost of economic efficiency. Creating a solar panel does not create demand for a solar panel (a fact that Germany is currently learning the hard way). Another way of putting it is to say the economy moves faster than the government: By the time we're done installing all the solar panels, photovoltaic cells will be obsolete. Patrick Michaels likened it to Thomas Jefferson stimulating westward expansion by creating a state-sponsored nationwide network of barge canals. "By the time the barge network was done being built, the steam engine and the railroad would have been invented," Michaels said.
Despite all this, the economy is so desperate that the short-term outlook for Obama's plan is good. Any pledge to create 2.5 million jobs is bound to be popular. And the realignment in the House—particularly Henry Waxman's ouster of John Dingell as chairman of the energy and commerce committee—means he'll have the necessary congressional strength.
But by relying so much on an economic argument to support his green agenda, Obama risks losing momentum if the economy recovers. What happens when we no longer need to keep spending billions of dollars to create new jobs? Obama wants to reduce emissions by 80 percent by 2050. Does that mean the recession has to continue for that long, too?