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Monday, January 05, 2009

Paved with Good Intentions?

Tim Haab at Environmental Economics:

Ten things a preeminent environmental economist thinks he knows about green stimulus, Environmental Economics: Alan Randall, world renowned environmental economist..., had the honor of being named a Fellow of the Association of Environmental and Resource Economists... In his 'acceptance speech', Alan was given three minutes to espouse his wisdom on a topic of his choosing.  He chose to touch on green stimulus and the bogusity--I made that up--of the green jobs justification.  Here is what he said...

Ten Things I Think I Know (by Alan Randall)

  1. In ordinary times, good economic policy involves macroeconomic restraint and getting the prices right – including the prices for public goods and infrastructure.
  2. These are not ordinary times, but there is a silver lining – recessions tend to be good for the environment.
  3. In these extraordinary times, the ordinary rules of macroeconomics should be suspended – better to throw buckets of money at the problem now, and take care of the inevitable inflation when it shows up.
  4. Stimulus packages tend to be not so good for the environment. Perhaps, then, the ordinary rules of environmental economics should be suspended, too – we can always clean-up the mess when the economy turns around.
  5. But some kinds of environmental mess are not easily reversed – it may take a long time to recover from that kind of recovery.
  6. A green stimulus package makes sense, so long as we understand green as a metaphor – bio-energy is literally green but is having a hard time shaking its metaphorical brownish tinge.
  7. Suppose we know what we mean by green – we still need clarity about what we mean by stimulus. Surely not just jobs – arguments that begin with jobs are almost always disreputable: they tend to assume it doesn’t matter whether the jobs involve useful work.
  8. Switching to more labor-intensive green energy sources may constitute a green jobs program. But a coherent green stimulus package should be about jump-starting the recovery by jump-starting the new century. That means tilting toward 21st century green infrastructure.
  9. Even if the times call for suspending the macroeconomic rules, the rules of micro and public economics should remain in place – it is hard to find a good argument for failing to get (and keep) the prices right. Environmental economists are notorious for being too environmental for most economists and too economic for most environmentalists.
  10. I have just turned things up a notch – if you go along with me, we are now also too rigid about the microeconomics to suit the macroeconomists, and too flexible about the macroeconomics to suit the microeconomists.

Dean Baker:

Road to hell, by Dean Baker, Comment is Free: There is no doubt that the US needs a really large stimulus package... We need a boost to the economy yesterday, which means that we should be looking for projects that can be started in 2009, or 2010 at the latest... "Shovel ready" is the catch phrase for the stimulus package.

But just because we can do something does not mean that we should do it. Some infrastructure spending will actually be harmful to the environment and the economy over the long-term. This is stimulus that we better do without.

Specifically, there are many ready-to-go projects on the books for further highway construction. While not all highways are bad, highways that promote the pattern of sprawl that we have seen in many metropolitan areas over the last 30 years are bad. We should not be making it easier for people live long distances from their jobs... This would directly counteract efforts in other areas to reduce ... greenhouse gas emissions. ...

We know that some of the money in the stimulus package will not be well spent. ... This is a necessary cost of getting money out the door quickly. But, it is possible to prevent projects that are not just wasteful, but actually counterproductive, from being included in the stimulus package. It should not require too much analysis to identify highway projects that are likely to promote sprawl. Such projects should be excluded from a fast-track stimulus package. ...

The amount of stimulus required to offset the impact of the collapsing housing bubble and the plunging stock market is substantial, but there are good ways to spend large amounts of money. The huge shortfalls incurred by state and local governments are an obvious place to start. ...

There is a wide range of "green" initiatives that President-elect Barack Obama can include in the stimulus package in addition to weatherising buildings. For example, he could provide subsidies to public transportation agencies to cover the cost of lower transit fares. He could also pay people (presumably mostly lower-income people) to turn in older, more polluting cars and get them off the road. Such measures can both help reduce greenhouse gas emissions and boost the economy.

The other obvious way that Obama can boost the economy is with healthcare spending. ... Obama could usefully spend much more money subsidising Medicare for people who do no currently have insurance. This will be an important downpayment on healthcare reform.

There are other ways in which Obama could spend more money on stimulus. As Keynes noted more than 70 years ago, if we can't find ways to spend money, we can always pay people to dig holes and fill them up again. This is of course wasteful, but paying people to dig holes will put money into the economy.

Digging holes and filling them again would be a better route than letting the economy slide even deeper into a recession. It is certainly better to have wasteful spending than to spend money on items than can actually do harm, like building highways that promote sprawl. In other words, the construction of the road to hell should not be part of the stimulus package.

    Posted by on Monday, January 5, 2009 at 04:14 PM in Economics, Environment, Fiscal Policy | Permalink  TrackBack (0)  Comments (17)


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