When Public Spending on Green Infrastructure Goes Up, The Private Sector Wins Too


Talk by Professor Robert Pollin, Director of the Political Economy Research Institute, University of Massassachusetts at Amherst, speaking to the Future of Work conference at UMass, September 23, 2011.

Notes taken by Shel Horowitz, primary author, Guerrilla Marketing Goes Green and syndicated columnist, GreenAndProfitable.com

I will address the green economy, but I want to look at the short-term crisis we are in. It’s the most profound economic crisis since the 1930s. The official 9.1% unemployment rate does not reflect the reality. Counting underemployed and discouraged, 16%, 25 million. That’s the real crisis. The debt ceiling is a manufactured crisis, and it’s going to come right back. The supercommittee is only just starting its work (October 2011). The deficit IS at its highest level since WWII, and that is a matter of concern. But it’s a second-order problem. When we think about a debt crisis, normally one thinks about a country like Greece, Italy, or Spain, that faces payments serving their debt that they can’t do. There’s nothing anything close to that facing the US government for the next few years. The US interest payments on the debt, currently, are at near-historic lows. For 2010, 5.7% of the overall budget. The average for 1950-2010 was 9.5%. So we’re at half the level, and I did not see this even mentioned in all the hoopla about how we have to restructure the welfare, bust Social Security and Medicaid. We have record borrowing, but at near-zero interest.

1. We have to develop an agenda of growth other than financial bubbles. We had a very strong economy at the end of the Clinton administration, we drove unemployment below 4% for the first time in decades, but that was almost entirely due to the dotcom bubble. We just repeated with the housing bubble, only more severely, and here we are in a financial disaster.

2. How to we rebuild and renew our manufacturing base? There’s no reason why the US economy can’t become a powerhouse in manufacturing. It’s a myth that there’s no manufacturing, but we have to think forward.

3. We have to rebuild on a new foundation of clean energy, as opposed to fossil-fuel energy. Growth does not mean you have to wreck the environment, if a central feature is to build a clean-energy economy. Growth can be the very thing that preserves the environment.

4. How do we combine these in a way that creates good jobs? All of these can be achieved, if we have the political will to fight for them. We need public investment, industrial policies, commitment to clean energy, and good jobs.

Public investment: The traditional areas: transportation, water management, energy systems. Our infrastructure has been crumbling. If we didn’t know it before, Katrina, I-35 bridge collapse in 2007 (Minneapolis). A lot of people agree the traditional infrastructure needs to be renewed. Army Corps of Engineers, FAA—all these government institutions who don’t have a particular stake in any position argue that the infrastructure needs range at the level of $72-$120 billion/year for 20 years.

Something along that level was embedded in the 2009 Recovery Act (stimulus). The problem is it was only a two-year program.

The assessed needs (by me and my co-authors)—we’d argue that $70-$100 year/year is a realistic number to achieve the level of emissions reduction that the Obama administration itself has set over the next 20 years. (Study to be released in a few months.) That was the level of green economy that was embedded in the stimulus program. We worked with the DOE on implementing the green parts of the stimulus.

The argument is that public investment crowds out private investment. I believe in an alternative view that public investment crowds IN public investment. 1950-74, rate of public investment was 4.3% per year, on average. GDP was about the same, 4.1% per year. Our level of commitment to public investment collapsed in the late 1970s. Public investment only grew by 2.3% 1975-07, and GDP also fell, to 3.1%. I’m not saying the collapse of pub investment is the only thing that caused the long-term decline in GDP growth, but I will argue that it was a significant factor. Public investment has created better conditions for the private sector.

Industrial Policy:

Policies to support R&D, to move R&D into commercialization—that’s where you have the problem with Solyndra, they rushed into production too fast. The argument against industrial policy is that the government is inept at picking winners. You have the Solyndra example, and we do have to deal with it. But the fact is the US runs a stealth industrial policy, and has been since Alexander Hamilton first articulated its importance. And this has been highly successful. But it is housed almost entirely in the Pentagon and tied almost entirely to the needs of the military.

A very important book: Vernon Rutan, Is War Necessary for Economic Growth? He was not a radical economist; he was mainstream. And his answer was yes. But he didn’t mean we have to fight wars, but that we need industrial policy. Because of investments supported by the Pentagon, ALL of the most important industrial/technical innovations were tied to US industrial policy. Including jet aviation, the computer, and the Internet. Outside the Pentagon, we have major industrial policies around bioengineering and high-productivity agriculture.

So we have 200 years of history to demonstrate that we can have an industrial policy.

A big part of industrial policy is procurement, creating markets, not just R&D. For 40 years, a big part of what was needed to nurture the Internet was government procurement. We can use the power of procurement to create policy, at municipal, state and federal levels.

Simplest industrial policy is not Solyndra, but retrofitting every single government building right now. It would generate jobs for 2MM construction workers, reduce our energy consumption, and we can start right now.

George W. Bush signed a law in 2007 for this, and it has not been implemented.

If we were to pursue industrial policy based on clean energy, what would happen? It is demagogic to say, if you spend this much money, you get jobs; that’s true on any spending. If you switch the money from military to energy, you still get jobs. The question: How many jobs per dollar of spending? Infrastructure/green economy, on average 17 jobs per million dollars of expenditure. If you invest in fossil fuel economy, you get five jobs. Green economy generates 3 times as many jobs per dollar. Yes, you do get more bad jobs in the green economy. They need to be transitioned into good jobs. But you also get more good jobs; building a green economy is a much more labor-intensive process than maintaining a fossil-fuel economy. The military creates 12 jobs per million dollars. Green economy creates 40% more. It is false for Leon Panetta to say taking money out of the military will lose jobs.

Military and fossil account for $1.3 trillion, 10% of the economy. What would be the impact on employment of moving 25% of that? 2.5 million more jobs over the long-term, while moving toward ecological sanity—and that enables private businesses to operate more efficiently. So the solutions are right before us. The issue is how to get there, and that’s a matter of political will.

Q&A: (Source: US Dept of Commerce stats, as interpreted by his research team at PERI). Heritage Foundation tried and failed to discredit our numbers. If you move to more labor-intensive, you create jobs. If you retrofit US buildings, you can’t do that in China. I’m very confident in these numbers.

Export is less of a goal than an approach that benefits everybody. We don’t want to rob jobs in other countries.

Solyndra: solar is not even lose to cost-competitive with coal. You move it into commercialization when it’s ready, and it’s not ready. Energy efficiency, on the other hand, is hugely cost-competitive, pays back in 2-3 years. Cost of generating a unit of wind is equal to coal.

My wife and I have a small business building green homes, and one of them has solar. But it’s a 20-25 year payback, where insulation, improving the windows, the boilers, having timers turning off—you can get a payback in 2-3 years, according to National Academy of Science, McKinsey, everyone who’s investigated. And we have 3 million construction workers looking for jobs. And it’s a law on the books signed by Bush. 75% of US government buildings have to be retrofitted to 30% efficiency gain by 2015.