Thursday, January 27, 2011

The State of the Disunion

This is something I wrote for Revkin's blog today, which I'm posting here for people to access if they wish. The original topic was why the president didn't mention climate change in the State of the Union.

Andy's post:

And my post:

If I navigate around the denialist comments here, Andy's informal focus group here on the State of The Union is mostly interesting for the lack of discussion about the economics the president is invoking. But it's a lot easier to see what the White House is thinking once you factor that in.

If I'm not mistaken, there's an implicit but obvious retreat from direct Keynesian stimulus here, a small fraction of which was previously targeted to the environment, energy, and climate in general. There might have been several tens of billions of this in the $700 billion ARRA.

This isn't because the White House isn't Keynesian. It is, in a canny, abrasive, Chicago-politics kind of way. See Austan Goulsbee's video on GM for a flavor of this:

But the White House can't get the money it needs for a Keynesian policy. What we instead is the combination of milder stimulus with tax-shifting and tax-subsidy shifting, with a focus on reinvestment. All rather constrained and carefully pitched to keep our animal spirits up.

Keynes would argue, and worry, that the low quantitative value of the remaining stimulus would prolong the liquidity trap, reducing growth well below potential growth, risking another dip of recession, or at the least, slower growth out of the recession. The advice (from the gay blade of Cambridge and Bloomsberry) would be to forget your Puritan morality, realize that the economy is not about personal character, deficit-spend your way into faster growth and allow prosperity and the better tax returns that result (not necessarily tax hikes) and a little inflation to take care of the deficit. Obviously at least half and probably 3/4 of Congress either doesn't believe this, or more likely, doesn't know these ideas or understand them.

Other than wondering if one reason conservatives don't like Keyne's ideas is just because he was gay, the question then should be, what about jobs?

Germane to this, structural change has reduced the growth of possibilities that exist for ordinary people to win middle class incomes. Various shifts such as the use of robotics in manufacturing, or the computing that eliminated the typing pool are to blame, but there's no one culprit, just lots of little ones.

So this was not your grandad's, or even your father's recession. There isn't going to be an easy way out for jobs. The White House knows this.

These days we even seem particularly adept at redistributing finance away from existing economic "losers", such as ordinary folks looking for a job, and towards existing "winners" of all kinds. I was astounded to hear recently that some HR specialists are predicting 4 and 5% raises for senior management in 2011. Then there's the bonus outrage. Some recession. Shared sacrifice? I can't imagine what would happen if we had a real war and had to make a) the rich sacrifice and b) the rest of us fight it, or produce materiel. I'm not sure we're that America any more.

So Obama's notion to shift the debate from climate to "energy quest" seems to me to be a kind of second-best for the White House. They couldn't get more stimulus and know it, because the Congress won't pay. Exit Summers, his usefulness much reduced, might as well go back to Harvard. Let's instead try to work the competitiveness angle to sell some decent climate-aiding energy ideas to the American people, and see if we can't somehow avoid a second dip, and cross our fingers and pray for better jobs growth than our models say we will get.

And don't mention climate because every time we say climate the Republicans will say "job-killing."

Instead we'll do our best to shift a little tax subsidy from fossil fuels to renewables, and hope for some jobs out of that.

You can hardly blame them.

What we ought to do now is think about whether a restructured energy economy can provide good middle class jobs and contribute to reducing income disparity in our society. I tend to think it can, because although, for example, the Chinese may be able to make some kinds of solar panels cheaper (not the thin-film kind, where the west still has the technology advantage), they can't yet come over here and install them for us.

And we're going to get restructuring whatever we do, because of the global strength of oil demand over oil supply, something even the Republicans can't filibuster. If we can't get jobs out of proper economic policy, we need to get them somewhere. The energy economy is vast, and so there's a major force here to work with, a force that is changing whether we like it or not.

So overall I was content with the thinking behind the State of the Union. It's the general level of denial that exists about all these important ideas that bothers me. We don't understand science, climate, economics, energy, technology, or even business competitiveness very well at all, and are in some level of denial about all of them.

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