Blueprint for a Green Recovery

Laura D’Andrea Tyson, a top economic adviser to President-elect Barack Obama, was chairperson of both Bill Clinton’s Council of Economic Advisers and his National Economic Council.

Washington—Unless there is a significant government stimulus to maintain jobs and income, the American economy could well face a long and severe recession. More than 2 million people have lost their jobs between the end of 2007 and 2008, and unemployment is at 6.5 percent.

An effective stimulus package must be timely so there are immediate results. But it must also relate to long-term policy objectives, including investing in infrastructure that achieves climate-change goals by reducing the use of carbon through clean energy and frees the United States from energy dependence.

A “green stimulus” and recovery strategy would meet both short- and long-term objectives: It would have very high “multiplier effects” by creating jobs and income throughout related activities across the economy in a timely fashion while putting us on the path to green growth as the economy recovers. It is smart policy.

Studies by Bracken Hendricks of the Center for American Progress and the University of Massachusetts have compared the effects of a traditional stimulus aimed at giving consumers more to spend with investment in energy-efficient infrastructure. They found that with a traditional stimulus, 22 cents on the dollar would flow out of the US economy for imports while, with a green stimulus, only 9 cents on the dollar would flow out.

That is because, instead of spending on imported energy or other goods, we would be investing in skilled craftsmen who would replace old boiler systems, swap out inefficient lighting, install double-paned windows, or weatherize school buildings. In fact, a “green stimulus” would employ the same skill set of those who have lost their jobs because of the housing downturn. Their income would circulate in the community, buying other products and services locally.

The studies also compared spending on green infrastructure versus oil and traditional energy. They found that investing $100 billion in a one- to two-year period on such items as block grants to cities for conservation or to incentivize solar energy use would create four times as many jobs as traditional energy and three times as many “good jobs” with wages of more than $16 an hour.

Hendricks has also noted that there are more than 300 mass-transit projects across the country that have been permitted and approved, now only awaiting federal funding. Funding those projects through a fiscal stimulus package would have the kind of immediate impact that could help stave off a deepening recession.

By definition, stimulus spending would not be paid for by taxes up front because precisely what we are trying to do is stimulate additional demand that would not otherwise be there. The problem we must face at this moment is that recession looms because aggregate demand is insufficient while there is un-utilized capacity of laid-off labor.

Energy-efficient investment is not “made-up spending,” but something we would have to do anyway over time. Doing it now simply matches long-term objectives to short-term needs. The argument for government action for a green stimulus now—probably in the range of $300 billion, or 2 percent of GDP—is powerful. If the economy continues to sink we may need to go as high as 4 percent of GDP.