Taking advantage of the opportunity

Yesterday I finally got around to reading an article from the Feb. 1 NYT Magazine called “The Big Fix,” which outlined how the stimulus bill should be used. It was actually good timing because yesterday I also read the detailed outline of the stimulus package that was signed by President Obama on Tuesday.

I was struck by how closely the stimulus package adheres to the plan put forth in the article: that the bill should be used to fix problems that have been festering due to lack of political will to change them (among other reasons) – particularly in the areas of healthcare, research, education, and infrastructure – and that careful attention must be paid to finding a balance between short-term investments with immediate returns and long-term investments for the future.

Here are some snippets from the article:

Washington won’t merely be given the task of pulling the economy out of the immediate crisis. It will also have to figure out how to put the American economy on a more sustainable path — to help it achieve fast, broadly shared growth and do so without the benefit of a bubble. Obama said as much in his inauguration speech when he pledged to overhaul Washington’s approach to education, health care, science and infrastructure, all in an effort to “lay a new foundation for growth.”

“You never want a serious crisis to go to waste,” Emanuel said. “What I mean by that is that it’s an opportunity to do things you could not do before.”

“Things we had postponed for too long, that were long term, are now immediate and must be dealt with,” Emanuel said in November…the fact that the economy appears to be mired in its worst recession in a generation may well allow the administration to confront problems that have festered for years.

…a moment when there are millions of people who are unemployed, when the federal government can borrow money over the long term at under 3 percent and when we face long-run fiscal problems is also a moment of great opportunity to make investments in the future of the country that have lagged for a long time.

As a country we have been spending too much on the present and not enough on the future. We have been consuming rather than investing. We’re suffering from investment-deficit disorder.

According to the article, spending on future investments such as healthcare, infrastructure, and future technologies has dropped from 7% of the national GDP to 4% GDP in the last 50 years, and private industry doesn’t spend much because the benefits are often societal rather than financial - and when they are financial, often only a fraction is returned to the investor.

Here are some highlights from the stimulus outline:

*Over $30 billion to transform the nation’s energy transmission, distribution, and production systems by allowing for a smarter and better grid and focusing investment in renewable technology
*$17.7 billion for transit and rail to reduce traffic congestion and gas consumption.
*$16.5 billion to modernize federal and other public infrastructure with investments that lead to long term energy cost savings
*$15 billion for science facilities, research, and instrumentation
*$7.2 billion to expand broadband internet access so businesses in rural and other underserved areas can link up to the global economy
*$5 billion to weatherize modest-income homes

detailed summary (pdf)

NEXT STEP: CAP-AND-TRADE?

It’s a harder idea to sell, but If we’re serious about stimulating green innovations, it’s going to have to be done. This is what the article had to say:

Various analyses of Obama’s cap-and-trade plan…suggest that after it is fully implemented, it would cost less than 1 percent of gross domestic product a year, or about $100 billion in today’s terms. That cost is entirely manageable. But it’s still a cost.

Or perhaps we should think of it as an investment. Like so much in the economy, our energy policy has been geared toward the short term. Inexpensive energy made daily life easier and less expensive for all of us. Building a green economy, on the other hand, will require some sacrifice. In the end, that sacrifice should pay a handsome return in the form of icecaps that don’t melt and droughts that don’t happen — events with costs of their own. Over time, the direct economic costs of a new energy policy may also fall. A cap-and-trade program will create incentives for the private sector to invest in alternative energy, which will lead to innovations and lower prices. Some of the new clean-energy spending, meanwhile, really will replace money now flowing overseas and create jobs here.

But all those benefits will come later. The costs will come sooner, which is a big reason we do not already have a green economy — or an investment economy.

We've got a long road ahead, but it's good to know we finally have someone at the reins who makes rational decisions that are based on scientific facts and are for the greater good.