The New New Deal
Yesterday, Former Clinton Secretary of Labor Robert Reich wrote a piece for TPM Cafe titled The Mini Depression and the Maximum-Strength Remedy in which he argued that the only way out of the current mini-depression is a bold government infrastructure program:
So the crucial questions become (1) how much will the government have to spend to get the economy back on track? and (2) what sort of spending will have the biggest impact on jobs and incomes?The answer to the first question is “a lot.” Given the magnitude of the mess and the amount of underutilized capacity in the economy– people who are or will soon be unemployed, those who are underemployed, factories shuttered, offices empty, trucks and containers idled — government may have to spend $600 or $700 billion next year to reverse the downward cycle we’re in.
The answer to the second question is mostly “infrastructure” — repairing roads and bridges, levees and ports; investing in light rail, electrical grids, new sources of energy, more energy conservation.
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Government spending that puts people back to work and invests in the future productivity of the nation is exactly what the economy needs right now.
The post triggered a round of thoughtful, meaty commentary from readers (one of the things that makes TPM Cafe a good hangout).
Here were my comments, reposted here so I can check back in four years and see if any of it came true:
Totally agree with everything you say. However, when it comes to the definition of ‘infrastructure’ — I think we should look beyond the classic ‘road-building’ concept.
I would look ahead 30-40 years, think what kind of society we want to live in and work our way backwards to today. What does the ideal look like? Say we’d like to see educated (and nourished) children, healthy people, and reasonably high employment. To get there, we would need good schools, a decent system of food production and delivery, accessible healthcare, and good local jobs. Whatever infrastructure goals we adopt today would have to prioritize based on those principles.
Let’s set the goal at 10,000 news schools, 10,000 new libraries, 10,000 day-care centers, 10,000 new neighborhood health clinics (staffed with people who live nearby), 10,000 parks, 10,000 new family farms who distribute their goods within 100 miles, and 100,000 new small business startups each with less than 100 employees (with tax breaks to encourage buying from supplies manufactured within 100 miles of each other). Too modest? How about 100,000 schools, libraries, etc.
Imagine all the support activity that this will generate across all levels of society. Forcing geographic proximity cuts down on energy use, wear-and-tear of the roadways, and builds local hives of self-supporting commerce. By reducing concentration of location-specific industries we make it so trained personnel can flow between regions and be assured that they can find jobs. We make it so the brand isn’t just ‘Made in the USA’ but ‘Made in Jackson County.’
This will go hand-in-hand with distributed green-power generation plants. If the power doesn’t need to be shunted across a nation-wide grid, you can make do with smaller generation facilities. The more local it stays, the less you lose in transit. Instead of large-scale power generation sources using polluting fuels, we have 10,000 local power plants that use renewable sources, are cost-effective, and can keep going for the rest of the century without ever running out of fuel.
Distribution (of energy, knowledge, manufacturing, commerce, etc) also gets us better fault-tolerance and built-in redundancy. It means that if something disruptive happens in one region, it won’t affect the whole country. Yes, you don’t get the economies of scale, but the goal is to jump-start the ‘distributed economy’ and build a vibrant commercial ecosystem, not to make cheap, low-margin junk that benefit only a few companies.
To be able to pull this off, we’d need training, communication, and good coordination. That’s where high-tech investment comes in. It’ll help spread the knowledge, boost efficiency, and push the benefits down to the local level. Let’s also remember that the Internet infrastructure was designed from the beginning for this sort of decentralization.
As an aside, I believe the so-called ‘Shock Doctrine’ can be harnessed for both good and bad. An emergency can be abused by those who want to acquire power or wealth, or used to ‘shock’ society out of complacency and past the petty objections of those who only care about their taxes.
We are clearly in an emergency. Where we go with it is largely up to those in charge and whether they have the vision to look ahead 30-40 years and act now. — fubar.
November 10th, 2008 at 10:54 am
I almost had a heart-attack, I thought this was Swopa for a second, going on about distributed energy and green power! Ha, like that’s gonna happen!
Anyway, ditto all that. I keep meaning to write that piece about distributed versus centralized power distribution…
November 15th, 2008 at 12:51 am
Fub-ster;
Nicely done…as cogent a cry for intelligent, forward-looking public-good investment as I’ve seen during this debate. My only tiny quibble is with your call for “100,000 small business startups”…as much as I trust our new Democratic majority, I’m not sure I want to see them acting as a giant venture-capital organization with tax dollars, trying to pick winners to whom to award funding…based on what expertise or criteria would they do that?…much prefer to leave the startup activity to the marketplace and be content with the enabling infrastructure you propose i.e. schools, libraries, localized energy generation etc…
November 16th, 2008 at 1:21 pm
Rick:
I’m not a big fan of government as investor either but given the role the government has chosen to assume in propping up large financial institutions, we’re in brand new territory — without the tools to properly tackle this issue. Instead we’re getting ad-hoc investments by a small team of bankers, based on completely
arbitraryopaque criteria.I think instead of treating the TARP program as a one-off funnel of cash into the pocket of the banks, we can use this as an opportunity to let government (especially the local/municipal variety) openly invest in local businesses — and derive direct benefit from those local businesses succeeding. The benefits would come by way of returns on investment, as well as jobs created, and taxes generated on those businesses. In California where Prop 13 has put draconian limits on how much revenue local governments can obtain, becoming local investors is a good way for them to generate direct income while the rest of the community ecosystem benefits from the fact that people are working and most of the money is staying local instead of getting funneled off to Corporate headquarters or overseas.
The end goal is to create millions of local jobs that benefit the local community and that are not exportable to cheap foreign sites. So how would we do it? How to stop the system from devolving into crony capitalism (which is essentially what TARP is turning into)?
If it was me designing the system for direct social investment in local business, I would do it in two parts:
First I’d create a new class of stock, something between Common and Preferred, let’s call it Community, where a public entity (be it non-profit or government entity) can invest in a business. What they would get in return would be clearly defined in the definition of the stock class: first bite at dividends, limited lifetime (i.e. 5-10 years), no controlling interest, and an option for conversion into a standard loan with interest, unless the business owner chooses to buy out the shares.
This would essentially be a preferred stock with guaranteed returns to the taxpayer (or at least regular income stream) but without the liability or control that comes from Common stock. The government is not a controlling owner, but a passive investor — with rights. VCs do this nowadays by attaching all kinds of ‘guaranteed repayment multipliers’ to their investments, so this isn’t anything new. This just codifies it so taxpayer funds aren’t wasted.
In return for issuing these Community class of stocks, a business would get cash and certain transferrable tax advantages would flow to the business, so there would be advantages to outside investors coming in as well.
The second thing I’d do is come up with a community investment board that would operate along the lines of a local school board. There would be rules, accountability, and people would have to run openly for these seats. What they can invest in would be determined ahead of time (local — i.e. within 100 miles, with a pre-determined mix of industries). Think of it as a regional micro-VC.
There are lots of other issues that would need to be tackled (like how much to put into this investment pool, where it would come from, etc.) But these are all resolvable if general principles are agreed upon and fairly applied.
The point is, I think once you’ve opened the Pandora’s box and gotten the government involved in direct investment in private businesses, let’s not do it half-assed. Let’s set up the infrastructure so the community actually benefits (while letting local businesses and jobs flourish).