Priming the Economic Pump in 2009: A Users Manual

As 2008 comes to a close, it really has been the best and worst of years. The economy, the continuing carnage in Iraq, the persistence of extreme poverty and the steady destruction of the planet are certainly on the negative side of the annual ledger. But, as we look toward 2009 there is reason to be hopeful. At the center of this hope, perhaps already looming larger than life, is our soon to be President Barak Obama.

In 2008, the issue of global sustainability achieved a permanent place on the American public policy agenda. Moreover, it looks like the economic revival that is being planned by the new Administration will focus on green initiatives. There are a number of factors that must be considered as we design this economic stimulus. Tom Friedman hit some of the key points in one of his typically on-target pieces in the New York Times:

“…we don’t just need a bailout. We need a reboot… But we must make certain that every bailout dollar, which we’re borrowing from our kids’ future, is spent wisely. It has to go into training teachers, educating scientists and engineers, paying for research and building the most productivity-enhancing infrastructure – without building white elephants. Generally, I’d like to see fewer government dollars shoveled out and more creative tax incentives to stimulate the private sector to catalyze new industries and new markets. If we allow this money to be spent on pork, it will be the end of us.”

However, as my friend, former Professor and former boss Dr. Marc Tipermas observed to me recently, there is another danger that we will need to pay attention to: With state tax receipts in free fall due to the shrinking economy, there is a real danger that the infrastructure grants being promised might end up simply being grabbed by state governments to close their deficits. Both California and New York are facing huge fiscal crises. Both are calling for a federal bailout.  On December 22, a letter was sent to the Congressional leadership from the United States Conference of Mayors, National League of Cities, National Association of Counties, Association of Metropolitan Planning Organizations, National Association of Regional Councils, National Association of Development Organizations, American Planning Association and the  American Public Works Association stating:

“On behalf of the nation’s local elected officials, we are writing to express our support for economic recovery highway funding to flow quickly and directly to existing recipients: state departments of transportation and metropolitan planning organizations. This is accomplished by directing funds to the Surface Transportation Program (STP).”

 The letter to Congress then gets to the heart of the issue:

“Our recommendation does not take funding away from the states. Using STP means that, in addition to a guaranteed share of STP funds reserved for states, local areas also receive a share of funds. This guarantees accountability given current requirements set forth in the federal law. Without STP allocation, metro areas and rural communities have no assurances that they will actually get any funds”

There are four great dangers to the trillion dollar federal stimulus package that we will certainly see early in 2009:

  • It could be spent on the wrong projects as Tom Friedman fears.
  • It could end up being spent to close budget gaps at the state level, and doesn’t get used to stimulate the economy at all.
  • In our haste to get this money into the economy financial controls will be sacrificed and large amounts of money will be stolen or misused. (We saw this with the no-bid contracts during the early days of the War in Iraq.)
  • All of the above– resulting in a huge, inefficient program that not only fails to stimulate the economy, but actually hastens our decline.

Despite the dangers that I see, I think that a well designed stimulus package could actually help bring the United States economy back on track. The fact is, we have under-invested in public goods, over-consumed private goods and failed to save the capital needed to invest in the future. A generation of anti-government and anti-tax rhetoric, matched with our blind love affair with free and un-policed markets has landed us in the current economic crisis. The way out of this mess stretches before us, but it is complicated and could easily be disrupted by greed, corruption, narrow politics and idiotic ideology.

The key to an effective stimulus is that the money must get into the economy as soon as possible. It must be spent quickly on projects that are already underway. While roads are not typically thought of as “green projects”, they are in need of constant repair and many repair projects are being held up due to inadequate funding. They can help stimulate the economy by re-building our roads and bridges. This will create construction jobs now and make our economy more efficient by moving people and goods more effectively on our roads. In order to restore the economy quickly some of the projects must be those that can be ramped up as quickly as possible, not necessarily those that deliver the most sustainable result per dollar invested. The Act does allow for funds to be spent on mass transit and bus terminal projects and interestingly, the most recent revisions to the Surface Transportation Program allow the funds to be used for: “Environmental restoration and pollution abatement… [and] control of terrestrial and aquatic noxious weeds and establishment of native species” related to transportation projects.  If state and local governments have these environmental restoration projects ready to go, then they should be funded first.

In New York City, some of these transportation funds could be spent on accelerating the rate of construction on the 2nd Avenue Subway and buying new busses, trains and subway cars to increase the quantity and quality of our mass transit. The Moynihan Station project rebuilding Penn Station is also a worthy project.  New York could also use federal money to rebuild and restore some of our roads and bridges.

While some major infrastructure projects will develop too slowly to stimulate the economy, we will need to find a way to finance longer term projects in the future. Airports, intra-city bullet trains, water and power distribution and modern secure ports are among the long term projects that should be funded. Perhaps a carbon tax or at a minimum a larger gasoline tax could be used to fund longer term projects. I know that polling always shows gasoline taxes to be wildly unpopular, but in about 18 months when we wake up and start looking at the deficit numbers we are generating, we will need new revenues and a gasoline tax ought to be part of the mix.

As an educator, I tend to think of education funding as a type of expenditure that brings multiple, long-term pay off. While I’m sure some of my view is simply self-interested lobbying, there is a strong case to be made for funding education and research in science and technology. One of my jobs at Columbia University is that I serve as Executive Director and Chief Operating Officer of the Earth Institute. The Earth Institute is a university-wide organization at Columbia that brings together scholars, students and practitioners of sustainability from public policy, engineering, environmental science, ecology, public health, law, education and a variety of other fields. We employ over 600 people directly and work with close to 1,000 scholars and at least as many students. Most of the environmental scientists working at the Earth Institute work at our Lamont-Doherty campus, located 30 miles north of the city in Palisades, New York. To keep their labs functioning, many of these scientists are in a constant competition for government and private grants to support their work.

The process of competing for science grants is a good one, requiring that our scholars submit their ideas to their peers for review and comment. However, in recent years the amount of funding for science has not kept up with needs. The problem with this funding process is that our scientists are spending more and more time writing proposals and less and less time in their laboratories. By increasing the amount of funds we spend on scientific research, we can continue the peer review process, but restore the balance between time spent on fundraising and time spent on research.

I think that one way to quickly spend “pump priming” money would be for the federal government to rapidly increase funds for basic and applied research and student scholarships in sustainability science, management and engineering. There are a range of issues that we need to learn more about: Solar cells and batteries, more efficient energy transmission and use, solid and toxic waste management and clean-up, food production, water supply and sewage treatment. The list could go on, but this is an opportunity to steer higher education in the direction of sustainability studies.

The financial crisis creates an opportunity to reshape the way we do business. While the priority must be to avoid a deeper recession and restore confidence in the future, we should be smart enough to do this in a way that takes the first steps toward a more sustainable American economy. While we look to the new team in Washington for leadership, resources and hope, let’s also look closer to home for innovation, inspiration and teamwork. Yes we can…

Priming the Economic Pump in 2009: A Users Manual