Green Stimulus: Just Do It!
Now that the dominant school of economics (that would be the “who could have known?” school) has come to recognize that the bursting of the housing bubble will lead to a recession, talk of stimulus is in the air. It is too late at this point to prevent a recession, but an effective stimulus package can help to lessen its impact, so we need quick action. We can also look to use this stimulus package to jump start efforts to reduce greenhouse gas emissions.
The basic story here is simple: economic stimulus is the fine art of throwing money at people, whether through tax cuts or spending. There is no reason that we can’t throw money at people in exchange for reducing greenhouse gas emissions.
There are many ways to make a stimulus package at least partly green. For example, we can have generous tax credits for people to install more insulation in their homes, solar panels or other improvements that will reduce energy use. This would be an effective way to reemploy many of the construction workers who are losing their jobs. The credit should be time-limited (e.g. 18 months) so that people have an incentive to act soon.
We can also give people money and a powerful incentive to use mass transit by giving transit agencies money to reduce fares. If we gave public transit agencies enough money to reduce transit fares by $1 a trip, over the course of a year this would provide the same stimulus as giving a $500 tax rebate to every user of public transit.
We can also use the stimulus package to jump start pay by the mile auto insurance. While many enviros are obsessed with hybrids and hydrogen powered cars, the quickest way to reduce greenhouse gas emissions in the auto sector is to give people incentive to drive less. This can most effectively be done by shifting from the current insurance system, in which drivers largely pay the same rate regardless of how many miles they drive, to a system in which they get charged for each mile they drive. This would have no effect of the average cost of insurance to drivers, but it would provide as much disincentive to drive as a $1.50 a gallon gas tax.
A stimulus package could jump start pay by the mile auto insurance by giving out a large rebate, in the range of $400 per driver, for pay by the mile insurance policies. This would provide the same stimulus as a $400 tax credit for every person who ends up taking out a pay by the mile policy. Of course, this one may take a bit longer to implement than some other green measures, but the good news is that the housing crash recession is likely to be long, so we will probably still be needing stimulus a year or two down the road.
While we can debate the specifics, the basic point is simple. Since the point of an economic stimulus is to throw money at people, we might as well throw money at people for doing something green.
Any sort of project that is going to involve physical changes (infrastructure and the like) is going to take too long to ramp up to do any good to stimulate the economy out of the current recession.
The only action that can happen relatively quickly is a change in taxation. For example, since the payroll tax actually collects more money for Social Security than it currently needs there could be a change in the withholding percentage. This would help the lowest earning workers the most and not be subject to various tricks that other tax changes would. If the pundits are worried that this would be a bad thing in the long run the change could be made temporary and tied to some economic measure, such as a decline in the unemployment rate to a certain level that persisted over a number of months.
The Fed is taking other steps, which also may have an immediate effect. They are throwing money at banks and fiddling with the prime rate. Economists are busy debating which of these is the correct course of action.
[I could go into why there is a surplus in the collection of payroll taxes, and has been for many years, but that's off topic.]
--- Policies not Politics
Daily Landscape
January 7, 2008 7:35 AM | Reply | Permalink
A cut in FICA can be justified not only in terms of short term stimulus but in the long term as well. All of the bias in the current Social Security model is to the upside. No one I know has made a serious defense of the notion that Real GDP will sink steeply and permanently to 2.2% by 2013 as a mid-range assumption. Yet that is the current Intermediate Cost projection.
2007 Report: V.B2 column 4 Now it is true that the possibility of hitting Low Cost numbers short term is at the vanishing point or beyond (3.2% Q4 and 3.4% 2008, as if) and nobody is betting big money (or any money) on Intermediate Cost's 3.0% for 2008, absent negative Q4 2.6% Real GDP is already in the bag for 2007 and 2.8% for 2009 certainly achievable. And after that the Intermediate Cost model becomes increasingly fragile to growth anywhere near historical trend, a streak of years such as we had from 1997-2000 or 2003-2006 shatters it for all time.
Social Security financing can easily support a one year hit in the form of a one or two point temporary cut.
On the other hand it really shouldn't happen because Bush and the Republican Senate will insist that any plan based on tax cuts include more favorable treatment of returns on capital. Under the current environment any tax plan that favors workers and workers only is a non-starter, particularly given the ill-winds of 'cooperation' whipping around our heads. The Republican's will demand their pound of tax cut flesh and if not getting it will turn around and blame the recession on Democratic unwillingness to compromise. That's what they do.
Given that some of Dean's proposals seem more appropriate. A multi-billion dollar plan to upgrade residential energy efficiency can be sold as a big subsidy to small business, which of course it would be, but also start paying dividends directly to anyone who pays a utility bill medium to long term. I am a little more optimistic than most about 2008 GDP but this move can be justified on policy grounds alone. The economy could be speeding along at a merry 3.3% pace and we still would be needing to address these issues, the short term economic stimulus is just a bonus for doing what we should have been doing all along.
Realistically I don't see either a FICA cut or an energy plan in time to actually make a difference, any legislation emerging from this Congress under this President is bound to make things worse long term. It makes for a rocky 2008 but we are probably better off waiting until 2009 when we can take remedial action under a new President.
January 7, 2008 10:04 AM | Reply | Permalink
Cutting transit fares can be done pretty quickly.
January 7, 2008 7:46 AM | Reply | Permalink
Not in NY. First the cut in transit fares would have to come from the MTA which is an independent authority and probably is legally barred from doing such things by the terms of the bonds they have issued. Even if the could do it, why would they? Their mandate is transportation not fixing the economy.
Also in most areas of the country (even in NY) most people don't take mass transit, so what's the benefit for them? A tax rate adjustment helps everyone. Someone suggested to me that my idea should be coupled with an improvement in the unemployment insurance program. Since the employment rate has been declining as well it is not clear whether there is a rising number of those wishing to work and being discouraged or whether there are other factors at work which are causing people to leave paid employment.
Whichever it might be unemployment insurance won't help them either (neither will my suggestion), but we aren't trying to help individuals separately, we are trying to boost the economy in general. Getting money to a lot of people at once seems to be a worthwhile idea to be discussed.
--- Policies not Politics
Daily Landscape
January 7, 2008 8:55 AM | Reply | Permalink
Simply done. Cut employees' FICA contribution to 2% for 18 months. Should have been done back in '01.
January 7, 2008 9:03 AM | Reply | Permalink
The incentive for the MTA is called "money." you get it for cutting fares. If the good folks at MTA can't figure out how to get money, then we'll give it to people who are smart enough to figure out how to get money handed to them. (Fortunately, most people in this country do fit into that category.)
as far as the cut not helping everyone -- so what? We want to put money in the economy, we can do many different approaches (that's legal), this is one of them, extending UI benefits is another, a $300 per person tax cut (very quickly disbursed in 2001) is yet another. there are many tricks in this bag.
January 7, 2008 9:46 AM | Reply | Permalink
Come on, be serious. Exactly where is this "money" supposed to come from? The reason the quasi-governmental agencies like the MTA exist is because there isn't enough money available in the general funds of local government to support large scale capital projects like mass transit. Lenders won't provide funds (in the form of municipal bonds) to cities and states because the sources of repayment are not guaranteed.
By segregating the money for repayment (tolls on roads, fares and federal subsidies for mass transit) the agencies are able to raise the capital needed. This also gets around the statutory limits on local borrowing. It's a trick, but one that Wall Street condones. So the MTA cuts fares, thus impairing its ability to meet the repayments on its outstanding loans. The state and municipalities can't make up the difference, that's a given, so we are supposed to expect that the federal government will chip in?
Talk about the impossibility of getting things enacted. The rural parts of the country (16% of the population controls 50% of the seats in the senate) has no mass transit and is going to subsidize the elites on the coasts?
At least my plan has national appeal. The idea that we shouldn't help those in current economic distress because the GOP might be able to benefit from it is just immoral.
--- Policies not Politics
Daily Landscape
January 7, 2008 10:23 AM | Reply | Permalink
The money comes from the federal government (it's located in Washington, DC. They are the people that collect income taxes from your paycheck.) My guess is that most lenders won't consider money from the federal government to be worth less than projected ticket revenue, but if you know any lenders who see things this way, please let me know so I can short their stock.btw, the fare cuts would presumaly be temporary - at least that would be the requirement to get the money from the Feds.
As far as rural parts of the country controlling half the senate -- hmmm, not the math I see. They are obviously an important constituency, but last I checked, most of the federal budget is not going to rural areas.
January 7, 2008 11:16 AM | Reply | Permalink
"As far as rural parts of the country controlling half the senate -- hmmm, not the math I see. They are obviously an important constituency, but last I checked, most of the federal budget is not going to rural areas."
Sorry , but I have to chuckle at that one.
two words come to mind, "farm bill"
Jack
January 7, 2008 11:21 AM | Reply | Permalink
The subsidies in the farm bill come to around $20-25 billion a year in federal budget that is over $3 trillion.
January 7, 2008 1:11 PM | Reply | Permalink
Here's my little essay on the control of the senate by a tiny percentage of the population. Just scroll down in my table until you hit 50% of the seats (Kentucky) and see what the total population they represent is. Why do you think that decades go by and there is insufficient aid to big cities and to urban problems. The farm bill may not be huge in terms of total dollars spent by the government, but it's impact is Wyoming (pop 506000) seems pretty big to them.
The Small State Senate Bias
Notice that the small state bias also has affected the electoral process. Why should Iowa, New Hampshire and Wyoming get to set the tone for the race when they represent a tiny fraction of the population? Perhaps it's because their senators get to dictate things to their parties as a quid pro quo for some later support for urban legislation.
--- Policies not Politics
Daily Landscape
January 7, 2008 1:32 PM | Reply | Permalink
This is such an important point - I've commented below in favor of Dean's ideas, I think what your posts demonstrate is that tax credits for green home improvements look more politically feasible, certainly more than mass transit credits.
January 8, 2008 5:00 AM | Reply | Permalink
So, let me think now. America's running an annual federal budget deficit of about half a trillion dollars. The accumulated federal debt is somewhere along the lines of five or six trillion.
Something like 45 out of 50 state governments are strapped or in financial trouble.
America has been running trade deficits for a few decades now, and in the last few years, the trade deficit has been about half a trillion dollars a year.
Now, the way it looks to me, is that this means you ain't got a pot to piss in. It also means that you are, what I would call, a pretty bad credit risk. So the notion that the world is just going to step in and lend even more money might be dubious.
I'm all for throwing money. But here's my question, sport: Where you figure you're going to get this money?
January 7, 2008 8:02 AM | Reply | Permalink
Who else they gonna lend it to, sport?
January 7, 2008 8:15 AM | Reply | Permalink
Hmmm. Let's see. Other places in the world? France. Germany. Spain. Italy. China. India. Brazil. I dunno. Push come to shove...
Strikes me that they don't actually have to lend it to you.
Also strikes me that sooner or later, after shovelling money down a hole, people kind of get tired and stop shovelling.
January 7, 2008 8:26 AM | Reply | Permalink
Oh right! Gonna lend money to China? China don't borrow money; she lends it. France and Germany? Yeah, right again! Big demand for foreign investment by those two. And the same goes for the rest.
Give it up, Jack! There's only one country in the world that can soak it up big time.
January 7, 2008 8:53 AM | Reply | Permalink
ROTFL. You got me. America's the biggest mooch on Earth and will gladly pay the rest of us tomorrow for that hamburger today.
You win. The titanic is unsinkable, Enron's a good deal, and those primitive savages couldn't hit the broad side of a barn from this dis-
January 7, 2008 9:31 AM | Reply | Permalink
The titanic is unsinkable, Enron's a good deal . . . .
Well, I don't know about the Titanic (Limey quality control, you know), but Enron was good till it wasn't; MBSs, CDOs, SIVs and whatnot were good till they weren't; and you can bet your bippie, our boys will find something you furriners will buy -- Eyes Wide Shut.
January 7, 2008 9:51 AM | Reply | Permalink
Indeedy, it'll go right up until it don't go no more. I'm certain that a service economy of securities brokers and wal-mart stock clerks will always be able to sell the rest of us something. And in support of America, I've reserved a perky spot in my back yard for the Washington Monument, which I figure I can get cheap when the bottom drops out.
January 7, 2008 10:24 AM | Reply | Permalink
Valdron,
According to the latest numbers, investors in the U.S. and the rest of the world are demanding a 3.85 percent interest rate on 10-year loans to the U.S. It doesn't look like they are very concerned about the credit rating of the U.S. government. The key point is that we have a $14 trillion economy. I suspect this explains their lack of concern.
January 7, 2008 8:15 AM | Reply | Permalink
For now.
January 7, 2008 8:27 AM | Reply | Permalink
We could pay for it by getting out of Iraq.
January 7, 2008 9:03 AM | Reply | Permalink
Good suggestions, being feasible because they are incremental.
While the Manhattan Project is often invoked, it is precisely the wrong example of stimulated activity needed for changing energy use and production. The technology is known, what is not known is the best, most convenient and popular engineering and design. That is exactly what entrepreneurs will arrive at with many small starts (and failures).
Some already-established engineering exists and it only needs many hands at work. Most new energy use will be of locally generated sources and locally appropriate techniques. All will call for lots of people doing lots of fairly simple jobs, like plumbing, framing, wiring, and such.
There are green stimuli now in effect that are not publicized. No doubt the administration is embarrassesd to point them out, since they go against their corporate allies' interest.
January 7, 2008 8:32 AM | Reply | Permalink
My insurance has been charging me for years for driving more. If I commute 40 miles a day to work and back, my insurance company charges me more than if my commute is only 3 miles. I thought it was standard practice that insurance is rated according to how many miles you drive, because statistically the more hours you are on the road the greater your chances of getting in an accident.
My question is, if they actually charge per mile, how does the insurance company monitor that? I imagine them requiring you to go through a sort of inspection every time you renew, stopping by the office so the agent can check your odometer. That's something I could see a lot of people paying extra to not have to do. Therefore, rather than an economic stimulus, you'd just be mandating another way for insurance companies to make more money.
January 7, 2008 9:09 AM | Reply | Permalink
First off, no one is mandating anything here-- if you don't want the money, don't buy the policy. There are many different enforcement mechanisms you can use. One obvious one is relying on self-reporting. The real smart people who lie, will find that there are so smart that they paid money to their insurer for nothing, since lying is grounds for voiding a policy. So, when you are in a collision and it turns out that you have 20,000 more miles on your odometer than you should, you get to pay your bills yourself.
Most states also require annual or biannual car inspections. You can have the odometer readings at these inspections reported to the insurer.
btw, the differences that the insurers currently charge based on whether people say they are high mileage or low mileage drivers do not come close to providing a serious incentive to reduce driving. First, next to no one has any idea what they are. Second they are not constructed as marginal rates (cutting your miles driven by 200 miles a year will probably save you zero), and they don't come close to reflecting the true differences in risk. They are very far from real pay by the mile policies.
January 7, 2008 9:53 AM | Reply | Permalink
I always saw the high-mileage rating as a way for the insurance company to tack on a charge if you admit to having a long commute. They've asked me every time I've traded cars or updated my policy.
On the business side, how do you get the insurance companies to go along? I mean, if you provide an incentive to drive less by allowing people to get a discount on their insurance, the insurance company isn't likely to be too keen to convert their existing customers to cheaper policies with the same coverage. In the long run, they come out even profit-wise because fewer miles means fewer claims, but insurance companies don't really look at the long run - not in my experience. All they'll see is a drop in revenue.
My guess is they'll begin offering discounted packages that have no mileage restrictions. The overall effect will be to drive the overall cost of insurance down somewhat, while driving up the difficulty of collecting on a claim. Especially if the insurance company begins hanging your ability to collect on how near your mileage is to your predicted target. If, say, you've been driving 10,000 miles per year and suddenly you go on a cross country trip and get in an accident, you'll probably have to sue the insurance company to get them to cover it since you "lied" to them about your odometer reading.
But your ideas will certainly provide economic stimulus for me, since my wife works for a personal injury lawyer and the more cases against insurance companies she processes, the bigger her Christmas bonus.
January 7, 2008 10:36 AM | Reply | Permalink
Insurance companies will go along because they will make money by going along. You're subsidizing the policy, you can have the subsidy paid to the buyer, the insurer, or split, but regardless of how the policy is designed, insurers will share in the subsidy. If some insurers are opposed in principle to pay by the mile insurance, then others who are more interested in profits will offer it.
January 7, 2008 11:21 AM | Reply | Permalink
Insurers currently insure at rate X.
If you give insurees a subsidy to purchase insurance at a lower rate based on mileage, then the insurance companies lose revenue from that customer, because they're no longer insuring at rate X.
The insuree ends up with more money because money they would normally use to buy insurance is now being paid by a government subsidy (thus the economic boost). The insuror actually gets less money because the rate is lowered. They would have to make up for it by jacking up rates for more mileage, which is the green point of your proposal, but in the long run you encourage everyone to drive less, thus pay less for insurance, which means less revenue for the insuror, which is the part they will fight.
I'm not saying it isn't a good idea, only that I don't see it passing Congress unless the entire subsidy goes to the insuror, which, in my opinion, is pointless, because the customer isn't going to get $400 in savings. That is the nature of the insurance beast - they will take the government handout and use it to create a system whereby most people pay more than they're paying now.
January 7, 2008 12:26 PM | Reply | Permalink
First , somthing that doesn't cost taxpayers.
Since all section 8 housing vouchers require an inspection before renting have part of the standards for qualifying housing to meet a minimum standard for energy effency. This would have slumlord housing types investing their own money.
Providing grant money to currently operating CDCs for rehabbing old houses and require them to meet energy standards
Increase the tax credits for those of us who are rehabbing housing in low income neighborhoods again require strict standards to be met.
All the above will help with the loss of residential construction jobs and provide jobs in the neighborhoods.
To make it politically possible whisper in the ear of the republicans "mike huckabee" , a lot of his supporters are construction workers and they are hurting.
Jack
January 7, 2008 11:14 AM | Reply | Permalink
This is good. The tax credits for home improvements - which should in turn lead to lower energy bills - I support that 100%.
On the mass transit incentive, I wonder if tax credits or straight investment in the systems themselves would be the better option... I guess I probably lean toward the latter, but I imagine this is going to depend a lot on the particular circumstances.
January 8, 2008 4:57 AM | Reply | Permalink
Well, remember that ultimately we live in a *consumption*-based economy. However you slice-and-dice it - reward and incentivize this, tax and punish that - at the end of the day, economic "health" always comes down to increasing consumption - a pressure that is inherently antithetical to green-ness and sustainability.
Perhaps it's time to stop tinkering with the rules and consider playing an entirely different game . We can waste another decade in the capitalistic, legislative, and regulatory Halls of Mirrors, or we can begin to recognize that the scarcity and competitiveness that formed our current socioeconomic model is a thing of the past, and that we now have the knowledge, resources, and technology to make a life of comfort, security, and opportunity available to everyone. Not "opportunity" to rule half the planet or hoard the biggest pile of bananas, but simply to be a happy, healthy, contributing member of the human family.
-Bill Miller
Menlo Park, CA
January 11, 2008 1:43 PM | Reply | Permalink