The White House estimates that the jobs bill could cost 100 billion dollars. Roughly that amount will create about a million jobs. That is eight million less than the goal of full employment by end of 2012. The gap is to be closed by private sector investment. The key to catalyzing rapid private sector investment is action, both by way of regulation and modest financing.
The president gave a great SOTU speech. To deliver on the jobs promise he needs to:
--go outside the terribly encumbering processes of administrative regulations and create new institutions that can quickly and effectively build clean energy systems (efficiency and generation and transmission),
-- aim to achieve goals high enough to give us a reasonable crack at 9 million new jobs by the end of 2012.
Jan. 24 (Bloomberg) -- Saudi Arabian Finance Minister Ibrahim al-Assaf said the kingdom will continue to pump money to boost growth in 2010, even as the economy rebounds from last year's stagnation.
Saudi Arabia, the world's largest oil exporter, is spending $400 billion on infrastructure over a five-year period starting from 2009 to stimulate the economy. Rising oil prices, which have rebounded to around $75 a barrel from less than $35 in February, are also likely to boost growth this year.
Senator Jeff Bingaman (D-NM) has joined Congressman Van Hollen (D-Md) in calling for a Green Bank to be created as part of the prospective jobs bill. They are both to be praised, and listened to.
Here are some basic reasons they are right:
First, there is a crisis in lending to all alternative energy technologies. In the absence of reliable demand for clean electricity, continued anxiety about all loans from commercial banks still burdened by troubled assets, and worries about technological risk, the reality is that even conventional clean energy projects are not attracting financing that is adequate to assure returns to equity above modest hurdle rates, without raising prices for the resulting electricity to levels that are unacceptable to regulators or customers in unregulated markets. For less conventional projects, the situation is worse.
Economists are right to be concerned that any Green Bank does not spawn a round of investment in unused and unwanted assets. Of course that's what did happen without a Green Bank in the case of merchant investment in non-clean energy generation in the states around the Mississippi River states in the early 00s. But the taxpayer guarantee of debt, while lowering the cost of capital, could give rise to a concern about the recurrence of such over-investment.
What would be wrong with having too much cheap, abundant clean electricity generation capability? It might be thought that the investment could produce higher productivity gains and economic growth if it were placed in, say, potato chips or computer chips. But as long as the Green Bank loan guarantees were capped at a total level that could not cause the creation of more clean electricity than the nation can consume, then the climatic and job creation benefits of replacing carbon electricity with clean electricity very rapidly would easily justify the lending. Electricity consumption is very predictable. The costs of its production are also reasonably predictable. The maximum debt that the sector could use in order to convert from carbon to clean is about 400 billion dollars so using the Green Bank to float half that amount is very safe.
At least Massachusetts means: focus on job creation. It may mean more than that, but it surely means that.
There are at least five ways the government can create jobs:
1. Spend taxpayer dollars to buy goods (roads, fighter planes, research and development in health and energy). Not much more of this can be done.
2. Cut taxes in the hope that the beneficiaries will spend what they would have paid in taxes. (Treasury's favorite, but people are saving and banks not lending.)
3. Hire more government employees (Including teachers, librarians, military). Not much more of this can be done.
4. Use regulatory measures to open closed markets to new rivals, to create new markets, to encourage replacement of old technologies with new.
5. Use agency debt to stimulate lending.
It is categories four and five that need to be expanded if millions of jobs are to be created soon. The Green Bank plus renewable electricity standards is an example.
"At this point Mr. Obama probably can't do much about job creation."
That's a quote from Paul Krugman's article in New York Times today. Now I admire Dr. Krugman. And he was right that the stimulus package should have been bigger. But with all respect, he is wrong that the President "can't do much about job creation" at this point. And incidentally he also errs in today's column when he writes that "the administration's program clearly wasn't big enough to produce job gains in 2009."
Dealing first with the second, a year ago I doubt that anyone thought -- including Dr. Krugman -- there was a practical way to have 2009 be a year of net new job adds. The aftershock of the financial market collapse in the fall of 2008 was certain to produce job loss in 2009. If Dr. Krugman meant that by the end of 2009 we might have seen at least a month of net new jobs created, instead of the 80,000 jobs down that was just reported, a year ago some did hope for such a goal, but most believed that job loss per month would bottom out in the first quarter of 2010, and that still remains very plausible.
Yesterday Congressman Chris Van Hollen wrote President Obama asking that he put the Green Bank in the State of the Union and in the jobs bill. This move by the head of the DCCC signifies a shift in the politics of climate change: Congressman Van Hollen is saying that we should move from a carbon- based economy to a conventional alternative energy economy by the immediate, large scale and long-lasting financing of job-creating clean energy generation projects and building retrofits.
This is not in lieu of using caps, regulation, and other direct and indirect ways of putting a price on carbon, but it is a move that suits the times. We have massive unemployment, very low borrowing costs where federal full faith and credit can be deployed, absolutely reliable streams of revenue from electricity consumption (nothing in business is less variable than revenue from electricity usage), under-leverage in the sector, record low values for existing carbon-based plant that can and should be decommissioned.
I'm the co-chair of the Coalition for the Green Bank. Here's a white paper on the project we produced for the president's Jobs Summit. I wanted to share it with the TPM audience. Let us know what you think.
At least since Adam Smith's era, every nation in the world has used low cost, government supported loans to help pay for critical projects necessary for economic development. This is how in the United States we built the Erie Canal, fought wars, and constructed schools. And now we need a Green Bank to support low cost loans that steadily over twenty years, starting right away, will finance the conversion of America's energy industry from carbon to clean.
That is why more than fifty businesses have come together to form the Coalition for the Green Bank, of which I am the co-chairman. We have received expressions of support from many business lobbies as well as the Center for American Progress and environmental groups. Congressman Chris Van Hollen proposes to charter our Green Bank through legislation he has introduced in the House Ways and Means Committee. Our immediate goal is to have that Committee pass the Van Hollen Green Bank Act either as a standalone measure or as an amendment to the monumental Waxman-Markey bill passed by the House Energy and Commerce Committee and now referred to Ways and Means.
