How a Green Economy Is an Antidote to Casino Capitalism
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The convergence of a profound economic crisis and the inauguration of Barack Obama as President has created both tremendous challenges and opportunities for progressives in the United States. Two of the overarching economic issues around which progressives will need to struggle are: first, how to build a clean energy economy, creating millions of good jobs in the process; and second, how to create a financial system focused on channeling money toward productive investment as opposed to destabilizing speculation.
In fact, the link between these matters becomes clear once we pose the simple question: how can we pay for the transition to a clean energy economy? Realistically, there is no way to construct a clean energy economy -- driven by solar, wind, and geothermal power and biomass fuels, and operating at dramatically higher levels of energy efficiency -- unless trillions of dollars are channeled into this project over the next 20 years.
Considered on an annual basis, it is reasonable to assume that a green investment program should be in the range of $150 billion per year. This is roughly equal to 1 percent of the United States gross domestic product (GDP) or equal to the current level of our spending on the Iraq war. A green investment program of this size would create about 2.5 million new jobs within the U.S. economy. But as long as Wall Street continues to squander trillions chasing speculative profits and generating financial bubbles -- i.e. variations on the housing market, stock market, and emerging economy bubbles that we experienced just over the past decade alone -- there will not be enough money available to adequately finance a clean energy transformation.
There are only two possible ways to finance a clean energy transition -- public funding, with money coming from either the U.S. or individual states’ treasuries; or private funding, with money coming from private businesses and households. We often think about large-scale economic policy initiatives as necessarily being funded by the federal government. In fact, both public and private sources of funds will be needed to build a clean energy economy. But the key will be to ensure that private funds are channeled into green investments and away from fossil fuels.
With public funding, the two ways to raise funds are through increasing revenues or taking money out of existing government programs. Government borrowing to finance green investments -- i.e. deficit spending -- is a perfectly viable strategy in the short term. Indeed, in the current economic slump, government deficit spending is the most effective approach to inject new spending into the economy, targeted at green investments and jobs. But beyond the short run, government borrowing must be repaid with interest.
This brings us back to the two basic funding sources, increasing revenues or transferring funds from existing programs. Both possibilities should be pursued. But as we will see, it will be difficult to find enough money -- reaching to the $150 billion per year level -- from any combination of public sources. A more realistic figure for public funding may be closer to about $50 billion, i.e. one-third of the total needed.
In terms of increasing revenues, the most widely discussed proposal is the so-called cap-and-trade system that I discussed my last New Labor Forum column. This would set limits on total carbon emissions. Energy companies would receive permits from the government establishing how much fossil fuel energy they could produce. The government can raise money through a cap-and-trade system by selling the permits at an auction. This would enable only those companies paying top dollar to have the legal right to produce oil, natural gas, or coal.