Why we should be investing in clean water and public transportation instead of bridges for cars
At the annual meeting of the New York Economic Association last month in Rochester, Kent Klitgaard of Wells College gave a disturbing paper about how everything we know about economics is going to be upset by the crisis of global climate change. Klitgaard and other economists have been trying to assess how the various carbon mitigation schemes will work, reviewing such proposals as cap-and-trade and the fuel-efficiency and renewable-energy sourcing standards now in place in many states.
Their sober summary is this: Nothing anybody in America is doing so far measures up to the challenge.
Meanwhile, just north of us in the growing mega-metro that stretches from Toronto to Hamilton, a bipartisan political consensus on public transportation investment was reached two years ago—a consensus that will redirect billions of dollars away from roads and put the money instead into electric streetcars and commuter rail. The Canadians call their project The Big Move. They will go from about 250 miles of streetcar lines to 750 miles, reducing their carbon footprint even while preparing for population growth.
Tragically, 2010 seems to be the year that some see as the irreversible turning-point for man-made climate change. Scientists dispute not whether irreversible change is happening, only when the tipping point will come. Some think that 2010 is the year. The timing is tragic because 2010 is also a political year in which climate-change deniers are running strong in the mid-term and gubernatorial elections. Candidates aplenty may be elected on a platform that man-made global warming is a left-wing theory, that oil will remain in plentiful supply because it is made by geological rather than biological processes, and that terrorism, covert action, and other forms of political violence that stem from the global fight to control oil are all issues that can be controlled so long as we let our soldiers use methods that American law generally refers to as torture.
The pessimistic expect that the national consensus American politicians developed 20 years ago on the question of chlorofluorocarbons, which threatened the ozone layer, won’t be repeated in the case of greenhouse gases. The scientific evidence and the near-universal consensus about the reality of man-made climate change—which results mainly from burning oil and coal—is being met with phenomena like the Democratic Senate candidate from West Virginia, who is running on a platform of opposition to climate-change legislation, a position quite comfortable for every Republican. But as British think-tanker Nafeez Mossadeq Ahmed’s new book shows, not only is there a consensus among scientists about catastrophic climate change, there’s a growing recognition that climate change, looming global food shortages, recent and future financial crises and the ongoing plague of political violence and terrorism are all linked by the fossil fuel business.
Ahmed’s A User’s Guide to the Crisis of Civilization is a tough read. It is dense, brilliant, and frightening. Ahmed has done the job that has needed doing: He has connected the dots for the non-specialist. His first depressing achievement is to have collated the dense scientific literature on global warming into a chapter that sums it all up simply: The governments of the major industrialized countries have all come to understand that climate change is for real, and that the catastrophe of a four degree Celsius rise in global temperatures will happen by 2050, but because we are stuck in a global system dominated by petroleum, the governments that should be taking urgent, radical steps to move us to a post-carbon economy are not doing so. Nor, Ahmed says, can they be expected to do so.
Ahmed follows his summation of what the scientists are saying with a still-salient report on the recent global financial crisis, a review of the ongoing Third World food-production crisis, and a long, unsparing look at America’s global lust for oil, a lust that has sometimes put us on both sides of the “war on terror.” The result is a difficult volume that is hard to put down. It is a truly impressive book that is terrifying, but that, sadly, because Ahmed is a Marxist, is destined to be ignored. But you can’t ignore his sources, which include US military documents that concur on the inevitability of major climate change, but that strangely do not map out energy alternatives for America.
Where is President Obama on this? One would think that Obama and his Nobel Prize-winning secretary of energy would have galvanized the nation and created a crash national program on wind and solar power, instead of hurrying up the construction of nuclear power plants—of which there could never be an adequate supply, according to Ahmed’s sources. The creator of the Gaia hypothesis, James Lovelock, pooh-poohed wind and pushed nuclear, but wind power is gaining: Google executives just last week announced that they will spend $5 billion of their pocket change to create a near-shore East Coast wind-powered grid to power more than million homes. Ahmed’s book reports on the astounding strides that the government of Germany has already made in fostering alternative, renewable, carbon-neutral energy. He also gives kudos to some local British successes. But it’s hard to be hopeful in the US today, as the fossil-fuel lobby may be about to retake the House of Representatives.
As we read the consistent warnings of economists and scientists, there is another disconnect—a local one. Predictions of the consequences of global warming are downright scary, especially the part that says that the time for action on reducing carbon-fuel emissions (including from biomass fuels like corn-based ethanol) is now. Why, if this crisis is galloping toward us, are local and regional policy-makers committing public resources to roads, bridges, and other long-lasting infrastructure that are all about oil?
Where is the commitment to public transportation?
And why are our public officials dithering about the one resource the Rust Belt may control—namely, our fresh water lakes—that may be our salvation, if it doesn’t poison us first?
Leaders and choices
Imagine that you are in public office. You have just read Nafeez Mossadeq Ahmed’s book. You may have dispatched your capable staff to hunt down some of Ahmed’s primary sources, like that National Security Agency document that somebody leaked during the Bush administration, the one that lays out all the contingencies for war over resources like fresh water. If you’re an elected official who takes the job seriously, you’ve looked at the table that shows oil prices rushing sky-high by 2015 as supplies fall. (Go to http://www.iTulip.com and read economist Richard Janszen’s time-line for a similar view of the “peak oil” hypothesis and its projected impact on global energy, commodity and financial systems. Janszen thinks that the sky-high prices will happen before 2015.)
These researchers found that one-third of American counties “will face higher risks of water shortages by mid-century as the result of global warming.” California, Arizona, Texas, Florida, the Atlanta area, Washington, DC, and many other areas will be suffering.
Guess which counties won’t be suffering?
Answer: The old Great Lakes urban areas are where the water is and where the water will still be, thanks to the Great Lakes Compact signed two years ago. But the current state of our wisdom includes discordant information: The water will be here, but the people won’t. By 2050, California’s population will surge another 20 million over its current population, which is already north of 35 million today. Back home in the Rust Belt, where the population is not projected to increase (in fact, our population is expected to decrease radically by 2030), one could say that we will have the most precious of resources in oversupply, and users in under-supply.
So as an elected official, here are the facts: Your population is shrinking, but you have a precious resource that could, when today’s college students are old enough to be the parents of college students, be the great differentiator in economic survivability as climate change raises sea levels for our coastal cities, shrinks California mountain snowfall, dries out the Sunbelt, and generally causes distress everywhere but here. What would you, as a far-seeing elected official, want to invest today’s scarce public dollars in?
Here are the choices: a) invest like the Province of Ontario is investing, $2 billion a year for 25 years, in public transportation, so that 80 percent of the residents of the Greater Toronto and Hamilton Area will be no more than 1.2 miles from an electric train or trolley car; b) invest in the technology that will replace oil and create a more localized system of carbon-free or at least carbon-neutral power; c) clean up the water you do have so that the toxic waste, the sludge, the brownfields, etc., that characterize your waterfront today are gone by the time the demand for development arrives.
Those would seem to be smart choices. Instead, our local government leaders have no plan for extending trolley cars or replacing the filthy and dangerous coal-fired power plant on River Road or the one in Somerset. And instead of using public money to clean up the unique natural resource—water—they are in a rush to get Obama’s money to build more bridges for oil-fueled cars and trucks, including a redundant bridge over the Buffalo River that will connect downtown to a waterfront brownfield.
The Canadians are creating jobs by building their infrastructure. The Canadian manufacturer, Bombardier, is producing the new trolley cars that will start life in downtown Toronto and downtown Hamilton in the next year or so. Using the uncrowded Peace Bridge, where the only delays you’ll ever encounter come when Canadians are on the way to Bills games, you can drive north and see the future that local leaders evidently cannot imagine for us.
Bruce Fisher is visiting professor of economics and finance at Buffalo State College, where he directs the Center for Economic and Policy Studies.
Austerity is the word the British use. Smaller government is the phrase we Americans use. The Democratic president who got Congress to go along with his plan for more than $700 billion in emergency economic stimulus spending has now become a deficit hawk. Both the Republican and the Democratic candidates for governor of New York are pledging to reduce government spending and to balance the budget without raising taxes. From London to Manhattan, from Washington to Wisconsin, there is not a candidate in the land who is ready to defend or even explain the role of government in the economy. The rhetoric is all Reagan, all the time.
This drives some economists nuts. Joseph Stiglitz, who won the Nobel Prize in 2001, told a New York audience last week that the American economy desperately needs another round of stimulus spending by the federal government—and a much more robust public works program. “Without a second stimulus, we will have a long recovery period,” he said. State governments need more federal help, not less, because states “were the innocent victims of economic mismanagement at the national level.” Stiglitz made headlines, but not many politician friends, when he called for a “millionaire’s tax” in 2008. Readers of the New York Times are familiar with this approach because Paul Krugman, another Nobel Prize-winning economist, writes a twice-weekly column in which he makes these same points.
The counterpoint is that government spending of any kind is bad. This view is on display every single day of the week in the Wall Street Journal, on Fox News, and in the position papers of every candidate who bothers to write them.
It would sound like a replay of the traditional liberal versus conservative rhetoric, except for one new reality—which is that it’s bipartisan. Meanwhile, there’s a third group of economists, the students of the bubble, who are critical of both the borrow-and-invest liberals and of the cut-and-divest conservatives. These are the folks who are warning that the speculative bubble that former Federal Reserve Board chairman Alan Greenspan created during the George W. Bush presidency, the bubble that started bursting in 2007 with the subprime mortgage crisis and that threw the world into crisis and recession in 2008, was nothing compared to the speculative bubble that is growing in China today. The Chinese bubble will burst as soon as next year, wreaking havoc of the kind the world hasn’t seen since the Great Depression.
And all of our candidates, Democratic and Republican, at every level, are working overtime to outdo one another in driving down the one area of the American economy that might just help avert the next global financial catastrophe—namely, government spending that might get our economy growing again.
No jobs, old sewers, no will
Liberals are complaining much more loudly that Obama blew it. Obama stuck too close to the bankers, they say. Larry Summers, Obama’s chief economic advisor, led the way for deregulation of financial markets, became a rich consultant to bankers, and drank their Kool-Aid. Liberal economists have been complaining at least since Ronald Reagan’s election in 1980 that the rich are getting too rich, the number of poor people is growing to be too large a share of the national population, and the American middle class is too stressed. Conservatives scoff at all that, and remind everybody that even liberals love capitalism. These days, as unemployment lingers at 12 percent in many states, as Food Stamp applications rise in the suburbs, as Rust Belt cities temporarily stop shrinking because their young people can find no Sun Belt jobs to move to, and as the next phase of the foreclosure crisis lurches into public consciousness, every level of government is a piñata, and incumbents are the whipping-boys. We’ll all be rich again, the rhetoric says, if we just get government out of the way of the private sector.
Here’s the problem: The private sector as we know it has changed. One struggles to tell just how greatly things have changed, and that the old rules won’t work, when even a learned professor from Harvard still argues that unemployment benefits should not be extended beyond 26 weeks because back in the 1980s, during our last hard recession, that relatively short time-horizon led job-seekers to find work quickly. What work is there to find today? Thousands of factories have closed since then. They’re all in China now.
Economists who study the bubble talk about how liberals and the conservatives are both wrong. There has been a structural change in the American economy because the financiers have come to rule politics after having succeeded in convincing American politicians to deindustrialize, which eliminated high-wage jobs. At the same time as thousands of factories (except defense factories) closed, there was a vast deregulation, as when Bill Clinton’s team tore down the New Deal wall between regular banks and investment banks, a move that encouraged risky speculation of money that was supposed to be risk-free, and that made the financially rich far, far richer than at any time in history. Meanwhile, to distract the middle class, whose incomes (the liberals relentlessly pointed out) were not keeping pace with inflation, Washington policy-makers of both parties, and especially Greenspan of the Fed, propped up middle-class finances by fabricating the real-estate bubble.
We were rich with fake money. A Florida or California or Boston or Washington house bought for three times your annual salary in 1990 was suddenly worth 10 times your annual salary in 2000. Folks from Buffalo or Cleveland or Indianapolis who got transferred to any of these hot real-estate markets in the 1990s or early 2000s experienced sticker-shock, because back home, the value of a house had by comparison changed but little over the previous decade. Suddenly, folks were taking out home-equity loans because their houses had jumped in value—using their houses like ATMs, in effect, to buy things like college tuition, SUVs, new kitchens, and even vacations. When the bubble started bursting in 2007, homeowners began finding themselves unable to pay on their loans; millions were foreclosed. Somewhere between one-fifth and one-third of all mortgages today are on houses where the amount owed is higher than the market value of the property.
A Chinese professor of economics just in from Beijing attended a seminar on public finance the other day, and, wide-eyed at this description of recent events in America, quietly spoke about how today in China, the house he bought three years ago is now worth 300 percent of what he paid for it. As he described how buyers are rushing to get their cash into real estate, even though the Chinese buyer cannot borrow as much as the American buyer, the unmistakable characteristics of a growing bubble were revealed.
Back home in electoral America, there is not much talk today about raising federal income tax rates on hedge-fund managers or Wall Street bankers, notwithstanding new record-high bonus payments having just been reported. The Ronald Reagan rhetoric of 1980 has become everybody’s article of faith: On tax policy, one cannot distinguish Glenn Beck or Sarah Palin from any Democratic running for any office. A new study of growing poverty in America has not led to a plan, at either the state or federal level, to use public funds to create employment. Report after report is issued about the aging of our 1950s-era infrastructure, especially long-neglected sewer systems in old cities, but 2010 is not 2009, which is the last time anybody in public office spoke about creating a National Infrastructure Bank.
What’s happening now, say the non-liberal, non-conservative economists who study bubble economics, is that the Wall Street speculators have decided that austerity, smaller government, and reduced consumer demand are all just fine with them. And since they fund campaigns, everybody who wants their money sings their tune, Democrat and Republican alike.
James Galbraith calls this new situation the “predatory state.” Michael Hudson calls what’s going on today the consequence of “hitting the wall of indebtedness.” Edward Janszen of itulip.com criticizes the traditional liberals who want the US to go further into debt in order to stimulate new jobs, because he thinks that our new Federal Reserve chairman, Ben Bernanke, is already proposing that America “borrow its way out of debt.” Sound crazy? You betcha.
More unemployment. More poverty. The middle class unable to borrow more, and thus unable to consume as before. Corporations holding onto their earnings. Banks speculating overseas rather than lending here, notwithstanding all the encouragement banks get to make loans here. Housing prices low and declining in many parts of America. State governments having to reduce spending even as the demand for state services goes up. These are all deflationary pressures. Deflation is the opposite of inflation.
On the websites of the bubble economists, ugly scenarios get sketched. Here’s one for a couple of years from now: America’s demand for Chinese-made goods is lower, American economic activity is still anemic, Tea Party rhetoric is hotter, the anti-spending, anti-government craze leads to a full takeover of Congress and the White House by folks who decide that warfare is the only way to spend public money that the angry, unemployed, poorer public will accept, but in order to get some meat on the table, a bubble will have to be created.
Wait, doesn’t that sound familiar? Didn’t we just live through eight years of that? Stay tuned, ladies and gents: The warfare bubble is straight ahead!
Bruce Fisher is visiting professor of economics and finance at Buffalo State College, where he directs the Center for Economic and Policy Studies.
Max 03 Nov 2010, 16:03
Thanks for another insightful piece, Bruce. I suppose the only question now is where our next military escapade will take place - the Middle East or Asia?