Cognitive Dissonance Among Progressives and Greens

Over at CAP, Matthew Yglesias has coined the term neo-Hooverite to describe politicians like incumbent Senators Saxby Chambliss and Norm Coleman, or GOP candidate John McCain, who are proponents of reducing the deficit and cutting spending in a time of economic downturn. I completely agree with Yglesias' argument that focusing on a balanced budget in this economic climate is almost completely wrong headed. He captures the argument here:

"But if consumers cut spending at the same time businesses are reducing investment and state and local government are cutting spending and then the federal government also reduces spending well, then, everyone is going to be spending less and less. Which means everyone is going to be earning less and less. And things are just going to get worse and worse."

Yglesias, like many economists, pundits and policy makers, is quickly becoming a proponent of Keynesian-style deficit spending to spur the economy and create jobs and wealth. After all, the United States recovered from the Great Depression by spending on programs like the Public Works Administration and the Civilian Conservation Corps, and eventually mobilizing to fight World War II.

In fact, Yglesias has asserted the need for infrastructure projects in order to create jobs and increase spending. He is fully in the Keynesian corner. Which is why I was surprised when, over the weekend, almost as an afterthought in one post, he asserts the need for a price on carbon:

"What we ought to be doing with energy is putting a price on carbon, which would serve as a de facto subsidy to low-carbon energy sources."

Any economist will tell you that taxing one sector of the economy (i.e. taxing things that emit carbon) and giving money to another (spending the tax money) is not stimulus--it creates no real wealth, only reallocates it.

Perhaps Yglesias thinks that there are plenty of good reasons to put a tax on carbon emissions, and on that point we will be in perpetual disagreement. But proposing a carbon price in this economic and political climate is particularly badly reasoned. And it leads to a level of cognitive dissonance on Yglesias' blog. First he writes about the need for deficit spending to encourage economic renewal, and then champions a carbon price. It is almost as if the left hand doesn't know what the right hand is doing.

It is almost as if there is part of Yglesias' brain that is reserved for general progressive thoughts and analysis, and then a part that is reserved for particularly green thoughts and arguments. And in many ways, that is the state of the progressive coalition forming in response to the financial crisis. Labor leaders, economists, politicians and thinkers are all rallying around a long term economic renewal plan which will include public investment and short term stimulus. But in some ways, the greens remain slightly fractured from this coalition, as if its arm broke and then never quite healed properly: for some reason, climate action proponents cannot break out of a market fundamentalist attitude that is singularly focused on a carbon price (and maybe with some dividends--which, again, does not spur growth).

And this puzzles me to no end. Greens have started building support within their ranks for cap-and-dividend and could let a landmark opportunity pass them by. With the growing consensus around a need for deficit spending to spur the economy, climate action proponents could join this coalition to their great benefit. After all, what better investments for the Government to be making than in a wide portfolio of energy-related public works and technology projects?

Comments

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Glenn,
Thanks for reading. We are big fans of Robert Pollin at Breakthrough.

I think we disagree on a few key points.

Creating jobs is not the same thing as creating wealth. More jobs is definitely really good for the country and a real reason to support clean, cheap and abundant energy. However, in the context of purely economic stimulus, taking money from one sector and giving it to others is not stimulus. This money might be creating more jobs and being spent in ways that have other benefits (reducing co2 emissions), but this does not translate to wealth. In fact, the dark truth that all proponents of "green" jobs (myself included) have to face is that the more people (jobs) it takes to produce some n amount of product x, that negatively affects the profitability of that method. Now, there are other factors that affect profitability, but as a general rule, the fact that more people are employed making energy in the wind industry than from coal is bad from a profitability standpoint.

More importantly--I don't disagree with Pollin. There is tremendous potential for growth in clean energy/energy efficiency industries. In fact, Pollin's call for a 100 billion dollar, two year investment in "green" energy solutions is a very Breakthrough-type view.

My post is trying to make two simple points, one economic, one political.

Economic: Taxing one sector to spend money in another sector does not stimulus--it might mean job creation, emissions reduction or anything else, but it does not mean stimulus.

Political: If greens continue pushing the same market-based carbon emissions solutions that they have been pushing for the past 20 years, they will miss their chance to join a robust progressive coalition that wants to revitalize the economy using targeted investments that will have broad societal benefits and also create jobs and wealth economic stimulus. This coalition will have broad backing and could very will set the agenda and tone of Congress 111 and a likely Obama administration. If greens are not included, it will be from their own doing.

By Adam Zemel on 2008 11 03

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Um, your economics are bizarre and have no basis in fact. It does help create jobs and economic activity if you're shifting resources from ultra-high profit, low jobs industries like oil, coal, and nuclear to high-jobs areas like efficiency, conservation, clean energy and mass transit. Here's a table from Professor Robert Pollin's recent study of what the jobs impacts of different industries are: http://www.greenpeace.org/usa/assets/binaries/green-job-creation-table

By Glenn Hurowitz on 2008 11 01

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Terje, This post was not meant to be a detailed condemnation of the strategy of carbon pricing. There are many posts on the blog you can head to to read our thoughts on any form of a carbon price, most notably Jesse's recent post: (http://thebreakthrough.org/blog/2008/10/let_the_record_stand_where_we.shtml)

I am trying to make the largely political point that as Obama stands poised to take the Oval Office and the financial crisis demands proactive governance, progressives are forming a coalition based around economic revitalization that will include public works spending to create jobs and other economic programs. If greens continue to push their market based solution, they might have a slightly easier time of it under Obama than they did under Bush, but they still won't be part of this new coalition. Bob is right that as Keynesian stimulus becomes the order of the day, greens could be ready to advance a clean energy and low carbon agenda if they would simply let go of their carbon pricing orthodoxy.

By Adam Zemel on 2008 10 29

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I have always thought the market alone will do nothing to alter our energy production system and that cap and trade was a half measure foot in the door solution that effectively accepted the reality of our current economic philosophy and the system that expresses it as an immutable aspect of our world. Free Market fundamentalism, the economic philosophy championed by Milton Friedman, is loosing its grip on political and social dominance in the U.S. This does create an opportunity for an environmental Keynesian revolution that helps the environment and the domestic economy of the U.S.

Free Market fundamentalism, the economic philosophy championed by Milton Friedman, is loosing its grip on political and social dominance in the U.S. This does create an opportunity for an environmental Keynesian revolution that helps the environment and the domestic economy of the U.S.

By Bob Guyer on 2008 10 29

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Zemel forgets one critical fact: if we tax carbon, that means we will use less carbon fuels, which, in turn, means we will import less oil (as well as using less of local gas and coal). If the carbon tax is invested in alternative energy, it de facto means that we are extracting money from Saudi Arabia to invest in home-grown technology. This is very different than the circular argument proposed in Zemel's article. And since we are importing a billion dollar's worth of oil every single day of the year, we can extract a lot of cash out of the Saudis, and we can make some very large investments in altnerative energy. But even with the circular economic argument you gain if you move money from a very capital intensive industry like mining coal or pumping oil, industries with high profit margins but very few jobs, into, say, installing solar panels on roofs. You will create a lot more jobs for the buck even if the total investment is unchanged. All investment is not equivalent when it comes to stimulating job growth.

By Terje Skotheim on 2008 10 29