A number of factors combined to create the vortex of the Great Recession in 2008.
Since the darkest days of the Great Recession, many signs show that big sectors of the economy are getting demonstrably better.
Unemployment is down from a high of 10.0% in late 2010 to a current rate of 7.5%. (Graphic courtesy of BLS)
The Case Shiller Index indicates home values are up significantly, the highest since 2006. (Graphic from McGraw Hill via Slate.) Recovery in the housing market is critical as the housing bust lit the fuse for the financial meltdown.
Meanwhile, financial markets have stabilized. This week, Moody's upgraded its outlook on our financial sector for the first time in five years.
The S&P 500 has increased dramatically since 2009. (Graphic courtesy of the New York Times)
For the first time since the 100-day mark of Obama’s first term, most say they are optimistic about the direction of the economy. More than half, 56 percent, say the economy is on the mend, the most to say so in polls since 2009.
Recent polling from Gallup also indicates that economic confidence is higher now than at any point since 2008. Note the trendline below:
Nate Silver believes the economic recovery is saving the President's approval ratings. This sentiment might raise eyebrows in some quarters, but Silver makes a compelling case.
A columnist at Forbes even asked if President Obama might be America's greatest economic president, recalling how bleak the economy looked at the height of the Great Recession in 2009.
Our analysis indicates that Americans measure the economy locally. In effect, the housing market, gas prices and knowing people who need a job are more reliable indicators of economic strength to most people than the national unemployment rate. A stabilizing housing market coupled with a steady chipping away at unemployment and less volatile gas prices is undoubtedly leading many Americans to feel more confident about the economic recovery - and that's showing up in polling.
President Obama should continue to talk about jobs because that's the main problem Americans think Washington needs to address. Continued investment in manufacturing and infrastructure are the best way to move the needle on jobs on a macro level - and keep his approval ratings headed in the right direction.
If you wanted to start an energy project - from a traditional energy source like oil or a clean energy source like solar or wind - the first thing you need to do is attract investors. If you don't have access to capital, your project is unlikely to get off the ground.
One of the ways energy projects are financed is through a mechanism known as a Master Limited Partnership or MLP. An MLP is a business structure where investors provide capital to a managing partner that handles the MLP's daily operation. (You can read a lot more about the operating model of MLPs here.)
Here's where it gets interesting. For years, the MLP structure has only been available to oil and gas endeavors.
Today, a bipartisan group of Senators and Representatives introduced new legislation to level the playing field for all sources of energy. The Master Limited Partnerships Parity Act will allow all energy sources - including clean energy sources - to have a shot at the MLP model. This will level the playing field and give all domestic energy sources a fair shot to compete in the marketplace.
This simple tweak (the entire bill is 600 words long) to the tax code could unleash a significant new revenue stream to start up clean energy companies. With sponsors ranging from Democratic Senator Chris Coons to Republican Ted Poe, this commonsense legislation could actually move forward in this bitterly divided Congress.
An overwhelming majority of Americans believe that significant investments in clean energy and energy efficiency are critical for our nation’s future. In addition to the clear environmental and public health impacts, taking charge of the emerging clean energy sector could play a tremendous role in spurring economic growth and job creation.
In addition to these benefits, some major corporations have now realized that cleaning up their energy usage is also good for their bottom line.
Walmart began a major sustainability initiative in 2005 that established a wide range of energy initiatives including reducing energy usage at their stores by 30% and doubling the fuel economy for their fleet within ten years. Ultimately, Walmart intends to power their stores using 100% renewable sources. That’s a big challenge for the largest private consumer of electricity in the United States.
This week, the world’s largest retailer rolled out some concrete steps on their path to 100% renewable electricity. Walmart announced that by the end of 2020, the company would generate or purchase 7 billion kilowatt hours of renewable energy, a 600% increase of their 2010 investment. Although specifics of the plan were not released, Walmart indicated that they intend to install solar arrays on at least one thousand buildings.
"More than ever, we know that our goal to be supplied 100 per cent by renewable energy is the right goal and that marrying up renewables with energy efficiency is especially powerful. The math adds up pretty quickly - when we use less energy that's less energy we have to buy, and that means less waste and more savings. These new commitments will make us a stronger business, and they're great for our communities and the environment."
Transitioning to renewable energy isn’t just good public policy. It’s also a real bottom line issue for corporations willing and able to seize the opportunity. These investments in energy efficiency and renewable energy production could save Walmart a BILLION dollars per year once the targets are met.
This investment will not only be great for Walmart, but will also provide a boost to the nascent clean energy sector overall. An investment of this size could help drive prices down and attract more clean energy manufacturing to the United States. It also sends an important signal to other large companies that investing in energy efficiency and renewable energy has a host of financial benefits.
Although Walmart certainly faces its share of scrutiny, they deserve praise for this level of commitment to clean energy.
Karan Bhatia’s recent piece on Ideas Lab provides an important – and needed – private sector perspective on the importance of infrastructure investment. As cited by Mr. Bhatia, the American Society of Civil Engineers recently gave our national infrastructure a grade of D+. Mr. Bhatia also cites the McKinsey analysis that starkly conveys the magnitude of this crisis – $57 trillion in infrastructure investment will be required between now and 2030 simply to keep up with projected global GDP growth. In order to maintain our economic competitiveness in a global economy, America has to invest in our transportation and energy infrastructure.
Of course, the truly complicating and somewhat inexplicable factor in this mess: Virtually everyone in Washington agrees that our lack of investment in infrastructure is a problem, yet can’t agree on how to address it.
In this era of constrained budgets, is there anything we can do to fix this problem?
The short answer is yes. We can take action on policy solutions at all levels – federal, state and local. We can seek greater private sector investment. We can forge more effective partnerships across the board, including at the regional level.
On the federal level, President Obama has offered a suite of infrastructure policies that are a good place to start. The President’s proposal has a handful of major components. The Obama Administration’s ‘Fix it First’ program would be a $50 billion shot in the arm to our transportation infrastructure, with 80% targeted for the most urgent fixes.
Under the umbrella of the Rebuild America Partnership, the Administration has proposed a handful of ways to help attract private money to infrastructure projects, including America Fast Forward Bonds, growing the Transportation Infrastructure Finance and Innovation Act (TIFIA) program, and the creation of a national Infrastructure Bank.
All of these proposals *should* move forward. The question is if they will. TIFIA has been a successful model for building roads, but to date, the model has been less successful for more complicated infrastructure upgrades like transit. The concept of a national infrastructure bank has been around for years, yet it still hasn’t materialized. Unless Congress can find a path forward, the infrastructure bank may be left by the wayside.
Given the general state of paralysis in Congress, we can’t count on Washington alone to generate action on Infrastructure. After all, infrastructure is ultimately a local and regional investment. As a nation, we should follow the lead of some really interesting and innovative solutions that are occurring on the state and regional level.
An interesting example of regionalism can be found in the West Coast Infrastructure Exchange (WCX). The west coast states of Washington, Oregon, and California – along with the Canadian province British Columbia – realized that in terms of infrastructure, their fates are tied together. Rather than a piecemeal approach, these states joined together as a region to form an infrastructure exchange to focus on developing new ways to finance regional infrastructure to enhance regional economic competitiveness. Needless to say, this is a departure from business as usual, and it’s an important model for other communities across America. Projects like WCX are a complement to a national infrastructure bank. Most importantly, regional solutions like WCX create a more robust system that creates a stronger pipeline of projects. That’s probably why The West Coast Infrastructure Exchange was named an “Innovation to Watch“ by our colleagues at the Brookings Institution.
We have a lot of work in front of us when it comes to infrastructure. Fortunately, digging our way out of this problem (sometimes literally) has a wide range of economic benefits including increased competitiveness, job creation, and enhancing the overall ecosystem for entrepreneurs to thrive.
The jobs report for March was underwhelming at best. Former Chairman of President Obama's Council of Economic Advisors Austan Goolsbee called it a 'punch to the gut.'
Most models predicted job growth between 160,000 - 180,000 for March. The just announced jobs number for March is only 88,000. Despite this low number, the unemployment rate dropped slightly to 7.6%.
So what happened? This is the first post-sequester jobs report. It appears that the sequester is having more of an impact on job creation than most assumed. Government job losses - a trend for the last few years - appear to be accelerating.
The coming week could be significant in breaking through the Congressional log jam. Congress returns from their two week recess. On Wednesday, President Obama will release his budget. According to a senior White House official, the President's budget will 'show how we can invest in the things we need to grow our economy, create jobs and strengthen the middle class while further reducing the deficit in a balanced way.'
Recent opinion research from Marist shows that Americans believe the top priority for the President and Congress should be job creation - favored over deficit reduction by a 2-1 margin.
What exactly can be done to create jobs? Investing in the jobs ecosystem would be a great first step - infrastructure, rebuilding our ancient electricity grid, and accelerating advanced manufacturing.
The real question: Is the March jobs report a blip or an ominous sign of things to come?
The day after the State of the Union address, the President of the United States boarded Air Force One and flew to an important – if unlikely – destination. Upon arriving in Asheville, NC, President Obama visited a retooled Volvo factory that now makes engine blocks for heavy equipment. The 150 employee facility visited by the President could be the face of the next economy.
Without manufacturing, we can’t have a strong middle class; and without a strong middle class, we can’t have a strong America. Although the days of manufacturing everyday items in America are seemingly in the rear view mirror, we can – and should – lead the world in advanced manufacturing. (Readers of Ideas Lab are aware that the term ‘advanced manufacturing’ means high tech products like advanced batteries, wind turbines, or biotech advancements that rely on workers with specialized skills, education, and innovation.)
I recently wrote a paper titled Acceleration 2.0 that detailed the findings of the Next Economy Partnership Project’s research regarding job creation and jumpstarting the economy. Along with clean energy and innovation infrastructure, Americans believe that advanced manufacturing is critical to building an economy with – to borrow a line from the President – jobs that are built to last. However, at the heart of our research is a finding that more in Washington should heed. Although partisans get caught up on arguments over more government versus less government, what Americans really want is smart government – a catalyst for big breakthrough projects and a standard setter to make sure people play by the rules.
A prime example of smart government is the Obama Administration’s effort on advanced manufacturing. This effort spans a range of initiatives including the Advanced Manufacturing Partnership (AMP) and National Network of Manufacturing Innovation (NNMI.)
The key word for this suite of initiatives is ‘partnership.’ Upon its inception in 2011, the goal of the public-private Advanced Manufacturing Partnership was to define areas where academia, the private sector and communities could have a collaborative relationship. This ‘bottom up’ strategy is not only critical to get buy in from state and local governments and the private sector; it also helps bring great ideas from different corners of America. By using federal money to leverage partnerships that might not occur otherwise, these initiatives are fostering innovation and providing the structure for an entity that can thrive well beyond the lifespan of the initial investment.
The Obama administration efforts have focused on two big, interrelated issues – technology development and workforce development – with partnership as the core guiding principle. As you might expect, technology is critical to advanced manufacturing. To help develop the technology side, AMP encourages partnerships between some of America’s great educational institutions like Georgia Tech, the University of Michigan, and Stanford University with federal agencies and industry leaders. In this context, facilities like the Department of Energy’s Office of Energy Efficiency and Renewable Energy can partner with premier academic institutions to accelerate cutting edge technologies from both sides.
Just as the Volvo plant in Asheville needed to be retooled, America’s workforce needs a skill retooling. On workforce development, AMP is investing heavily in project based learning and community colleges. Again, using federal money as a catalyst, community colleges are being reformulated into places to connect workers not only with relevant modern skills, but also with jobs. In the Asheville example, Linamar partnered with Asheville-Buncombe Technical Community College to develop a curriculum specific to jobs at the new Linamar facility. Partnerships like this are happening at community colleges across America, including Volkswagen and Chattanooga State’s partnership with Volkswagen. This partnership model highlights a component of this equation that often gets overlooked – important efforts undertaken by the private sector. Forward looking companies know that for their own futures, they need to invest in the serious work of skills retooling and on the job experiential training. Simply signing a letter in support of the local community college isn’t enough these days. Huge companies like Caterpillar, GE and Ford are making significant investments to ‘insource’ jobs in America. Deep private sector engagement is critical for sustained success in advanced manufacturing and, more broadly, in an innovation-based economy.
(For more thoughts on what’s needed to scale up advanced manufacturing, you can read this piece on Ideas Lab.)
The President’s manufacturing initiatives have accomplished a great deal in a short span of time. The Obama Administration has three more NNMI affiliated manufacturing institutes ready to roll out, but without action from Congress, the full vision of 15 won’t be achieved. Here’s hoping Congress can look past the blinders of daily partisan wrestling matches and acknowledge smart policy on economic development. The impact of initiatives like AMP and NNMI will be seen over the next several years. Catalytic investment will help ignite an advanced manufacturing renaissance, creating jobs across the country. But another legacy of smart partnerships like AMP or NNMI will be seen in Washington. In several years, we may look at President Obama’s manufacturing initiatives as the moment Washington shifted towards smart, flexible federalism.
There’s an old joke about engineers: If you fail your basic courses, it’s no big deal – the bridge just falls down.
Unfortunately, according to a new report from the American Society of Civil Engineers, the joke is on us. In their quadrennial Report on American Infrastructure, ASCE gives our roads, bridges, water and energy networks a D+.
On a very basic level, this is bad news because no one wants a bridge to fall down, certainly not while people might be on it or underneath it.
However, the more concerning element of our declining infrastructure is the impact it has on our economy. Crumbling infrastructure makes it difficult for entrepreneurs to thrive. Investing in infrastructure is critical to modernize regional economies around the United States and to increase America’s competitiveness in the 21st century global economy.
Building America’s Future co-chair and former Governor of Pennsylvania Ed Rendell said ‘What our competitors are spending on infrastructure should make us feel ashamed.’ Rendell continued ‘For America to stay competitive in a global economy, we must significantly improve our energy, transportation and water systems.’
The tiny kernel of good news in this report is our infrastructure has actually gotten slightly better over the past four years, inching up to a D+ from a D. However, to really make progress on this front in the near term, we need to invest heavily on infrastructure on a national level. Implementing President Obama’s Fix It First agenda would be an excellent place to start. The President’s plan calls for $50 billion to spend on backlogged maintenance for transportation projects across America.
Developing a national infrastructure bank is another important step to fixing America’s infrastructure problem in the mid-term. Not surprisingly, Congress is seemingly paralyzed on this issue (as well as many others), despite the clear cut economic benefits.
Lastly, investing in innovation infrastructure as spelled out in Acceleration 2.0. In addition to roads and bridges, we need to redefine infrastructure to include the wide range of investments that can modernize our economy: replacing our archaic electrical grid with a smart grid, replacing aging coal fired power plants with 21st century renewable energy, providing broadband or wifi to every home and business in America, and building a network of venture development organizations to more quickly move research from the lab bench to the marketplace.
Our aging infrastructure is an anchor, dragging us downward. Fortunately, we know what we can do to fix it. We just need a little leadership.
"Older politicians will have to get beyond their ideological blinders to recognize the opportunity waiting for any candidate or political party that can embrace both halves of the Millennial era civic ethos paradox."