Green Project

NDN Economic Backgrounder: Stimulus, the Next Expansion, and Clean Infrastructure

With negotiations on President Obama's economic recovery and reinvestment plan underway, we present much of NDN's key work on the economy, creating a stimulus for the long run, keeping people in their homes, and clean infrastructure:

  • Politics and the Economic Crisis by Dr. Robert Shapiro, 1/9/2009 - Shapiro argues that, for an economic recovery plan to be effective, we must also address the underlying causes of the "Great Recession," including the housing crisis.
  • Getting the Stimulus Right by Michael Moynihan, 1/6/2009 - Moynihan makes a number of suggestions for ensuring that the upcoming, record-size stimulus package is a success, including a board to oversee the vast expenditures.
  • The Global Economic Crisis and Future Ambassadorial Appointments by Simon Rosenberg, 11/26/2008 - With the mammoth task of rebuilding international financial architecture and recovering from a global recession awaiting the new President, Rosenberg points out the the ambassadors to the G20 nations will be key members of the economic team.
  • A Stimulus for the Long Run by Simon Rosenberg and Dr. Robert Shapiro, 11/14/2008 – This important essay lays out the now widely agreed-upon argument that the upcoming economic stimulus package must include investments in the basic elements of growth for the next decade, including elements that create a low-carbon, energy-efficient economy.
  • Back to Basics: The Treasury Plan Won't Work by Dr. Robert Shapiro, 9/24/2008 - As the financial crisis unfolded and the Bush Administration offered its response, Shapiro argued that, while major action was needed, the Treasury's plan would be ineffective.
  • Keep People in Their Homes by Simon Rosenberg and Dr. Robert Shapiro, 9/23/2008 – At the beginning of the financial collapse, NDN offered this narrative-shaping essay and campaign on the economic need to stabilize the housing market.
  • Solar Energy: The Case for Action by Michael Moynihan, 8/1/2008 – This major paper on the dynamic solar industry argues that accelerating the deployment of solar energy must become a top economic policy priority of the United States.
  • Trading in the Trading Down Economy by Michael Moynihan, 7/11/2008 - As economic activity trended downward, Moynihan argued for an economic vision that both moved America beyond the recession and positioned the country for long term prosperity.
  • A Laptop in Every Backpack by Simon Rosenberg and Alec Ross, 5/1/2007 – Rosenberg and the One Economy Corporation’s Ross offer a modest proposal for putting a laptop in the backpack of every American sixth grader, as connectivity to and facility with the global communications network are essential for success in the 21st century.
  • Video: SEIU President Andy Stern speaks to NDN about the New Landscape of Globalization, 6/20/2007

For more of NDN's 21st century economic strategy for America, please visit our Globalization Initiative page.

Taking A Closer Look at FDR's Legacy

Steve Lohr has a very worthwhile story in the NYTimes today taking a hard look at the true economic legacy of FDR.  Titled "F.D.R's Example Offers Obama Cautionary Lessons, " it begins:

In 1933, as today, a new president stepped into the White House,
vowing change and decisive action at a time when a banking crisis posed
a grave threat to the nation’s economy.

The economic morass that confronted Franklin D. Roosevelt 76 years ago was undeniably deeper and more ominous than the trouble President Obama
is facing. Yet, according to economists and historians, there are also
some telling similarities and cautionary lessons to be drawn from the
experience of the Roosevelt years in the 1930s.

Roosevelt had his triumphs. He stemmed panic and stabilized the
banking system with a combination of deposit insurance, government
investment in banks, restrictions on banking practices and his
“fireside chat” radio addresses, which repeatedly steadied the national
mood and bought Roosevelt time to make changes.

Still, even after the government assistance, the surviving banks
were shaken and lending remained anemic — much as the nation’s banks
today are reluctant to make loans again, despite receiving more than
$300 billion of taxpayers’ money in Round 1 of the federal banking
bailout.

So, throughout the 1930s, economic recovery remained frustratingly
elusive and arrived only with the buildup for World War II in the 1940s.

The shorthand verdict on Roosevelt, economists and historians say,
is that he was an eloquent and skillful politician, and an innovator in
jobs programs like the Civilian Conservation Corps and in regulatory
steps like the creation of the Securities and Exchange Commission to
police Wall Street. But Roosevelt, they say, while brilliant in many
ways, did not have a sure grasp of how to guide the economy as a whole.

“Roosevelt had some successes, but we hope that Obama is going to do
better,” said Kenneth S. Rogoff, a professor of economics at Harvard. “Otherwise, we’re in trouble.” 

I've been a little suprised that so much of the discussion in recent months on FDR's legacy has focused on his first 100 days, or some of the jobs programs which had marginal impact on the economy at the time.  A truer read of his legacy would show that America remained in an economic slow down until we went to war; that perhaps his most lasting legacy was not domestic but international, in defeating fascism and in fashioning a new liberal international order that has kept the world peaceful and prosperous for 60 years; and that of all of this was done over time, a long time - the FDR-Truman Administrations were in power for 20 years. 

As I wrote in a recent essay, Progress Not Motion, those in power now have to start coming to terms with the most challenging part of the FDR legacy - the unpleasant reality that solving the great challenges in front of us will certainly take more than the 2 years before the next election and the 4 years before the President's reelection.   There is a very real chance that the economy will still be in recession in 2010, and even 2012.  To me what this means is that our leaders need to stop raising expectations that things will get better quickly; to stop suggesting that there is no time to waste; to resist short term fixes that will not hasten the transition of America into the new economy of the 21st century.   As our new President said in his Inaugural speech last week this is a time for us to act responsibly, which means many things but certainly it means that we cannot confuse motion and progress in these vital days ahead.  It is more important at this critical time for our leaders to be right than fast - and to make it clear to the American people that the messes left behind by our recent era of terrible leadership will take many years, a lot of money, a great deal of effort and a lot of patience to fix. 

The President Acts on Climate Change

New York City -- President Obama's executive orders today on energy that include allowing states to set their own emissions standards and his decision to accelerate standards for 2011 cars are a welcome relief after the climate obstructionism of the Bush years. Welcomed by Republican Governor Schwarzenegger and other governors on both sides of the aisle, President Obama's order will give states the flexibility denied them by the Bush Administration to take action on cleaning their states and taking action on climate change.

The President's statement made clear that the various initiatives are designed to enhance, not in any way harm, the competitiveness of the U.S. auto sector. This quick action on the climate issue is another sign of the urgency with which the new Administration views climate change. We expect more executive orders to help create a clean economy in coming days.

NDN: Economic Recovery Package Signals New Priorities, Development of a 21st Century Economy

NDN today released this statement applauding the draft economic recovery and reinvestment package:

NDN: ECONOMIC RECOVERY PROPOSAL SIGNALS CHANGED PRIORITIES, ACCELERATES DEVELOPMENT OF A 21ST CENTURY ECONOMY

"President-elect Obama has made clear that this proposal should not only create more jobs, but do so in ways that will help drive the development of a real, 21st century workforce and genuine 21st century economic infrastructure," said Dr. Robert Shapiro, the Chair of NDN’s Globalization Initiative. "Investments in this 21st century economic infrastructure, such as increased broadband access, computers in schools, health information technology and provisions to green the federal government, are critical to increasing demand for the important technologies and skills that will in turn expand the nation’s capacity for innovation and economic growth."

NDN President Simon Rosenberg praised both the recovery package and President-elect Obama’s commitment to use TARP funds to help keep people in their homes.

"For years, NDN has argued that the central economic issue of our time has been the stagnating wages and incomes of everyday Americans, which led directly to the overleveraging of Americans' largest assets: their homes," Rosenberg said. "By pledging to use TARP funds to keep people in their homes, using part of the recovery package to stabilize the housing market, which is the root cause of the financial crisis, and targeting investments to create long-term prosperity, President-elect Barack Obama and the Congress have made a crucial commitment to focus America’s economic strategy on the well-being of everyday people."

"The new prominence of critical investments in clean technology and clean infrastructure in this package rightly shows that clean energy is no longer a marginal topic and now sits at the heart of America’s economic strategy," said Michael Moynihan, the Director of NDN’s Green Project, who has long argued for clean infrastructure investment. "The inclusion of $32 billion in clean technology investments at the center of this package is not only vital to addressing our short term crisis but also has the potential to power the next great wave of prosperity."

For more of NDN's work on the economy, creating a stimulus for the long run, keeping people in their homes, and clean infrastructure, please see NDN's backgrounder on Economic Recovery:

  • Politics and the Economic Crisis by Dr. Robert Shapiro, 1/9/2009 - Shapiro argues that, for an economic recovery plan to be effective, we must also address the underlying causes of the "Great Recession," including the housing crisis.
  • Getting the Stimulus Right by Michael Moynihan, 1/6/2009 - Moynihan makes a number of suggestions for ensuring that the upcoming, record-size stimulus package is a success, including a board to oversee the vast expenditures.
  • The Global Economic Crisis and Future Ambassadorial Appointments by Simon Rosenberg, 11/26/2008 - With the mammoth task of rebuilding international financial architecture and recovering from a global recession awaiting the new President, Rosenberg points out the the ambassadors to the G20 nations will be key members of the economic team.
  • A Stimulus for the Long Run by Simon Rosenberg and Dr. Robert Shapiro, 11/14/2008 – This important essay lays out the now widely agreed-upon argument that the upcoming economic stimulus package must include investments in the basic elements of growth for the next decade, including elements that create a low-carbon, energy-efficient economy.
  • Back to Basics: The Treasury Plan Won't Work by Dr. Robert Shapiro, 9/24/2008 - As the financial crisis unfolded and the Bush Administration offered its response, Shapiro argued that, while major action was needed, the Treasury's plan would be ineffective.
  • Keep People in Their Homes by Simon Rosenberg and Dr. Robert Shapiro, 9/23/2008 – At the beginning of the financial collapse, NDN offered this narrative-shaping essay and campaign on the economic need to stabilize the housing market.
  • Trading in the Trading Down Economy by Michael Moynihan, 7/11/2008 - As economic activity trended downward, Moynihan argued for an economic vision that both moved America beyond the recession and positioned the country for long term prosperity.
  • A Laptop in Every Backpack by Simon Rosenberg and Alec Ross, 5/1/2007 – Rosenberg and the One Economy Corporation’s Ross offer a modest proposal for putting a laptop in the backpack of every American sixth grader, as connectivity to and facility with the global communications network are essential for success in the 21st century.

For more of NDN's 21st century economic strategy for America, please visit our Globalization Initiative page.

Green Stimulus May Include Clean Infrastructure Bank

The Washington Post's Steven Mufson today looks at the energy provisions that may be included in the economic recovery plan being offered by President-elect Barack Obama. This clean infrastructure rich green stimulus package will reportedly include $25 billion in energy related tax credits, including a two year extension of the Production Tax Credit.

The legislation may also end up including a bank to finance energy infrastructure, an idea NDN has been advocating. From the article:

The stimulus package may also establish a federally funded National Clean Energy Lending Authority, an idea that has been promoted by Rep. Chris Van Hollen (D-Md.) and Rep. Zach Wamp (R-Tenn.). The agency would receive as much as $10 billion to $20 billion and would extend low-interest loans or loan guarantees to renewable energy projects in an effort to mobilize private capital. If successful, Van Hollen said, the agency could become self-sustaining.

The pair also proposed the establishment of a revolving fund to help finance energy-efficiency improvements by homeowners.

The two lawmakers have written to Obama and have discussed their proposal for a "green bank" with Obama's choice for chief of staff, Rahm Emanuel, and economic adviser Lawrence Summers.

"The idea is gaining traction," Van Hollen said. "It fills an essential gap right now."

As Congressman Van Hollen points out, a clean infrastructure bank is incredibly important right now, as the credit necessary for many renewable energy and clean infrastructure projects dried up in the financial meltdown. Without a way to finance these projects, tax credits alone may not have the stimulative effect that one would like.

For more on clean infrastructure and green stimulus, attend NDN's upcoming event Clean Infrastructure: Transportation Policy for the 21st Century with U.S. Rep. Earl Blumenauer, read the NDN economic backgrounder and read Melissa Merz's blog about President-elect Barack Obama's most recent weekly YouTube address.

NDN Backgrounder: Economic Stimulus, Infrastructure, and Keeping People in Their Homes

With President-elect Obama and congressional leaders meeting this week to discuss the economic recovery and reinvestment package, NDN is re-releasing a selection of its economic policy analysis and recommendations from the past few years. I hope you find these essays, memos, and papers helpful.

Background: Economic Recovery and Reinvestment

  • Getting the Stimulus Right by Michael Moynihan, 1/6/2009 - Moynihan makes a number of suggestions for ensuring that the upcoming, record-size stimulus package is a success, including a board to oversee the vast expenditures.
  • A Stimulus for the Long Run by Simon Rosenberg and Dr. Robert Shapiro, 11/14/2008 – This important essay lays out the now widely agreed-upon argument that the upcoming economic stimulus package must include investments in the basic elements of growth for the next decade, including elements that create a low-carbon, energy-efficient economy.
  • Solar Energy: The Case for Action by Michael Moynihan, 8/1/2008 – This major paper on the dynamic solar industry argues that accelerating the deployment of solar energy must become a top economic policy priority of the United States.
  • A Laptop in Every Backpack by Simon Rosenberg and Alec Ross, 5/1/2007 – Rosenberg and the One Economy Corporation’s Ross offer a modest proposal for putting a laptop in the backpack of every American sixth grader, as connectivity to and facility with the global communications network are essential for success in the 21st century.

Background: Keeping People in Their Homes, The Bailout

  • Notes on the Financial Crisis by Michael Moynihan, 9/26/2008 - Moynihan examines the panic fueled by the Bush Administrations inadequate response to the financial meltdown.
  • Back to Basics: The Treasury Plan Won't Work by Dr. Robert Shapiro, 9/24/2008 - As the financial crisis unfolded and the Bush Administration offered its response, Shapiro argued that, while major action was needed, the Treasury's plan would be ineffective. 
  • Keep People in Their Homes by Simon Rosenberg and Dr. Robert Shapiro, 9/23/2008 – At the beginning of the financial collapse, NDN offered this narrative-shaping essay and campaign on the economic need to stabilize the housing market.

Background: A New Economic Strategy for America

  • Meeting the Challenges of the 21st Century: Crafting a Better CAFTA by Simon Rosenberg, Dr. Robert Shapiro, and Joe Garcia, 6/9/2005 - NDN calls on progressive policymakers to face squarely our own vision of how globalization can and should work, as well as how America can best promote economic and political progress by our Latin American neighbors.

Getting the Stimulus Right

The stimulus package, no longer on track for an Inauguration Day signing but still the largest stimulus in modern history, is working its way rapidly through Congress.  The timetable remains so short, and the stimulus so large, that the job before Congress and the skeleton Obama economic team remains huge.  There is still time to get the stimulus right.  But there is also a risk that things may go wrong.  Here are a few thoughts on how to make the largest stimulus in history something we can all be proud of that will live up to its goal of aiding our economy in the short term and the long term.

First, we need to recognize that fiscal spending is messy, and accordingly, requires real effort and supervision.  Not for nothing is it a fiscal tool that is rarely taken out of the shed.

Unlike monetary policy, which is highly virtual and information age -- you flip a switch, the target rate for federal funds, and the economy (ideally) responds -- or tax cuts, which at most involved mailing out a rebate, fiscal spending is very sticks and mortar.  Clean infrastructure stimulus -- vital as it is to our future at this point in our history -- involves truck rolls, deliveries of heavy materials and actually putting shovel to earth.  So far, the debate around fiscal stimulus has resembled the discussion prior to a monetary move -- what should the level of stimulus be, 600, 850 or perhaps a thousand billion.  It must now take equal account of the process by which that number, whatever it is, gets translated into real economic activity.

Second, we need to face up to the fact that this level of stimulus is massive.  For those not used to calculating in twelve digits, $850 billion is 6% of GDP (3% for each of the two years the stimulus will run), about one sixth of the annual budget per year and equal per year to almost all current discretionary spending.  While yesterday, President Elect Obama signaled that a large chunk of the stimulus (about $300 billion) will take the form of a tax cut, reducing the size of the spending package, we are still talking about a massive amount of spending.

This is important because Congress must generally do two things to spend a dollar.  It must first write law to authorize the spending and, second, appropriate money against the law.  The first step, the "how," usually requires years of deliberation.  The second step, the "how much," is easier once the spending authority exists.  To meet the exceptional timeline, lawmakers are now combing previous authorization bills for authority to spend.  However, even allowing that a substantial chunk of the stimulus will go to reimbursing state medicaid expenses -- in essence to state budget relief -- and another chunk to to a middle class tax cut, finding ways to spend this much money is no walk in the park.

For this reason, it is likely that substantial sums will have to go into holding pens of one type or another, where some official, a governor or perhaps a cabinet Secretary, will have the money available to spend once he or he has identified where to spend it.

So what potential holding pens exist?

State block grants are one potential holding pen for money.  With a block grant, the money is sent to governors with light strings attached for them to spend.  There is much to be said for pushing spending decisions as far down the line as possible. 

However, the governors themelves have requested only $180 billion.  Moreover, money dispatched to states risks being used to relieve pressing budget pressure, rather than on projects that create real jobs.  As an example, in the 1990s Icetea legislation, billions that Congress wanted to go into new transportation projects were diverted by governors to covering ordinary transportation overhead when the economy weakened.  If the Obama Administration is serious about rebuilding our infrastructure and creating new jobs, block grants are not a comprehensive answer.

Another potential form of holding pen is money allocated to a department, such as the Energy Department.  However, again, money dispensed in this matter is likely to sit around until bureaucrats determine how to spend it.  This, also, is inadequate to the crisis at hand.

Since this much spending is not easy and will require massive supervision to avoid waste and generate jobs quickly, the following two ingredients are critical to a successful plan.

Congress should empower a board to oversee the spending program.  As I have written in a prior post, business as usual won't work when we're talking about almost doubling normal discretionay expenditures.  A board would have the ability to act quickly to keep the money moving and oversee the entire process.

Second, Congress should establish a national state-by-state supervisory structure, staffed with auditors, engineers and managers, responsible to the board to oversee spending.  During the New Deal, one state director of the youth activities of the WPA in Texas was Lyndon Johnson. 

In short, it is important that we get this right.  It is neither practical nor responsible to double discretionary spending without creating a supervisory mechanism to oversee and monitor it.

Obama Names Energy Team

President-elect Barack Obama today announced his energy policy team (excluding the Secretary of Transportation, who will play a huge role in energy policy and Secretary of the Interior, who will oversee many environmental issues). Obama has signaled his strong desire to create a coherent energy policy and tackle climate change by creating a White House position (Assistant to the President for Energy and Climate Change) tasked with coordinating this portfolio.

From the transition's press release:

President-Elect Barack Obama Announces Key Members of Energy and Environment Team

CHICAGO – Today, President-elect Barack Obama announced key members of his energy and environment team, including Dr. Steven Chu, Secretary of Energy; Lisa Jackson, Environmental Protection Agency (EPA) Administrator; Nancy Sutley, Chair of the White House Council on Environmental Quality (CEQ); Carol Browner, Assistant to the President for Energy and Climate Change; and Heather Zichal, Deputy Assistant to the President for Energy and Climate Change.

President-elect Obama said, "In the 21st century, we know that the future of our economy and national security is inextricably linked to one challenge: energy.  The team that I have assembled here today is uniquely suited to meet the great challenges of this defining moment. They are leading experts and accomplished managers, and they are ready to reform government and help transform our economy so that our people are more prosperous, our nation is more secure, and our planet is protected. I look forward to working with them in the years ahead."

Obama's Emerging Economic Strategy

In his Saturday address this morning, Barack Obama started filling in details of his emerging economic strategy.  Major elements of this speech - massive investment in our infrastructure, putting computers in our schools and making universal connectivity to the internet a national priority, health IT and making our government buildings more energy efficient (for both see here) - should be familiar to NDN readers, as they are ideas NDN has been championing for some time.  

Needless to say we are pleased with the direction the President-Elect is taking, and are anxious to work with him to turn these powerful words into reality next year.  

Here is the full text of this important speech: 

Good morning.

Yesterday, we received another painful reminder of the serious economic challenge our country is facing when we learned that 533,000 jobs were lost in November alone, the single worst month of job loss in over three decades. That puts the total number of jobs lost in this recession at nearly 2 million.

But this isn't about numbers. It's about each of the families those numbers represent. It's about the rising unease and frustration that so many of you are feeling during this holiday season. Will you be able to put your kids through college? Will you be able to afford health care? Will you be able to retire with dignity and security? Will your job or your husband's job or your daughter's job be the next one cut?

These are the questions that keep so many Americans awake at night. But it is not the first time these questions have been asked. We have faced difficult times before, times when our economic destiny seemed to be slipping out of our hands. And at each moment, we have risen to meet the challenge, as one people united by a sense of common purpose. And I know that Americans can rise to the moment once again.

But we need action - and action now. That is why I have asked my economic team to develop an economic recovery plan for both Wall Street and Main Street that will help save or create at least two and a half million jobs, while rebuilding our infrastructure, improving our schools, reducing our dependence on oil, and saving billions of dollars.

We won't do it the old Washington way. We won't just throw money at the problem. We'll measure progress by the reforms we make and the results we achieve - by the jobs we create, by the energy we save, by whether America is more competitive in the world.

Today, I am announcing a few key parts of my plan. First, we will launch a massive effort to make public buildings more energy-efficient. Our government now pays the highest energy bill in the world. We need to change that. We need to upgrade our federal buildings by replacing old heating systems and installing efficient light bulbs. That won't just save you, the American taxpayer, billions of dollars each year. It will put people back to work.

Second, we will create millions of jobs by making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s. We'll invest your precious tax dollars in new and smarter ways, and we'll set a simple rule - use it or lose it. If a state doesn't act quickly to invest in roads and bridges in their communities, they'll lose the money.

Third, my economic recovery plan will launch the most sweeping effort to modernize and upgrade school buildings that this country has ever seen. We will repair broken schools, make them energy-efficient, and put new computers in our classrooms. Because to help our children compete in a 21st century economy, we need to send them to 21st century schools.

As we renew our schools and highways, we'll also renew our information superhighway. It is unacceptable that the United States ranks 15th in the world in broadband adoption. Here, in the country that invented the internet, every child should have the chance to get online, and they'll get that chance when I'm President - because that's how we'll strengthen America's competitiveness in the world.

In addition to connecting our libraries and schools to the internet, we must also ensure that our hospitals are connected to each other through the internet. That is why the economic recovery plan I'm proposing will help modernize our health care system - and that won't just save jobs, it will save lives. We will make sure that every doctor's office and hospital in this country is using cutting edge technology and electronic medical records so that we can cut red tape, prevent medical mistakes, and help save billions of dollars each year.

These are a few parts of the economic recovery plan that I will be rolling out in the coming weeks. When Congress reconvenes in January, I look forward to working with them to pass a plan immediately. We need to act with the urgency this moment demands to save or create at least two and a half million jobs so that the nearly two million Americans who've lost them know that they have a future. And that's exactly what I intend to do as President of the United States.

Thanks for listening.

More Background: Note this passage from an essay Rob Shapiro and I released in early November, A Stimulus for the Long Run

This change should be directed toward creating a 21st century, low-carbon, innovation-driven economy, as the development, spread and efficient use of economic innovations will continue to be the most important factors driving all our future progress in growth, productivity, and incomes. For example, productivity gains are increasingly tied to an employee's capacity to operate effectively in workplaces dense with information and telecommunications technologies. Within a decade, workers who cannot perform in such work environments will be marginalized economically. Therefore, the stimulus should help businesses and workers prepare for the ideas-based economy, through grants to community colleges to keep their computer labs open and staffed in the evenings and on weekends for any adult to walk in and receive free computer training, a plan Obama endorsed as Senator. The stimulus also could include an innovative program to provide inexpensive laptops to every sixth-grader in America and spread broadband installation to schools, local libraries, and human services offices that currently lack it.

There is already a broad consensus on the need to include infrastructure investment in the stimulus, but instead of addressing only roads and bridges, America can also take this opportunity to invest in a new generation of clean infrastructure. The federal government can lead the way, through greening its buildings and vehicle fleets and putting 1,000 megawatts of solar power on its roofs. It also can provide funding to help modernize the electrical grid and build a new generation of light rail systems for urban areas, as well as greater support for research and deployment in renewable energy and energy efficiency technologies, and tax credits and other incentives for greening America's homes and private buildings.

Aside from energy, the other rapidly rising business cost squeezing wages and jobs is health care. To help hold down these costs for the long haul, the stimulus can provide support for hospitals, clinics and physicians to purchase and install the hardware and software for standardized electronic medical records systems. This will serve as a first down payment for 21st century health care reform, and will ultimately reduce costs and promote best-practices at the nation's hospitals.

These are all investments we know we have to make if we intend to make the U.S. economy more efficient, innovative and sustainable. They also are all investments that will ultimate pay for themselves several times over. Congress and President-elect Obama can use this opportunity not only to create more jobs, but to do so in ways that will help drive the development of a real, 21st century workforce and genuine 21st century economic infrastructure. And taking this course by passing a stimulus for change could be an early and important opportunity for him to practice both his new politics and a new form of economic leadership.

Sympathy for the Car Guys

New York City - Watching the spectacle of auto CEOs seeking aid on Capital Hill, it is interesting to contrast their reception with that of their better heeled Wall Street counterparts.  Though--or perhaps because the auto guys--compared by the New York Post this morning to Moe, Larry and Curley--are the poor men among recent corporate CEOs seeking money, they have been treated far more contemptuously.  They have had to travel hat in hand to Washington.  In contrast, bankers for the most part have stayed in New York, while the G -men, like borrowers calling on the Morgan Bank in days of yore, have made the trip to see them.  Many Americans cannot resist gloating over the plight of the auto CEOs.  Indeed the headline of today's Post was Rust in Peace.

Are people really more angry about their cars breaking down and high paid auto workers than about 30% interest on credit cards, bait and switch mortgages and fee-based banking?  I don't think so.  Reflecting on the different treatment, I think the answer is that neither group has sympathy among the public but bankers have sympathy among those in power.  This has spared them the humiliating treatment of publicly asking for money at hearing after hearing.

Outside of Detroit, hardly anyone in government even knows a car guy.  In contrast, bankers and financiers are densely intertwined with the political class in Washington.  Washington routinely taps people from the financial industry to work in government and countless Schedule C employees not to mention cabinet officials go to Wall Street upon leaving government.  Most policy wonks know dozens of people in the financial sector.  There lies the difference in how the two sectors, both suffering in the current downturn, have been received.  (There also lies the risk of crony capitalism.)

It also helps the financial sector that a large group of government organizations, from Treasury to the SEC to the Fed to the CFTC are devoted to its well being.  The auto industry though regulated with respect to safety and emissions has no similar agencies with a stake in its ongoing health.

However, if policy makers were to put aside the cultural and career affinity they may have for finance as opposed to manufacturing, they would find that the auto industry is every bit as important to America's future.

Finance is a great way to make money.  However, you don't have to believe with Kevin Phillips that finance becomes an outsized part of countries in decline to acknowledge that financial business gravitates to sectors and regions that are putting money to productive use.  Strong industry in a country makes for strong financial opportunities.  Silicon valley was a driver of Wall Street wealth building in the 1990s.  American firms, not British or Japanese ones, took most of the business. 

However in the last decade, as the center of productive uses for capital has moved to China, US financial institutions have had to chase business there and eventually, they will find themselves outmaneuvered by Chinese banks.   And markets recognize this fact.  If the Big Three go under, the stock market and US financials may decline in value as well.   The irony is that if that happens, the financials stand a good chance of getting more billions from TARP or the FED.  The result in that scenario would be that we lost not only the money but the car companies, too.  It makes more sense to put together a real plan to get our auto industry back on track.  

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