I have come to really appreciate Paul Krugman’s writing on our current economic mess. He is among a few clarion voices in the discussion that supports a calm approach to government’s role in the crisis. Krugman’s most recent column is the latest in his efforts to persuade Americans that now is not the time to cinch our belts and curtail spending as a country. Another of my favorite economists, Nouriel Roubini—also known as Doctor Doom for his predictions about the current economic melt down—agrees with Krugman. Now is not the time for overzealous politicians to score political points by fretting over debt. Krugman and Roubini’s points are worth looking at in the context of local energy efficiency programs—many funded with federal stimulus and local debt—that have great potential to create green jobs and shift our economy away from its costly dependence on fossil fuels.
Hardly a day goes by these days without someone posting a news item or opinion piece expressing worry over expanding deficits. Politicians are starting to get nervous. Just this last weekend the Washington Post ran a story with the headline “Election-year deficit fears stall Obama stimulus plan.” And the angst is spreading to worries about state and local governments defaulting on debt as well. An article in the Economist called “Can’t Pay, Won’t Pay,” unpacks the increasingly common comparison of states like Illinois and California to Greece and its recent meltdown.
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I’ve done my best to counter these worries with a post about why we shouldn’t panic about using local debt for clean energy projects and school retrofits. But here’s what a Nobel Prize-winning economist, Krugman, has to say about the worries:
Penny-pinching at a time like this isn’t just cruel; it endangers the nation’s future. And it doesn’t even do much to reduce our future debt burden, because stinting on spending now threatens the economic recovery, and with it the hope for rising revenues.
If I translate Krugman’s thinking into something useful about borrowing and spending on energy efficiency, I keep coming to the same conclusion: this isn’t spending for the sake of spending. Clean energy retrofits and infrastructure might temporarily increase state and local debt, and even put some pressure on local general funds for debt service. But money spent on energy efficiency can, if the projects are scoped well, create enough savings to significantly offset those costs. You don’t have to go much further than the examples I always cite about performance contracting, projects that can pay for themselves. Take for example school projects that can save enough money on energy to put those savings to work in the classroom by hiring or keeping a teacher.
When it comes to clean energy, if we don’t invest now in sustainable green jobs building infrastructure that actually reduces our dependence on volatile sources of energy, we’re just asking for more trouble later on—and our cash savings could easily get consumed when energy prices spike. And we wouldn’t have the jobs in place to fall back on.
So now is not the time for fiscal austerity. How will we know when that time has come? The answer is that the budget deficit should become a priority when, and only when, the Federal Reserve has regained some traction over the economy, so that it can offset the negative effects of tax increases and spending cuts by reducing interest rates.
If we get to a place when we’ve taken a big enough bite out of unemployment that demand for goods and services increases so that prices go up and inventories go down, then we can start with austerity. Doctor Doom suggests that policy makers “should maintain their fiscal stimulus while designing credible fiscal consolidation plans to be implemented later, over the medium term.”
At the local and state level we need to use tools like Qualified Energy Conservation Bonds for neighborhood-scale ground-source energy, and support for efforts like Referendum 52 in Washington, which uses debt to expand the retrofit of our public schools. Our elected officials ought to have some courage, ignore the nervous Nellies and keep focusing on jobs and large-scale energy efficiencies, which will more than offset future debt service and will go a long way toward making our region more energy independent.