tag:theconversation.com,2011:/fr/topics/2009-us-stimulus-plan-32366/articles2009 US stimulus plan – The Conversation2021-02-24T13:27:09Ztag:theconversation.com,2011:article/1550122021-02-24T13:27:09Z2021-02-24T13:27:09ZRelief or stimulus: What’s the difference, and what it means for Biden’s $1.9 trillion coronavirus package<figure><img src="https://images.theconversation.com/files/385982/original/file-20210223-23-s19e10.jpg?ixlib=rb-1.1.0&rect=291%2C0%2C5120%2C3480&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Biden made passing his $1.9 trillion bill one of his top priorities. </span> <span class="attribution"><a class="source" href="https://newsroom.ap.org/detail/BidenMinimumWage/d81b3879bfd9430a9155b21ede88112c/photo?Query=1.9%20trillion&mediaType=photo&sortBy=arrivaldatetime:desc&dateRange=Anytime&totalCount=46&currentItemNo=2">AP Photo/Evan Vucci</a></span></figcaption></figure><p>The Biden administration and Congress <a href="https://www.nytimes.com/2021/02/05/business/biden-stimulus.html">are fast-tracking</a> a US$1.9 trillion coronavirus package that includes aid for states, cities, individuals, the unemployed, schools and much else. It <a href="https://www.cnet.com/personal-finance/new-stimulus-bill-latest-update-on-1400-check-federal-minimum-wage-hike-more/">could become law within weeks</a>.</p>
<p>But is it stimulus or relief? </p>
<p>If you’ve been reading stories on the legislation, you’ll frequently see it called <a href="https://www.nytimes.com/2021/02/05/business/biden-stimulus.html">one</a> or the <a href="https://www.cnbc.com/2021/02/22/stimulus-update-heres-whats-next-for-bidens-covid-relief-package.html">other</a> – or <a href="https://www.cnn.com/2021/02/19/politics/stimulus-house-democrats-proposal/index.html">sometimes both</a>. The White House <a href="https://www.whitehouse.gov/briefing-room/legislation/2021/01/20/president-biden-announces-american-rescue-plan/">calls it a “rescue plan,”</a> while an economist <a href="https://www.brookings.edu/blog/up-front/2021/01/28/the-macroeconomic-implications-of-bidens-1-9-trillion-fiscal-package/">might dryly refer to it</a> as a “fiscal” package. </p>
<p>What does it matter? </p>
<p>As a macroeconomist who <a href="https://www.sciencedirect.com/science/article/pii/S0164070416300854">focuses</a> on <a href="https://link.springer.com/article/10.1007/s10887-009-9040-3">growth</a>, I would argue it both matters – and it doesn’t. On one level it’s semantics, or politics, but there’s also a fundamental question about what really ails the economy – and what the right remedy is. </p>
<h2>It’s a relief</h2>
<p>A <a href="https://www.investopedia.com/terms/m/macroeconomics.asp">macroeconomy</a> – that is, the overall economy, not individual businesses or industries – is made of two basic components: aggregate supply and aggregate demand. Aggregate supply represents the quantity of goods and services an economy can produce, while aggregate demand represents how much consumers and businesses are willing to spend on those products.</p>
<p>When an economic crisis strikes, the <a href="https://research.stlouisfed.org/publications/economic-synopses/2020/05/20/is-the-covid-19-pandemic-a-supply-or-a-demand-shock">problem is usually considered one or the other</a>: Either the economy’s capacity to produce goods and services has been curtailed, or something reduced the willingness of consumers and businesses to buy stuff. More rarely, it can also be both. </p>
<p>Economists consider a relief package the right solution when the crisis <a href="https://research.stlouisfed.org/publications/economic-synopses/2020/05/20/is-the-covid-19-pandemic-a-supply-or-a-demand-shock">affects primarily supply</a>. When much of the U.S. economy shut down a year ago, for example, the <a href="https://www.nytimes.com/2020/02/29/upshot/coronavirus-recession-US.html">pandemic recession felt very much like a so-called supply shock</a>, as many businesses had to close their doors and stop providing goods and services. So economists and policymakers assumed the economy’s primary need was aid to tide over companies and workers until the crisis passed. </p>
<p>That’s why the <a href="https://www.businessinsider.com/what-is-a-bailout-coronavirus-stimulus-package-explained-2020-3">2020 coronavirus bills</a> were generally seen as aimed at providing relief – in the form of supplemental unemployment benefits, individual checks and grants to small businesses to keep workers on their payroll – not stimulus. The Associated Press style guide, effectively a bible for journalists about word usage, <a href="https://apstylebook.com/topicals/topicals-coronavirus-topical-guide-coronavirus-topical-guide">explicitly advises</a> reporters covering March’s <a href="https://home.treasury.gov/policy-issues/cares">$2.2 trillion coronavirus relief bill</a>: “Do not refer to it as a stimulus. … The measure was passed to replace money lost in the collapse of the economy, rather than to stimulate demand.”</p>
<p>So if the economy’s underlying problems concern supply, the main goal is to shore up industries, businesses and individuals most affected until they can get back to work, which, most people at first assumed, was just a matter of time. The <a href="https://www.sba.gov/funding-programs/loans/coronavirus-relief-options/paycheck-protection-program">Paycheck Protection Program</a>, which gave forgivable loans to businesses affected by COVID-19 lockdowns last year, is a good example of this approach.</p>
<h2>Or is it stimulating</h2>
<p>A stimulus, as the name implies, is meant to stimulate the macroeconomy. </p>
<p>It begins with the assumption that what ails the economy is a lack of demand for goods and services. The idea, <a href="https://www.investopedia.com/terms/k/keynesianeconomics.asp">first proposed by British economist John Maynard Keynes during the Great Depression</a>, is that an economy is unlikely to recover on its own unless the government jump-starts spending, stimulating consumer and business demand. </p>
<p>One recent example of government stimulus is the $787 billion <a href="https://www.thebalance.com/what-was-obama-s-stimulus-package-3305625">American Recovery and Reinvestment Act</a> passed in 2009 during the Great Recession. Economists <a href="https://www.washingtonpost.com/blogs/ezra-klein/post/did-the-stimulus-work-a-review-of-the-nine-best-studies-on-the-subject/2011/08/16/gIQAThbibJ_blog.html">broadly consider it stimulus</a>, and it was split between tax cuts, spending on unemployment and education, and infrastructure investment. </p>
<p>A stimulus bill, first and foremost, is meant to get consumers to spend and businesses to invest. It can accomplish this by cutting taxes, injecting money into the economy or investing in what were referred to in 2009 as <a href="https://finance.yahoo.com/news/happened-shovel-ready-infrastructure-projects-212123861.html">“shovel-ready” infrastructure projects</a>.</p>
<h2>Depends on the crisis</h2>
<p>So that raises the question, what kind of economic crisis are we in now?</p>
<p>To some extent, it’s delivered a shock to both supply and demand and <a href="https://theconversation.com/will-it-be-a-v-or-a-k-the-many-shapes-of-recessions-and-recoveries-147727">has affected different parts of the economy</a> in very divergent ways. Some companies, <a href="https://www.brookings.edu/blog/the-avenue/2020/12/22/amazon-and-walmart-have-raked-in-billions-in-additional-profits-during-the-pandemic-and-shared-almost-none-of-it-with-their-workers/">like Amazon</a>, are doing great, while others, <a href="https://www.usatoday.com/story/money/2020/03/20/us-industries-being-devastated-by-the-coronavirus-travel-hotels-food/111431804/">such as airlines and hotels</a>, are doing terribly. And employees with <a href="https://www.nytimes.com/2020/12/14/opinion/sunday/the-people-who-actually-had-a-pretty-great-year.html">professional jobs who can work from home</a> over Zoom are doing fine, while <a href="https://www.aarp.org/work/job-search/info-2020/job-losses-during-covid.html">many lower-paid service workers</a> are among the hardest hit. </p>
<p><a href="https://www.bls.gov/news.release/empsit.nr0.htm">January’s jobs report shows</a> the dual track. The main unemployment rate fell to 6.3%, significantly down from 14.8% last April. At the same time, the number of unemployed describing their job loss as “permanent” is declining more slowly and remains three times its pre-pandemic level. And the number of long-term unemployed has been increasing. Moreover, the 6.3% headline rate <a href="https://theconversation.com/latest-jobs-report-shows-why-the-unemployment-rate-needs-fixing-154695">measures only people actively looking for work</a> and leaves out millions of Americans who have given up looking for work or are underemployed. </p>
<p>Taken together, these numbers indicate that a large number of people are not expecting to get back to work anytime soon and will need more than just a little help to tide them over. This situation makes the case for a <a href="https://stayathomemacro.substack.com/p/who-should-get-a-1400-check">large, broad-based package</a> – something like the Biden proposal – that both provides relief but also stimulus to create the demand for new jobs and to draw the long-term unemployed back into the job market.</p>
<p>Some have grown alarmed about the amount of money the government will spend, however, and worry that it’ll stimulate too much and spur inflation. <a href="https://www.bloomberg.com/opinion/articles/2021-02-05/biden-covid-relief-plan-what-is-larry-summers-worried-about">Former Treasury Secretary Lawrence Summers</a>, for example, says the so-called output gap – the difference between what the U.S. economy is currently producing and what it is capable of producing – isn’t all that big, which could mean the size of Biden’s package will drive up prices without really generating new economic activity. </p>
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<h2>You say potato, I say stimulus</h2>
<p>To some extent, these definitions may be distinctions without a difference. </p>
<p>Even a narrowly tailored relief package would have some stimulative effect on the economy. All those “economic impact” checks the government sent out in 2020 were meant as relief, but <a href="https://qz.com/1961512/second-us-stimulus-boosts-spending-in-mid-january-by-12-7-percent/">they had a significant stimulating impact as well</a>. </p>
<p>To the extent that a program gets people spending more, it is a stimulus. To the extent that the same program leads to job creation for the unemployed, it is a relief package. </p>
<p>Ultimately, the word matters less than the impact. And economists in the White House, Federal Reserve and academia like me will be tracking it closely.</p><img src="https://counter.theconversation.com/content/155012/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>William Hauk has previously received funding from the Center for International Business Education Research (CIBER), which is funded in part by the U.S. Department of State. </span></em></p>Whether the next pandemic bailout bill is called relief or stimulus depends on what ails the US economy – and maybe it doesn’t matter at all.William Hauk, Associate Professor of Economics, University of South CarolinaLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1347222020-03-26T18:15:56Z2020-03-26T18:15:56ZThe Federal Reserve is promising to do everything it can to save the economy – but what is that, actually?<figure><img src="https://images.theconversation.com/files/323385/original/file-20200326-133001-11757re.jpg?ixlib=rb-1.1.0&rect=38%2C111%2C2077%2C1195&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Storm clouds are stirring over the Fed.</span> <span class="attribution"><span class="source">Fandrade/Getty Images</span></span></figcaption></figure><p>The United States Federal Reserve <a href="https://www.nytimes.com/2020/03/23/business/economy/federal-reserve-how-rescue.html">has committed to do everything it can</a> to save the financial system and the American economy from collapse. </p>
<p>Most recently, it <a href="https://www.bloomberg.com/news/articles/2020-03-23/fed-sidesteps-congress-s-bickering-with-sweeping-rescue-plan">began an unprecedented effort</a> to ensure banks, companies and now households have all the money they need by offering to buy unlimited amounts of securities, including bundled student loans and credit card debt. Even at the peak of the financial crisis in 2008, the Fed’s actions <a href="https://www.cnbc.com/2020/03/23/fed-is-helping-the-markets-more-than-it-did-during-the-financial-crisis.html">were much more limited in scope</a> – as well as speed. </p>
<p>My colleagues and I at the <a href="https://ibrc.kelley.iu.edu">Indiana Business Research Center</a> have been studying the Fed, its actions and the economic impact for over a quarter-century. Here’s a quick primer on the U.S. central bank, how it works and what it’s doing to keep the economy from sinking into depression.</p>
<h2>No guarantee of safety</h2>
<p>Before Congress created the <a href="https://www.federalreserveeducation.org/about-the-fed/structure-and-functions">Federal Reserve System</a>, the safety and soundness of U.S. banks was hardly a sure thing. </p>
<p><a href="https://www.investopedia.com/terms/b/bankrun.asp">Bank runs</a> – when a large number of customers withdraw their deposits simultaneously over concerns of a bank’s solvency – were common, such as during the <a href="https://www.federalreservehistory.org/essays/banking_panics_of_the_gilded_age">Gilded Age</a> from 1863 to 1907, when financial crises occurred frequently. </p>
<p>Yet many Americans <a href="https://www.federalreserveeducation.org/about-the-fed/history">were uncomfortable</a> with the idea of a powerful central financial authority. Alexander Hamilton’s short-lived <a href="https://www.minneapolisfed.org/article/2007/the-bank-that-hamilton-built">First Bank of the United States</a>, which was “dominated by big banking and money interests,” did little to help to allay those concerns.</p>
<p>Without a central bank, it fell to private financiers like <a href="https://www.businessinsider.com/morgan-1895-crisis-and-1862-gold-loophole-2013-1">John Pierpont Morgan</a> to avert financial crises by infusing their own capital into the economy. Recurring crises like these eventually led more people to believe that monetary policy and banking should be centralized, culminating in the <a href="https://www.federalreserve.gov/aboutthefed/fract.htm">1913 Federal Reserve Act</a>. </p>
<p>The act said the Fed would handle monetary policy and stimulus, keep banks safe and sound, and make sure the amount of money circulating was appropriate. </p>
<p>While initially successful at limiting bank runs, the Fed failed to prevent the speculative bubble that preceded the Great Depression – and the bankruptcy of nearly 10,000 banks. This led to the <a href="https://www.federalreservehistory.org/essays/glass_steagall_act">Glass-Steagall Act</a> in 1933, which separated commercial and investment banking and <a href="https://eh.net/encyclopedia/banking-panics-in-the-us-1873-1933/">created federal deposit insurance</a> to prevent bank runs. </p>
<p>Congress more clearly delineated the Fed’s purpose in 1977, when <a href="https://www.bloomberg.com/opinion/articles/2019-04-23/federal-reserve-dual-mandate-needs-updating">it passed the Federal Reserve Reform Act</a> and established what became known as the “dual mandate” of maximum employment and stable prices. </p>
<p>It continues to <a href="https://www.federalreserve.gov/aboutthefed.htm">perform other functions</a> in line with its founding purpose, such as identifying and neutralizing risks to the economy, protecting consumers and promoting the soundness of the financial system and individual institutions. </p>
<figure class="align-center ">
<img alt="" src="https://images.theconversation.com/files/323386/original/file-20200326-132965-1n6pjrp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/323386/original/file-20200326-132965-1n6pjrp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=400&fit=crop&dpr=1 600w, https://images.theconversation.com/files/323386/original/file-20200326-132965-1n6pjrp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=400&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/323386/original/file-20200326-132965-1n6pjrp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=400&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/323386/original/file-20200326-132965-1n6pjrp.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=503&fit=crop&dpr=1 754w, https://images.theconversation.com/files/323386/original/file-20200326-132965-1n6pjrp.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=503&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/323386/original/file-20200326-132965-1n6pjrp.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=503&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px">
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<span class="caption">Federal Reserve Chair Jerome H. Powell heads the Board of Governors.</span>
<span class="attribution"><span class="source">Mark Makela/Getty Images)</span></span>
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</figure>
<h2>The Fed’s two key tools</h2>
<p>The Fed consists of a group of seven economists – collectively known as the <a href="https://www.federalreserveeducation.org/about-the-fed/structure-and-functions">Board of Governors</a> – who have <a href="https://www.investopedia.com/articles/investing/093015/open-market-operations-vs-quantitative-easing.asp">two key tools</a> to affect monetary policy. The Board of Governors uses 12 regional banks of the Federal Reserve System to perform banking services.</p>
<p>The most well-known tool is the Fed’s ability to set short-term interest rates. When it lowers rates, the Fed aims to reduce borrowing costs for companies and consumers to encourage more lending and investment, thus stimulating the economy. It raises rates primarily when the economy is strong, when it wants to keep a lid on inflation. </p>
<p>The other key tool is its ability to buy and sell debt securities in <a href="https://www.newyorkfed.org/markets/counterparties/policy-on-counterparties-for-market-operations">open-market operations</a>.</p>
<p>The Fed used this tool for the first time in 1923 ostensibly to <a href="https://www.federalreserveeducation.org/about-the-fed/history">stem a recession</a>. By buying Treasury securities from private sellers, it was able to pump more money into the banking system, ensuring there was enough cheap credit for borrowers. </p>
<p>The Fed reimagined this <a href="https://money.howstuffworks.com/fed10.htm">powerful</a> tool <a href="https://www.forbes.com/sites/greatspeculations/2015/11/16/quantitative-easing-in-focus-the-u-s-experience/">during the 2008 financial crisis</a>, when it began a program of “quantitative easing” to buy longer-term, riskier debt. At the program’s peak in 2015, the <a href="https://fred.stlouisfed.org/series/WALCL">Fed had accrued over US$4.5 trillion</a> in both safe and riskier debt on its balance sheet. </p>
<h2>The Fed’s plan to save the US</h2>
<p>Financial markets <a href="https://www.bloomberg.com/quote/INDU:IND">have been in a panic</a> since late February, when they began to reflect anxiety about the economic impact of the new coronavirus. </p>
<p>Since then, the Fed has engaged in a <a href="https://www.federalreserve.gov/newsevents/pressreleases.htm">variety of actions</a> to keep financial markets working and calm investors, including <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20200317a.htm">backstopping the commercial paper market</a> and supporting <a href="https://www.federalreserve.gov/monetarypolicy/mmlf.htm">money market funds</a>. </p>
<p>It has also been using its two tools in more traditional ways. </p>
<p>The Fed used its first tool in dramatic fashion recently when it cut rates twice, <a href="https://www.wsj.com/articles/federal-reserve-cuts-interest-rates-by-half-percentage-point-11583247606">first by half a percentage point</a> and <a href="https://www.marketwatch.com/story/heres-what-the-feds-surprise-interest-rate-cut-means-for-mortgage-rates-2020-03-03">then by a full point</a>, bringing its target rate to basically zero. Barring negative rates, <a href="https://theconversation.com/the-fed-will-have-to-do-a-lot-more-than-cut-rates-to-zero-to-stop-wall-streets-coronavirus-panic-133739">there’s very little it can do</a> to further stimulate the economy this way. </p>
<p>So it turned to its second tool and committed to essentially <a href="https://www.federalreserve.gov/newsevents/pressreleases/monetary20200323b.htm">buy as many securities</a> as necessary to stave off <a href="https://fortune.com/2020/03/24/coronavirus-unemployment-claims-layoffs-jobs-lost-us-march-2020/">mass layoffs</a>, debt defaults, bankruptcies and depression. This includes buying bundles of investment-grade corporate bonds, student loans and credit card debt for the first time. More recently, <a href="https://www.nytimes.com/2020/04/09/business/stock-market-today-coronavirus.html?action=click&module=Spotlight&pgtype=Homepage#link-2aee4f20">it added junk-rated municipal and corporate bonds</a> to the list.</p>
<p>As a result, the Fed’s balance sheet, which had fallen below $4 trillion last year, has now swelled to a <a href="https://fred.stlouisfed.org/series/WALCL">new record of $4.7 trillion</a> – and <a href="https://www.bloomberg.com/news/articles/2020-03-25/fed-s-anti-virus-lending-firepower-could-reach-4-5-trillion?srnd=premium&sref=Hjm5biAW">could double in size</a> before it’s done, based on the new lending authority it’s being granted by the federal bailout. </p>
<p>Time will tell if this – alongside the <a href="https://www.nytimes.com/2020/03/25/world/coronavirus-updates-maps-usa-world.html?action=click&module=Spotlight&pgtype=Homepage">$2 trillion in fiscal stimulus</a> Congress is injecting – will be enough. </p>
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<p class="fine-print"><em><span>Ryan Matthew Brewer does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Like Congress with its $2 trillion bailout, the Fed is engaged in an unprecedented effort to save the US economy and financial system from collapse.Ryan Matthew Brewer, Associate Professor of Finance, Indiana UniversityLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1331382020-03-06T16:29:36Z2020-03-06T16:29:36ZWashington’s recession-fighting toolbox is nearly empty as US economy braces for possible coronavirus outbreak<figure><img src="https://images.theconversation.com/files/319118/original/file-20200306-118881-18u8je6.jpg?ixlib=rb-1.1.0&rect=89%2C126%2C4891%2C2554&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">A wrench may not be enough. </span> <span class="attribution"><span class="source">mipan/Shutterstock.com</span></span></figcaption></figure><p><a href="https://www.washingtonpost.com/business/2020/03/01/fear-markets-economy/">Investors</a>, <a href="https://www.latimes.com/politics/story/2020-02-26/economists-worry-spread-of-coronavirus-poses-a-far-more-serious-threat-to-growth">policymakers</a>, <a href="https://thehill.com/policy/finance/economy/476505-recession-tops-list-of-ceos-economic-concerns">businesses</a> and the <a href="https://thehill.com/policy/healthcare/485791-poll-coronavirus-fears-dampen-sentiment-about-the-economy">general public</a> are increasingly concerned the coronavirus’ rapid spread will lead to a recession. While this outcome is hard for <a href="https://www.grinnell.edu/user/ferguso1">economists like me</a> to predict, we do know one thing: The U.S. is not prepared to fight a deep recession. </p>
<p>Policymakers basically have two methods for reversing a downturn: monetary stimulus, primarily through reduced borrowing costs; and fiscal stimulus, when the government spends more or cuts taxes. </p>
<p>Unfortunately, the U.S. currently has dim prospects for success with either option.</p>
<h2>Monetary policy</h2>
<p>The most immediate indicator of the growing concern about a recession is in the stock market, <a href="https://finance.yahoo.com/quote/%5Egspc?ltr=1">which has plunged more than 10%</a> since hitting a record high on Feb. 19. </p>
<p>The Federal Reserve hoped to calm markets <a href="https://theconversation.com/the-feds-surprise-interest-rate-cut-5-questions-answered-132957">with its March 3 surprise</a> half-a-percentage-point cut in its target interest rate to a range of 1% to 1.25%. The cut is intended to lower borrowing costs for companies and consumers in order to stimulate investment and spending and to signal that the Fed takes the possibility of recession seriously.</p>
<p>Yet, stocks have continued to slide, and with interest rates so close to zero, the Fed has very little maneuvering room left. The central bank could try to reduce rates below zero – as <a href="https://www.investopedia.com/articles/investing/070915/how-negative-interest-rates-work.asp">Europe</a> and <a href="https://www.investopedia.com/articles/investing/070915/how-negative-interest-rates-work.asp">Japan</a> have done – but that approach has not been tried in the U.S., and it can generate unintended instability by effectively making borrowing more attractive than paying bills and sending a bad signal to the markets. </p>
<p>More importantly, low interest rates cannot address the main economic problems this epidemic is creating: namely, the <a href="https://foreignpolicy.com/2020/03/04/blindsided-on-the-supply-side/">disruption of global supply chains</a>. Low interest rates can be effective when a recession arises from a drop in consumer or business spending, but cheap loans cannot help companies acquire needed components from China or South Korea <a href="https://www.caranddriver.com/news/a30767235/coronavirus-hyundai-china-korea-factory-shutdowns/">when their factories are closed</a>.</p>
<h2>Fiscal policy</h2>
<p>The other recession-fighting mechanism is fiscal policy. </p>
<p>For example, in 2009 Congress <a href="https://www.ntia.doc.gov/page/2011/american-recovery-and-reinvestment-act-2009">passed a US$787 billion stimulus package</a> that included spending on research, infrastructure, energy and housing as well as tax cuts. </p>
<p>There are plenty of ways the government could inject stimulus into the economy that can address real needs, such as by spending more on improving the country’s infrastructure or providing more medical research, supplies and care. In fact, Congress <a href="https://www.cnbc.com/2020/03/06/trump-signs-8point3-billion-emergency-coronavirus-spending-package.html">just passed an emergency appropriation</a> of US$8.3 billion to help combat the outbreak. </p>
<p>Appropriate as it is, this small sum will not address a serious recession. For that, a much larger stimulus package – more like the 2009 stimulus – would be needed.</p>
<p>Unfortunately, a large stimulus would require substantial federal borrowing. With a <a href="https://www.cbo.gov/system/files/2020-01/56020-CBO-Outlook.pdf">deficit approaching $1 trillion</a>, that level of spending does not appear politically feasible.</p>
<p>The bottom line is this: If the <a href="https://www.nytimes.com/2020/03/04/world/coronavirus-schools-closed.html">disruptions China has experienced</a> – such as the closing of schools, offices and factories – persist and spread across the globe and to the United States, stalled economic activity will likely trigger a severe recession that the government will be in a weak position to effectively address. </p>
<p>[<em>Insight, in your inbox each day.</em> <a href="https://theconversation.com/us/newsletters?utm_source=TCUS&utm_medium=inline-link&utm_campaign=newsletter-text&utm_content=insight">You can get it with The Conversation’s email newsletter</a>.]</p><img src="https://counter.theconversation.com/content/133138/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Bill Ferguson does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>The Fed and Congress have little ammunition available for fighting an economic downturn if COVID-19 triggers one.Bill Ferguson, Professor of Economics, Grinnell CollegeLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/1115772019-02-15T11:50:21Z2019-02-15T11:50:21ZWhat Green New Deal advocates can learn from the 2009 economic stimulus act<figure><img src="https://images.theconversation.com/files/258862/original/file-20190213-181615-3io8o2.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=496&fit=clip" /><figcaption><span class="caption">Assembling capacitors for electric automobiles at SBE, Inc. in Barre, Vermont, July 16, 2010. SBE received a $9 million stimulus grant to build electric drive components.</span> <span class="attribution"><a class="source" href="http://www.apimages.com/metadata/Index/Electric-Cars/e07f4868a9d746568069ebf03f9235fd/117/0">AP Photo/Toby Talbot</a></span></figcaption></figure><p>Congressional Democrats have introduced a “Green New Deal” proposal that calls for a 10-year national mobilization to curb climate change by shifting the U.S. economy away from fossil fuels. Many progressives <a href="https://www.washingtonpost.com/news/powerpost/paloma/the-energy-202/2018/12/19/the-energy-202-lots-of-people-support-the-green-new-deal-so-what-is-it/5c1944641b326b2d6629d4e8/?utm_term=.0e1f410bb293">support this idea</a>, while skeptics argue that a decade is <a href="https://www.npr.org/2019/02/07/692466412/former-energy-secretary-weighs-in-on-green-new-deal-legislation">not long enough</a> to remake our nation’s energy system.</p>
<p>The closest analog to this effort occurred in 2009, when President Obama and Congress worked together to combat a severe economic recession by passing a massive economic stimulus plan. Among its many provisions, the <a href="https://www.congress.gov/111/plaws/publ5/PLAW-111publ5.pdf">American Recovery and Reinvestment Act of 2009</a> provided US$90 billion to promote clean energy. The bil’s clean energy package, which was dubbed the “<a href="https://www.nytimes.com/2009/02/18/opinion/18wed1.html">biggest energy bill in history</a>,” laid the foundation for dramatic changes to the energy system over the last 10 years.</p>
<p>I am an <a href="https://scholar.google.com/citations?user=eaVRMK0AAAAJ&hl=en">environmental economist</a> and worked with Congress as a member of the Obama presidential transition team to negotiate the energy package. Then I oversaw its implementation as a White House official in 2009-2010. Based on my experience, I believe this effort holds several key lessons for a Green New Deal and other policies the new Congress will consider.</p>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/258863/original/file-20190213-181609-830d2g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/258863/original/file-20190213-181609-830d2g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/258863/original/file-20190213-181609-830d2g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=338&fit=crop&dpr=1 600w, https://images.theconversation.com/files/258863/original/file-20190213-181609-830d2g.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=338&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/258863/original/file-20190213-181609-830d2g.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=338&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/258863/original/file-20190213-181609-830d2g.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=424&fit=crop&dpr=1 754w, https://images.theconversation.com/files/258863/original/file-20190213-181609-830d2g.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=424&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/258863/original/file-20190213-181609-830d2g.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=424&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">President Obama signs the American Recovery and Reinvestment Act, Feb. 17, 2009.</span>
<span class="attribution"><a class="source" href="https://commons.wikimedia.org/wiki/File:Barack_Obama_signs_American_Recovery_and_Reinvestment_Act_of_2009_on_February_17.jpg">Pete Souza</a></span>
</figcaption>
</figure>
<h2>A lower-carbon economy</h2>
<p>The 2009 Recovery Act focused on <a href="https://www.dropbox.com/s/7rehl5s9iovuaeb/Aldy%20REEP%202013.pdf?dl=0">four major categories of energy-related investments</a>: Energy efficiency, the electric grid, transportation and clean energy. Major targets included about $25 billion to promote renewable electricity generation through investment grants, production tax credits and loan guarantees. Another $20 billion funded energy efficiency and conservation through tax credits, rebates and block grants to state and local governments. </p>
<p>About $10 billion supported investments in smart electric meter and smart grid technology and long-distance transmission lines. The bill provided $5 billion for advanced vehicle technologies, such as electric battery manufacturing subsidies and heavy-duty diesel retrofits. It also included $2 billion to develop carbon capture and storage technologies for coal-fired power plants.</p>
<p>These investments catalyzed rapid growth in renewable power. Since 2008, <a href="https://www.eia.gov/electricity/annual/html/epa_04_02_b.html">wind power has more than tripled and solar power has increased 80-fold</a>. This wind and solar investment significantly outpaced <a href="https://www.eia.gov/electricity/annual/html/epa_04_02_a.html">new investment in natural gas power plants</a> over the past decade. </p>
<p>The largest years of wind power investment occurred in 2009 and 2012 – the first and last years of Recovery Act support. More recent growth in solar across the country, as utilities and homeowners alike have adopted it, reflects significant drops in the cost of solar panels, which were enabled by <a href="https://www.dropbox.com/s/pxoltsqo4a9qw63/GERARDEN-DISSERTATION-2018.pdf?dl=0">generous investment subsidies in previous years</a>. </p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/258866/original/file-20190213-181599-c3fzy2.png?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/258866/original/file-20190213-181599-c3fzy2.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/258866/original/file-20190213-181599-c3fzy2.png?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=287&fit=crop&dpr=1 600w, https://images.theconversation.com/files/258866/original/file-20190213-181599-c3fzy2.png?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=287&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/258866/original/file-20190213-181599-c3fzy2.png?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=287&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/258866/original/file-20190213-181599-c3fzy2.png?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=361&fit=crop&dpr=1 754w, https://images.theconversation.com/files/258866/original/file-20190213-181599-c3fzy2.png?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=361&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/258866/original/file-20190213-181599-c3fzy2.png?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=361&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">In March 2017, monthly electricity generation from wind and solar power exceeded 10 percent of total electricity generation in the United States for the first time.</span>
</figcaption>
</figure>
<p>This renewable energy surge has played a key role in cutting carbon dioxide emissions from the U.S. electric power sector by <a href="https://www.eia.gov/environment/emissions/carbon/pdf/2017_co2analysis.pdf">28 percent</a> since 2005. In 2017, renewable power and power from cheap natural gas were <a href="https://www.eia.gov/environment/emissions/carbon/pdf/2017_co2analysis.pdf">nearly equally responsible</a> for these emission reductions.</p>
<p>Even though the U.S. population has grown about 8 percent and our nation’s gross domestic product has risen more than 20 percent since 2008, residential electricity consumption was <a href="https://www.eia.gov/electricity/annual/html/epa_02_02.html">lower in 2017 than in 2008</a>. This decrease reflects long-term energy savings benefits from Recovery Act investments in high-performance windows, insulation, high-efficiency furnaces and water heaters and advanced lighting. Electric vehicles make up a <a href="https://www.greentechmedia.com/articles/read/us-electric-vehicle-sales-increase-by-81-in-2018#gs.kNYYsBvH">growing share of the U.S. car market</a> which was aided by Recovery Act investments in advanced battery manufacturing facilities.</p>
<h2>High-profile setbacks</h2>
<p>Not all programs yielded such impressive returns. Although the federal government invested $2 billion in <a href="https://www.scientificamerican.com/article/clean-coal-power-plant-killed-again/">FutureGen</a>, a decade-long effort to capture carbon dioxide emissions from coal-fired power plants and store them underground, this effort failed to attract enough cost-matching investments from private utilities. As a result, it never moved forward to test carbon capture and storage at commercial scale. </p>
<p>The Department of Energy <a href="https://www.energy.gov/lpo/portfolio/portfolio-projects">Loan Guarantee Program</a> awarded about $2 billion to guarantee $16 billion in loans at 25 companies investing in solar, wind and geothermal power and clean energy manufacturing projects. It produced a small pipeline of innovative energy projects and <a href="https://www.dropbox.com/s/cjfdtv91jxh9bgj/POTUS%20DOE%20LGP%20Oct%2025%202010%20Memo.pdf?dl=0">imposed burdensome requirements that undermined its effectiveness</a>. Ultimately the program became a political liability when Solyndra, a solar panel manufacturer, <a href="https://www.npr.org/2014/11/13/363572151/after-solyndra-loss-u-s-energy-loan-program-turning-a-profit">defaulted on a federally guaranteed $535 million loan</a>. </p>
<h2>Lessons for a Green New Deal</h2>
<p>This record offers valuable lessons for policymakers who want to catalyze further progress toward a clean energy economy. Critically, the main reason to spend public money in the energy sector is to drive changes in investment. Businesses already have plenty of incentive to invest in energy; the challenge is getting them to invest in socially preferred areas, such as lower-carbon energy sources.</p>
<p>Taxpayer dollars are limited, so well-designed policies should deliver results at the lowest possible cost. The Obama administration needed to implement the Recovery Act quickly in 2009 because the economy was in a tailspin, so some energy stimulus programs failed this test by awarding subsidies that didn’t do much to change household and business energy choices (although they delivered economic stimulus). For example, about 90 percent of families that received rebates for buying EnergyStar-rated refrigerators likely would have done so <a href="https://www.dropbox.com/s/9gysfmwwsmfkmz5/Houde%20and%20Aldy%20AEJ-Policy%202017.pdf?dl=0">without the Recovery Act appliance rebate program</a>.</p>
<p>Another key lesson is that when policies are designed to be simple and transparent, it is easier for businesses and households to understand them. Complex, opaque processes create opportunities for crony capitalism that may undermine program goals and attract political criticism. Solyndra’s default led to a <a href="https://www.washingtonpost.com/news/federal-eye/wp/2015/08/26/top-leaders-of-solyndra-solar-panel-company-repeatedly-misled-federal-officials-investigation-finds/?utm_term=.103fff14b369">four-year federal investigation</a> and charges of political favoritism in awarding the loan guarantee.</p>
<figure>
<iframe width="440" height="260" src="https://www.youtube.com/embed/W02-XaAlsZo?wmode=transparent&start=0" frameborder="0" allowfullscreen=""></iframe>
<figcaption><span class="caption">Congressional and FBI investigations into the Obama administration’s support for Solyndra provided ammunition for critics of energy stimulus investments.</span></figcaption>
</figure>
<p>Today, with the emergence of big data and advances in analytical methods, managers can design and implement programs in ways that make it easier to measure their performance. Designing such reviews at the start would facilitate low-cost evaluation after programs go into effect. The need for speed during the Great Recession precluded such planning, but the next stage of clean energy policies can be designed to enable this kind of learning, which can then inform thoughtful policy updates and reforms.</p>
<p>Finally, the Obama administration saw government spending on clean energy as a complement and stepping stone for a more ambitious, economy-wide carbon pricing policy. In 2009 <a href="https://obamawhitehouse.archives.gov/video/EVR022409#transcript">President Obama supported a cap-and-trade program</a> to cover America’s carbon dioxide emissions. More recently, some experts have called for <a href="https://theconversation.com/with-the-right-guiding-principles-carbon-taxes-can-work-109328">carbon taxes</a> to drive deep, cost-effective greenhouse gas emission reductions. </p>
<p>Just as we economists believed in 2009 that an economy-wide market-based approach would be the most effective way to combat climate change, <a href="https://www.clcouncil.org/economists-statement/">it still holds true today</a>. The Green New Deal resolution does not address carbon pricing, but I believe that an ambitious carbon tax could promote broad and deep economy-wide emission reductions today and the far-reaching innovation necessary to transform the energy foundation of the U.S. economy.</p><img src="https://counter.theconversation.com/content/111577/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Joseph Aldy receives or has received funding related to the topics addressed in this article from the Alfred P. Sloan Foundation, the Taubman Center for State and Local Government, BP, the Progressive Policy Institute, Resources for the Future, and the Center for Strategic and International Studies.
Aldy also has affiliations with Resources for the Future, the National Bureau of Economic Research, and the Center for Strategic and International Studies. </span></em></p>An Obama administration veteran offers some insights from his experience about driving massive increases in clean energy.Joseph Aldy, Associate Professor of Public Policy, Harvard Kennedy SchoolLicensed as Creative Commons – attribution, no derivatives.tag:theconversation.com,2011:article/661112016-10-19T01:02:35Z2016-10-19T01:02:35ZClinton says the ‘clean energy economy’ will create millions of jobs. Can it?<p>Job growth is a prime topic in the U.S. presidential race, but Donald Trump and Hillary Clinton have very different takes on the role clean energy could play in creating employment. </p>
<p>Democratic hopeful Hillary Clinton says the U.S. can be the world’s “clean energy superpower.” Her plan, <a href="https://www.hillaryclinton.com/briefing/factsheets/2016/10/10/hillary-clintons-plan-for-combatting-climate-change-and-making-america-the-clean-energy-superpower-of-the-21st-century/">spelled out in detail online</a>, would create millions of jobs and spur billions of dollars in public and private investment, while making infrastructure more resilient and lowering emissions. </p>
<p>Republican candidate Donald Trump says he’s a “great believer in all forms of energy” but that the country’s energy policies are a “<a href="https://www.washingtonpost.com/news/the-fix/wp/2016/09/26/the-first-trump-clinton-presidential-debate-transcript-annotated/">disaster</a>.” In a 2015 <a href="http://www.cnn.com/2015/09/24/politics/donald-trump-pope-francis-immigration-climate-change/">interview with CNN</a>, Trump said policies to support clean energy and reduce carbon emissions would “imperil jobs” and “the middle class and lower classes.” </p>
<p>Like many critics of the federal government’s efforts to promote clean energy, he points to the failure of Solyndra as a waste of taxpayer money. Solyndra, you may recall, was a solar company that received a partial loan guarantee from the U.S. government but went bankrupt in 2011, defaulting on a US$535 million loan.</p>
<p>What does economic research say about the potential of government-led industrial policy to promote clean energy and create jobs? Looking at the American Recovery and Reinvestment Act (ARRA) of 2009, or what came to be known as the “stimulus package,” provides us some insights. What clearly emerges is that the expansion of renewable energy is an opportunity to create jobs in manufacturing and construction, as well as in other industries.</p>
<h2>Ghosts of Solyndra</h2>
<p>I was a coauthor of the 2014 <a href="http://www.peri.umass.edu/236/hash/fe657f2845f6a5b56a37f3cb8bed92e8/publication/626/">“Green Growth”</a> study by the Political Economy Research Institute (PERI) at the University of Massachusetts Amherst. The Brookings Institution did its own study in 2011, <a href="https://www.brookings.edu/research/sizing-the-clean-economy-a-national-and-regional-green-jobs-assessment/">“Sizing the Clean Energy Economy.”</a> Both of these studies find that renewable energy and energy efficiency industries are engines of job growth, and that public support for these industries catalyzes private investments and spurs economic growth overall.</p>
<p>Yet the academic research is often overlooked or pushed aside in the public discourse, as so-called “failures” such as Solyndra’s bankruptcy are held up as examples of failed clean energy policies. In fact, public policies for clean energy have largely been effective in stimulating the growth of this sector, as well as the creation of new jobs.</p>
<figure class="align-center zoomable">
<a href="https://images.theconversation.com/files/142072/original/image-20161017-12447-1q09jgj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/142072/original/image-20161017-12447-1q09jgj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&fit=clip" srcset="https://images.theconversation.com/files/142072/original/image-20161017-12447-1q09jgj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=390&fit=crop&dpr=1 600w, https://images.theconversation.com/files/142072/original/image-20161017-12447-1q09jgj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=390&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/142072/original/image-20161017-12447-1q09jgj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=390&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/142072/original/image-20161017-12447-1q09jgj.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=490&fit=crop&dpr=1 754w, https://images.theconversation.com/files/142072/original/image-20161017-12447-1q09jgj.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=490&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/142072/original/image-20161017-12447-1q09jgj.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=490&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The stimulus funded a number of utility-scale renewable energy projects, including the Shepherds Flat Wind Farm, one of the largest wind farms in the world.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/locosteve/6171921757/">locosteve/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by/4.0/">CC BY</a></span>
</figcaption>
</figure>
<p>Let’s first look specifically at the Department of Energy’s (DOE) Loan Guarantee program which was funded as part of the stimulus and provided a loan to Solyndra to build a factory. On the whole, this <a href="http://energy.gov/lpo/portfolio-projects">program</a> was hugely <a href="http://www.energy.gov/sites/prod/files/RecoveryActSuccess_Jan2012final.pdf">successful</a>. </p>
<p>It was responsible for advancing the renewable energy business by financing the world’s largest solar photovoltaic plant, supporting two of the world’s largest solar thermal projects, and financing the world’s largest wind farm as of 2012. What’s more, losses such as Solyndra accounted for only two percent of the entire portfolio of lending, a staggeringly small figure when compared to typical loss rates in venture capital, often on the order of <a href="http://www.forbes.com/forbes/welcome/?toURL=http://www.forbes.com/sites/brucebooth/2012/11/07/data-insight-venture-capital-returns-and-loss-rates/&refURL=&referrer=#340d916a4408">40 or 50 percent</a>. </p>
<p>And for the American taxpayer, the losses are actually nonexistent, because the interest earned on the successful loans made by the DOE now exceeds the losses from companies like Solyndra. By the end of 2014, the DOE had already received <a href="http://energy.gov/sites/prod/files/2014/11/f19/DOE-LPO-Financial%20Performance%20November%202014.pdf">$810 million in interest, in comparison to the $780 million in losses</a>. </p>
<h2>Renewable and efficiency versus fossil</h2>
<p>The sort of activity funded by the Loan Guarantee Program (which provides financing to automakers, electric utilities and other industries) creates jobs. And the clean energy industry is one of the fastest growing areas in the global economy. </p>
<p>In March 2016, <a href="http://www.bloomberg.com/news/articles/2016-05-25/clean-energy-jobs-surpass-oil-drilling-for-first-time-in-u-s">Bloomberg</a> reported that jobs in the solar energy industry had grown 12 times faster than overall global job growth. The U.S., near the top of the pack behind China and Brazil, already has more than three-quarters of a million jobs in clean energy, defined as jobs related to solar, wind, bioenergy and geothermal. </p>
<p>But how about the claim that pro-renewable energy policies cause job losses in fossil fuels? </p>
<p>Studies such as the PERI “Green Growth” report show that a transition from fossil fuels to clean energy does, in fact, create jobs. Lots of them. For example, for every $1 million spent on energy efficiency about 15 jobs are created. These include the “direct” jobs in manufacturing and installation, as well as the “indirect” jobs created through the supply chain, in industries such as engineering, accounting, trucking, and many others. Overall, renewable energy and energy efficiency, the report finds, creates about 13 jobs per $1 million of spending. </p>
<p>Meanwhile, fossil fuels create fewer jobs for the same amount of spending, supporting about six jobs per $1 million for ongoing operations in the industry, or about 11 jobs for the creation of new fossil fuel production. There are a few reasons why clean energy creates more jobs than fossil fuels: labor intensity, domestic content and wages. </p>
<p>Labor intensity means that more of the total spending goes toward hiring workers rather than for capital, such as buildings and equipment. The oil and gas industry is one of the most capital-intensive industries in the economy, producing fewer jobs for each $1 million of spending. </p>
<p>Clean energy also has higher domestic content – including construction labor and manufactured components – than fossil fuels, meaning that more of the inputs come from within the U.S., and so that’s where more of the jobs are created. And finally, average wages are slightly lower in the clean energy industry than the fossil fuel industry, so a given $1 million of spending can support more jobs in clean energy. </p>
<p>The PERI study finds that an investment on the order of 1.2 percent of U.S. GDP would create over four million jobs in clean energy, or close to three million net new jobs if we subtract the job losses in fossil fuels. </p>
<h2>Infrastructure upgrade</h2>
<p>And how does government spending on clean energy affect our energy system? The American Recovery and Reinvestment Act of 2009 (ARRA) was the largest public investment in clean energy in the history of the US. Of the approximately $800 billion package, $90 billion was targeted toward clean energy.</p>
<p>In February 2016, the Council of Economic Advisers (CEA), which is an agency that informs the president on economic policy, released their assessment of the impacts of the clean energy portions of the ARRA, <a href="https://www.whitehouse.gov/sites/default/files/page/files/20160225_cea_final_clean_energy_report.pdf">“A Retrospective Assessment of Clean Energy Investments in the Recovery Act.”</a> The CEA’s report shows the distribution of the approximately $90 billion funding for clean energy, which includes: </p>
<ul>
<li>renewable energy generation (29 percent of the total funding), </li>
<li>energy efficiency (22 percent), </li>
<li>transit (20 percent), </li>
<li>grid modernization (10 percent), </li>
<li>smaller amounts to green job training, R&D, carbon capture and storage, and clean energy manufacturing, among others.</li>
</ul>
<figure class="align-right zoomable">
<a href="https://images.theconversation.com/files/142075/original/image-20161017-12447-1tefbwd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=1000&fit=clip"><img alt="" src="https://images.theconversation.com/files/142075/original/image-20161017-12447-1tefbwd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=237&fit=clip" srcset="https://images.theconversation.com/files/142075/original/image-20161017-12447-1tefbwd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=600&h=698&fit=crop&dpr=1 600w, https://images.theconversation.com/files/142075/original/image-20161017-12447-1tefbwd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=600&h=698&fit=crop&dpr=2 1200w, https://images.theconversation.com/files/142075/original/image-20161017-12447-1tefbwd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=600&h=698&fit=crop&dpr=3 1800w, https://images.theconversation.com/files/142075/original/image-20161017-12447-1tefbwd.jpg?ixlib=rb-1.1.0&q=45&auto=format&w=754&h=877&fit=crop&dpr=1 754w, https://images.theconversation.com/files/142075/original/image-20161017-12447-1tefbwd.jpg?ixlib=rb-1.1.0&q=30&auto=format&w=754&h=877&fit=crop&dpr=2 1508w, https://images.theconversation.com/files/142075/original/image-20161017-12447-1tefbwd.jpg?ixlib=rb-1.1.0&q=15&auto=format&w=754&h=877&fit=crop&dpr=3 2262w" sizes="(min-width: 1466px) 754px, (max-width: 599px) 100vw, (min-width: 600px) 600px, 237px"></a>
<figcaption>
<span class="caption">The stimulus funding went toward energy infrastructure upgrades, including smart meters which are designed to speed up reading and restore power faster after outages.</span>
<span class="attribution"><a class="source" href="https://www.flickr.com/photos/dukeenergy/3620050562/in/photolist-6vTGUS-8ML8Wg-hQQRmB-bYUzZQ-bYUzSu-o5CG2a-bYUA33-ec11jL-bYUzVh-dvKmUs-bEGs6f-88CTTx-brE21B-brE2br-doMJ5m-imBekX-aFdgFP-cC6odq-bYUzMN-aiXLgV-8N2xDo-bdNTr6-ooTcDp-6w7g3F-7Cu4H8-f74RQa-7W4gow-6CD6VX-8MPazf-3RpReZ-9Uqi7T-q9EiG6-a1TLHC-8ML4MZ-5h8EZZ-rLix3X-bYUzYy-a6jPMv-8WUQSH-bTBbce-5mV4ji-bYUzRf-bYUzU7-8WURfx-bYUzPQ-6297aB-5mV4hg-phgMA3-5mZjkE-bYUzWE">dukeenergy/flickr</a>, <a class="license" href="http://creativecommons.org/licenses/by-nc-nd/4.0/">CC BY-NC-ND</a></span>
</figcaption>
</figure>
<p>About half of the $90 billion was used for incentives or matching grants, increasing the impact of the stimulus. The CEA estimates that $46 billion in incentives leveraged an additional $150 billion in private and nonfederal spending. Thus, there was a combined amount of $240 billion in both public and private spending on clean energy innovation, development, and most notably deployment, or installation of, for instance, solar panels and smart electricity meters. </p>
<p>In addition to the jobs created, these investments helped to improve the energy infrastructure and get large-scale wind and solar projects in the ground.</p>
<h2>Valid criticism</h2>
<p>Supporters of a free-market economy say the government should not be in the business of “picking winners,” that the market should determine which energy businesses thrive or fail. However, particularly with emerging technologies, the government can play an important role in fostering research and innovation. </p>
<p>Companies that stand to lose a profit may not want to make a risky investment in a new technology. The government can diversify and lower its risk by investing in many different types of technologies at the same time. Some of these will fail, like Solyndra, but many others will succeed and ultimately will be produced and sold by private companies. </p>
<p>There is one criticism of the ARRA that holds validity, which is that it tried to do too much in a short amount of time. Never in history had such a large public investment been made in clean energy, and there were processes and programs that took time to be established. Because of administrative bottlenecks, job growth was slower than it otherwise could have been. </p>
<p>Critics of government spending on clean energy programs also argue the rapid spread of fracking has created many jobs in the oil and gas industry, and that regulations that support clean energy will stifle oil and gas economic activity. Yet the rationales for public spending on clean energy are many, including:</p>
<ul>
<li>Fossil fuels are underpriced, as they do not include the cost of the environmental damage they produce.<br></li>
<li>Increased reliance on clean energy increases our national security, as we rely less on imported fossil resources and reduce the need to protect them through war. </li>
<li>These investments lower greenhouse gas emissions and improve local air quality.</li>
</ul>
<p>Both public and private spending on clean energy are necessary to continue the rapid pace of growth in this sector. And we see from the evidence that public support for clean energy catalyzes private investment, together creating millions of jobs and opportunities for workers and businesses alike.</p><img src="https://counter.theconversation.com/content/66111/count.gif" alt="The Conversation" width="1" height="1" />
<p class="fine-print"><em><span>Heidi Garrett-Peltier does not work for, consult, own shares in or receive funding from any company or organization that would benefit from this article, and has disclosed no relevant affiliations beyond their academic appointment.</span></em></p>Will government policy to promote clean energy be disastrous or a boon? A close look at the 2009 stimulus, which plowed $90 billion into energy, can tell us a lot.Heidi Garrett-Peltier, Assistant Research Professor, UMass AmherstLicensed as Creative Commons – attribution, no derivatives.