Greatest threat to recovery: caution

The thing about deficit spending is it’s all about where you put the money. Do you waste it on one-shot benefits like a tax cut, with minimal employment effects, or do you invest it sustainably in ways that put people back to work? Keynes, the economist who gave us the concept of deficit spending as a weapon in recessions, argued it was better to pay people to dig holes and then pay them to fill them if that was the only solution to ending mass unemployment and stimulating demand.

Fortunately, we can come up with better options than this.  Right now we should be rushing into a clean energy economy. Since we’re headed there anyway—kicking and screaming so far—now’s the time to take the foot off the breaks and proceed full throttle. Investing in clean energy would create jobs, would rebuild the U.S. industrial base, would reduce greenhouse gas emissions, would reduce our dependence on foreign oil, would help the country to stay competitive in the swiftly emerging global clean energy market, and would benefit poor and hungry people in the developing world as a colleague in the Institute pointed out in a previous post. 

By my count, this is a win-win-win-win-win-win situation. And, on top of that, it may be the best thing the government can do to bring the private sector along on the road to recovery. 

All the “wins” above will help to make the economy more productive and generate revenue to pay down the deficit over time. This is how we paid off enormous debts incurred by deficit spending during World War II, and notably much greater debts than we’re incurring now, and should be how we justify today’s forward-looking investments in the clean energy economy of tomorrow.