Why Now May Be the Right Time for Green Stimulus

Photo by: andjohan

In the period leading up to the realization of the current economic crisis, Green was booming.  Solar cell companies were stock market darlings, and the whole sector looked like it may have the makings of the next bubble.  Unfortunately the crash has of course taken some of the bloom off that rose and investment has decreased to 2007 levels.[1]  But the crash is offset somewhat by the components of President Obama’s stimulus package that call for spending on renewable energy and other “Green” projects.

Why Green?

Generally the idea behind counter-cyclical spending is for the government to put people to work doing things that benefit the country as a whole-thus the idea of building roads, schools, or something else that will give a lasting benefit while helping invigorate the economy through the spending.  This is a win-win.  For those who are pro-Green, environmentally friendly projects seem like the perfect kind of project.  You can wean the country off oil, save the environment and fix the economy all at once.  But is this argument realistic?

Many will immediately cite skepticism over global warming as the first reason not to bother with this kind of infrastructure.  While I personally believe there is credible evidence of man-made climate change, I think there are other reasons to pursue renewable energy.  The first is to remove our dependence on oil, the price of which has a huge impact on our economy.  We can also bias our energy generation toward areas in which we have a natural advantage, like wind.  Even if you doubt that reducing our carbon emissions is a worthy goal, certainly those have some weight.

But is it Efficient?

The question then becomes, is Green spending an efficient way to create jobs.  According to the Peterson Institute of International Economics, green projects produce 30,100 job-years per billion spent, vs. 25,200 for road construction and even less for tax cuts.  The pivotal caveat to these numbers is that they assume quite a bit of private investment stimulated by the government’s stimulus.[2]  Green projects have a lot to offer in this area, but that caveat is still important.

In a normal economic condition, that private investment could very well come at the expense of another, more efficient project.  So you may see 30,100 job-years created by the project, but at the expense of some number from another sector where the private investment would have flowed anyway.  This makes it very difficult to estimate whether it’s efficient in normal circumstances.

Why Now?

These are not by any stretch of the imagination normal circumstances.  While those Green projects may be questionable in times when private investment money is flowing, in these deflationary times where capital is literally being destroyed, the economics are different.  Instead of these Green projects pulling money from other private enterprise, they may be essentially pulling that money from mattresses.  With the government investing in Green, people may see that as a safe bet, and that investment money may be money that would have been allocated much less beneficially. 

While this is all supposition, it at a bare minimum suggests that the current deflationary, contracting environment represents a better opportunity for Green spending in other times.  Whatever the costs to private industry may have been in other times of that kind of stimulus, they are almost certainly reduced in this environment.  Thus even the harshest eco-skeptic might consider the idea that now is a good time to retool our energy production and distribution, among other Green projects.

  1. Forbes - Venture Capital Investment in Renewable Energy Exceeds $836.1M in Q1 2009 []
  2. Economist – The Grass Is Always Greener []

One Response to “Why Now May Be the Right Time for Green Stimulus”

  1. “Green” stimulus may make a lot of sense, but you always have to worry about anything that requires government direction.

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