Sustaining the economy
Two professors talk about interconnected problems
On Monday, Campus Progress and the Business Club sponsored a forum on the topics of the policies of the economic stimulus package and the impacts the stimulus plan would have on the environment. Chair of Economics Richard Stout and Chair of Environmental Studies Peter Schwartzman led the economic stimulus forum.
What is the Stimulus Package?
The stimulus package is a $787 billion plan to jumpstart the U.S. economy. It is separate from TARP, the bailout of banks and other corporations which received help from the Treasury and the Federal Reserve. Though it does make up much of the stimulus package, one of the most important features of the stimulus is the spending and subsidies on infrastructure for renewable energy such as wind, solar, other forms of renewable energy. The stimulus package includes extended unemployment benefits, tax reductions, subsidies, spending on infrastructure for renewable energy, and “shovel ready” programs.
Spending vs. tax cuts
There has been a huge controversy with the stimulus package itself, specifically how to target the stimulus, whether the federal government should stimulate the economy through spending or tax cuts.
Stout said, “If you’re going to try to stimulate the economy through the government activity, it would make sense to ask for a dollar of spending or for a dollar of tax cuts, what is going to have a greater impact in putting people back to work, people spending, and so forth…My own work that I’ve done and plus what I’ve read of others tells me that…the spending multiplier is about $1.70 for every dollar of that’s spent.”
Tax multipliers are smaller than the spending multipliers. Stout said the huge bulk of the economists who study these issues would say the spending multipliers are higher.
Economic crisis and sticker shock
Aside from the controversy of spending versus tax cuts, the other controversial thing about the stimulus package has been the sticker shock of $787 billion. However, compared to the magnitude of the problem of what is now a global economic crisis, it is not unimaginable. There was a financial rescue for the banking system of savings and loans the late 1980’s, which cost the federal government $500 billion. $500 billion was more money then than $787 billion is now. The resolution trust corporation ended up getting most of that back over time and as the economy recovered, they sold those bad assets. The program ultimately cost tax payers $120 to $130 billion.
Stout said, “The magnitude of the problem that we face is large but we faced large problems in the past. The country didn’t collapse, the sky didn’t fall. I think there’s reason to feel that a couple years from now we’re going to look back and say, ‘Boy, that was scary, that was a terrible mess, but the country made it through that.’ Just like I can stand here and say just like we just made it through the savings and loans mess.”
Sustainability, green initiatives, green jobs
After Stout’s presentation, Schwartzman discussed the sustainability of the economic stimulus. $70 to $90 billion of the stimulus will go towards “green” initiatives. Currently, the world uses about 16 terawatts— six being in oil, four in coal, three and a half in natural gas, one in nuclear, and one in hydroelectric. 15.5 of those terawatts are not sustainable. The green initiative goes into energy conservation. By having money for research for wind, solar, and biofuels as renewable sources for energy, it could prevent the externalities, i.e. health problems, of using harmful sources of energy and it also means jobs for people. However, there is also money for more research for standard fuels.
The stimulus also could help solve the problem of the energy crisis and unemployment. In terms of how renewable resources can be able to replace the energy sources the world currently uses, world wind resources amount to 870 terawatts, which is an idealistic value because of wind that cannot be reached. Solar energy amounts to 86,000 terawatts. One of the features of the stimulus package is the hope of green jobs. Stout’s own brother installed small wind turbines and was paid by a small town which received stimulus money.
Schwartzman said, “To me, the future lies in people. What really gives me hope is a three-letter word,” as he wrote “YOU” on the chalkboard. “To me, that’s what I get excited about, that’s why I teach because I see students who have open eyes and are willing to try new things. I think your generation, certainly more than mine, is really at that position. I think you guys just by being here tonight is a sign of real hope because you’re trying to grapple with the realities here and trying to make sense of all this… I really think we need to start using the term sustainability in active form. Not just a goal, but a reality.”
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