How Recessions, Together with Contractionary Fiscal Policy, Can Be Green

Are Republicans closet environmentalists? Perhaps. Will they admit it? Probably not.

This brief assessment shows how contractionary fiscal policy (such as that espoused by Republicans) can have significant positive environmental consequences. It is yet another illustration of how inter-connected everything is. After looking at some of the latest available data on the US's production of greenhouse gases (GHG), it occurred to me I had not fully considered how macroeconomic policies – principally fiscal policies (government expenditure and tax procedures enacted by Congress and the President) – can directly affect our environment. Matthew Wald's Jan 16th New York Times article also examined this relationship. Here is what I found.

Greenhouse gas (GHG) emissions have been steadily and, from my perspective, all too rapidly growing for a long time, as fossil-fueled economic production has increased. Worldwide, atmospheric carbon has increased 23.8% over the last 60 years. In 2008, total U.S. greenhouse gas emissions were 6,956.8 million metric tons (CO2 Equivalent). However, since 2008 the rate of increase has dropped, as the nation's growth of fossil-fuel usage has diminished, directly due to the effects of our enduring "Great Recession."

Thus, our recession has provided an unexpected and important benefit – a cleaner environment. This reduction in national output, combined with increased use of more energy- and environmentally-efficient technologies, and increased use of natural gas (the cleanest fossil fuel – much more so than coal) can have a positive effect in mitigating atmospheric emissions. The Dept. of Energy's "Reference Case" shows carbon and nitrogen emissions in 2025 to be lower than in 2008.

To determine what the relationship has been between our deteriorated national economy and our relatively improved air quality, I created a variant of what New Zealand economist A.W. Phillips first examined in the late 1950s, showing how a nation's rate of unemployment was indirectly related to its inflation rate. This became known as the Phillips Curve. I easily commandeered a data series between 1991 and 2008 for the annual change in the US unemployment rate and for the annual change in GHG emissions . My chart, and its linear regression line, illustrates the expected indirect relationship between the change in GHG emissions and in the unemployment rate. [Sorry I couldn't just insert this chart in this blog - Blogspot seems only to allow insertion of image files, not Excel charts. To view it, go to the "chart" link.] Thus, as the unemployment rate is reduced (and more workers are employed), GHG emissions increase. I have immodestly called this the Smith Line.  

So, given the Smith Line, I might be more willing to applaud the Republicans' incessant (and ill-timed) demands for reducing the size of "the government" by drastically reducing government expenditures (their proposed $100B contractionary fiscal policy; contractionary macroeconomic policy is undertaken when the economy is growing too rapidly - hardly the case now), since it likely will further increase unemployment and thus improve our environment. Speaker of the House John Boehner turns out to be a closeted true-green environmentalist. Who'd of guessed? Could we suggest he change his name to "Bonair?"

MMXI's RESOLUTIONS

Hasty resolutions are of the nature of vows, and to be equally avoided. ~ William Penn

Greetings. Here are a dozen resolutions I'm making and recommend to improve my well-being and this nation's over the coming year. As you'll easily see, most are stunningly fantastic – meaning the chance of their being adopted is next to nil. So it goes... Numbers 1 and 12 are far more possible, personally speaking. However, one can always wish – and that's the power and pleasure of setting such vows on New Year's, whether they're hasty or not. Hope springs eternal, especially on Jan 1^st.

1.  Probably most relevant and important, I urge me and others, especially public commenters and decision-makers, to have more patience and perspective. Sure, 2011's media will allow anyone to instantaneously broadcast her/his opinion on anything. But I'd advise pausing, taking a few deep breaths and consider what's going on that you want to comment on before you opine. And yes, I admit being way too impatient about any number of things both personal and professional. My adopting additional patience and perspective will be a most positive advancement for me. Wish me luck. I think it will help other folks as well.

2.  The Senate will eliminate the all too pervasive use of the filibuster as a mechanism for the minority to assume virtual majority power. This alteration commences the first of many changes needed for our ramshackle Federal, state and local processes of governance to become more representative and responsive. The unwarranted overuse of the filibuster is a national embarrassment that should be brought to a halt in January. Our governance system has shown itself to be in serious need of improvement –it seems unaccountably intent on operating in the 21^st century by clinging to the 19^th.

3.  A comprehensive, systematic energy bill passes the Congress and the President signs it. This includes some of my old favorites like eliminating hugely inefficient subsidies for domestic petroleum/natural gas and ethanol production and distribution, removing tariffs on imported cane ethanol, increasing the Federal gasoline/diesel tax by a $1/gal, imposing a verifiable limit on national production of green-house gases, and last but by no means least, instituting a systematic, inclusive carbon tax on all forms of fossil energy consumption. Now we're talkin'.

4.  Institute a Federal law that decriminalizes the consumption and production of marijuana and retroactively release the thousands of non-violent prisoners incarcerated for small-time marijuana consumption. As long as I'm at this one, have the Feds declare the marijuana division of the "War on Drugs" officially completed. Have the perpetrators of this insane portion of the WoD declare a "victory" as a sop to whatever misguided public and private authorities who see black as white. And end all funding for marijuana-related enforcement at the Federal, State and local levels. Also, economic and personal hypocrisy, way too often publicly practiced by Republicans, will become a DEA Schedule I illegal drug.

5.  Simplify and change the Federal and state tax laws so several inter-related transformations occur: income-based taxes become (once again) progressive thereby eventually contributing to narrowing the all too substantial gap between the rich and the rest of us; eliminate the tax subsidies for borrowing by individuals (e.g., mortgages) and firms (e.g., debt-financing for M&A activities); make tax rules and regulations simpler, fairer and more equitable. Ideally, these transformations would be adopted by each of the G-20 nations so the effects on international capital flows are mitigated. If only.

6.  Reinstitute binding PAYGO standards for the Congress and the President beginning in January, and implemented by Sept 30^th. And I don't mean the voodoo magic version of PAYGO the House Republicans want to introduce this month, where revenues lost from tax cuts don't have to be accounted for; talk about needing perspective.

7.  A compulsory national Legislative and Executive Plan for Long-term Deficit Reduction (LEPLDR – Not too catchy is it? Perhaps you can come up with a better acronym.) will be passed by the Congress and signed by the President by June 1^st with an explicit, binding timetable, so our strategically-important structural budget deficit will be reduced over time. This plan will necessarily involve substantial expenditure cuts to heretofore "sacred" programs like entitlements and defense, as well as tax increases (see #5). Try to balance the budget yourself using the NYTimes' clever, interactive budget puzzle. 

8.  China will meaningfully appreciate their Renminbi by April 1^st. The Renminbi appreciation will help the US some, but won't by itself solve our balance of trade nor our other international economic issues. In tandem with China's currency revaluation, Congress and the President will cease and desist all statements that accuse China and other foreign nations of "stealing our jobs," and recognize that national job trends are subject to many divergent, long-running forces. Over the past half-century, the US has gained far, far more jobs internationally through immigration and exports than we've lost during the past decade. Perspective helps here.

9.  We need to modify our spending and saving behavior, starting with the folks at the top. Enforce a protocol that every publicly-elected official – from the local city council members and State legislators/governors to Federal Congress-people and the President – must emphatically state (again and again) that individual citizens' economic behavior is perhaps the most important means of making our nation a better place for all to live. Every publicly-elected official will be required to make a personal statement by February 1^st how they individually will be changing their behavior to be consistent with the 3 principles shown below, including what personal sacrifices they have already made for the greater good. In other words, we recognize and agree that "there's no longer a free lunch that someone else will pay for at some point." Our economic behavior needs to change in several key ways:

a.       Stop blaming others for the consequences of our own misbehavior – in my mind, this means each of us needs to abide by the following standard, "I'm responsible for my own actions and mistakes and don't expect others to bail me out." Victimization will cease to be a national preoccupation of blame and irresponsibility. Mittens will be required to be worn at all times so finger-pointing becomes impossible.

b.      Recognize that shared sacrifice is a non-negotiable, necessary part to getting this nation back on track. Each of us will need to "pay" in some fashion for our individual and collective profligacy and mistakes. No one wears a white hat in this.

c.       Start behaving as if the future really matters. Don't keep "kicking the economic problems down the road" (for our children and grandchildren to face). In purely arcane, economic terms, our social discount rate needs to fall significantly, unless we want our kids and their kids to enjoy a lower standard of living. Do we? I hope not.

10.  Recognize that "too big to fail" is itself a first-order policy failure that has understandably alienated citizens and continues to cause substantial economic harm for everyone. No private firm is too big to fail. The unanswered question is: At some distant point in the past the banks and financial sector have transformed from being considered the lubrication system for the engine of our economy to being treated as the engine itself. How did this happen? It must stop, now. The banks create nothing permanent, yet they siphon off significant amounts of undistributed wealth. So, my wish is that the Federal Trade Commission and Dept. of Justice actually start enforcing current law – say the antitrust laws for a start – and reign in the hugely disproportionate influence the financial sector has on our economy. While they're breaking up the BofA, Citibank and Wells Fargo to make the financial services sector more competitive and responsive to actual people's needs, why not aim for the fences and have the FTC and DOJ also go after other huge firms like Exxon-Mobil, AT&T, Wal-Mart, Chevron, United Health, Blue Cross and Humana, just to mention a few. Where's Sen. John Sherman (R-Ohio), the father of the 1890 Sherman Antitrust Act, when we need him?

11.  Commit to making significant private and public investments in 3 strengths that have afforded our success so far: technological innovation, strengthening our physical and human capital, and harnessing our diverse talents and effort towards future achievement.

12.  Finally, I recommend everyone perform what I call the "glass half-full minute" at least once a day. Focus on something that you personally believe is a good (and perhaps new) thing for you, or something you've taken for granted that's nevertheless important for you. Savor the thought for a minute. The benefit of this minute is derived from gaining patience and perspective. It's healthy to remember that we American citizens, despite all the commentary and criticism, reside in the best nation around. We have benefited for a long time from a multitude of great strengths, springing from our neighbors, friends and many, many others in this country. When nurtured, these strengths can found our continued success. With any luck, performing the glass half-full minute won't be too challenging and will offer a small step for subsequent achievements and better times in the future.

Happy New Year!