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?"