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Work Out Plan

• February 26, 2009 • 5:45 PM

Waiting for the Byrd to squawk, or how to tell if Congress and the White House are serious about fixing the economy.

As Barack Obama danced the dance of inauguration, spawning a period of national swooning that makes the normal presidential honeymoon seem like a dogfight at midnight, I couldn’t sustain much interest. I had a cold (or was it some kind of flu that might turn into pneumonia?). It was the raging kind of thick-headed, laryngitic, beaten about the spine and shoulders cold (or was it flu-monia?) that makes the world an exhausting, spiteful place. America was happily celebrating its first black president; I was using every bit of the tiny amounts of energy and intelligence my body and mind would summon just to get through the dark and stormy day.

Now, a week down the road, I’m feeling well enough again to write metaphors, and I think having a truly debilitating cold is a reasonable way to frame America’s current economic malaise. The country’s run itself down, drinking too many subprime-mortgage martinis and smoking too many credit-default-swap cigarettes; having ignored clear signs its lifestyle was out of control, the nation’s caught a raging, recessionary cold that just might turn into the dangerous flu-monia of economic depression.

Conquering the national head cold will, I expect, mostly be a matter of waiting, combined with a determination not to start expensive new wars. Even so, Congress will be serving up large glasses of orange juice, in the form of increased government spending and tax cuts. But once the sinuses drain and the country begins to forget its brush with the deadly flu-monia, a long-term lifestyle problem will remain. The country needs to stop living on martinis and cigarettes and to start hitting the economic gym.

Here are some ways you’ll know in the next several months whether Congress and the president are serious about signing us up to the fiscal Y.

In late January, two general types of stimulus measures wound their way through Congress, one an appropriations bill that details government spending meant to stoke the economy, the other a revenue bill that puts money in the pockets of businesses and consumers by cutting taxes. The scrum surrounding the various bills that will be combined into “The American Recovery and Reinvestment Plan” was just beginning to get physical when I began work on this column.

As three House committees worked on components of the package, House Republicans were pushing to have more of the $825 billion plan come as tax cuts and less as new spending. Senate committees were beginning to work on plans that differed in this and that dimension of spending and tax-cutting. It was late January, and the president was saying it was important to act quickly, so he could sign the stimulus plan into law by mid-February. He was also saying that everything looked to be on track for that to happen — an interesting assertion, given the clear indications that Republicans would throw a dozen wrenches into the gears of stimulation, if given half a chance. Even for congressmen, $825 billion is real money, and where there is real money and a Congress, selfless service to the commonwealth does not always win out.

The short-term stimulus part of the package certainly sounded public spirited in summary. There were provisions for “unprecedented accountability,” according to the executive summary of the House appropriations bill, and “no earmarks.” The bill would spend $90 billion to modernize transport, more than $100 billion to help people who have lost jobs and another $100 billion-plus on “education for the 21st century.” Similarly, on the revenue side, the House Ways and Means Committee was looking at a couple of hundred billion dollars worth of apple-pie tax cuts for working families, parents, college students, first-time homebuyers and small businesses.

But these were just the summaries, and the pressure to morph the details to throw money at this or that undeserving interest group was obvious, even from my vantage across the continent. The notion that the bill contained no earmarks was also something of a syntactic fig-leaf. The stimulus package may not have language specifying a certain amount of funding for a certain project in a certain congressional district. But it will send grants to the states, where congressmen, governors and state legislators will spend the money in ways unlikely to please anyone over at the Good Government League.

Though I am a GGL member in good standing, the horse-trading over short-term stimulus was, for me, not a particularly troubling prospect. These road and bridge projects were, after all, the Tylenol and NyQuil of the package, palliatives that would lessen the symptoms of the recessionary cold, so the patient could rest well and recover quickly. If the spending accomplished worthy ends, all the better, but the primary aim was a Keynesian stimulus of demand, which, as the old saw goes, could be accomplished by paying half the population to dig holes and the other half to fill them up again.

Also wound into the proposed stimulus package, however, were measures meant to fundamentally change the nation’s fiscal lifestyle with dizzying arrays of grants and loans and tax incentives meant to support the development of energy alternatives to fossil fuels.

Ultimately, the success or failure of the Obama administration’s economic program will depend far more on its ability to wean the country from use of oil and coal than all the middle-class tax cuts the federal budget can fund. There is simply no way the country can reach true economic health if it continues to borrow hundreds of billions of dollars each year from the Chinese to buy hundreds of billions of dollars of oil from the Middle East, all while ignoring climate changes that will, if unaddressed, bring environmental and financial catastrophe well before the end of the century.

From a certain point of view, the stimulus plan’s massive investment in the alternative energy sector could be seen as a loud-and-clear repudiation of the Bush administration’s head-in-sand approach to global warming; environmentalists generally cheered. But $70 billion in government money will not, by itself, insure that the U.S. will kick its fossil fuel habit. And the $70 billion was anything but guaranteed.

Stephen Schneider is a senior fellow in the Woods Institute for the Environment at Stanford University and one of the world’s leading experts on climate change. When I called him in January, he cheerfully admitted he had not studied the stimulus plan in detail because he expected it to change dramatically before it became law. Still, he was guardedly optimistic about the prospects for real change on the alternative energy front. The amount being discussed — that $70 billion investment, give or take, across a couple of years — was large enough to be in the ballpark for beginning to deal with the switch away from fossil fuels required if climate change is to be arrested over the next three decades or so.

But the stimulus package will be effective in helping the conversion to a reduced-carbon and eventually carbon-free energy future only to the extent that it allows businesses to commercialize alternative technologies that are beyond the research and development phase but not yet fully tested in the real world. Or, as Schneider put it, “You’ve got to do it, to learn how to do it better.”

He suggested that federal loan guarantees for alternative energy entrepreneurs would be one of the better ways of supporting that type of real-world entrepreneurship, and several loan-guarantee programs were in the bill passed by the House Appropriations Committee late in January. In stumping for the stimulus, President Obama suggested those guarantees would spur as much as $100 billion in private-sector investment in alternative energy.

All the same, Schneider has watched a couple of generations of congressional ideologists and pork-barrelers gut efforts to change the country’s energy priorities, and he quite reasonably expects some members of Congress to continue to be interested in how much money and how many jobs go into their districts. When I asked him if he thought the alternative energy part of the stimulus package was going to fly, Schneider said, “Let’s answer your question with a quip: You can fly like the Wright brothers, or fly like a 747 going to Australia.”

Amid the inauguration hoopla, it’s easy to forget that, not many months ago, the mantra of the GOP presidential campaign was “drill, baby, drill,” and a lot of the country was eating it up. The oil and gas companies that wanted to do more drilling, particularly off the coasts, haven’t gone anywhere; they want to keep the tax breaks that encourage them to poke holes in the ground. As Marty Lobel, a Washington, D.C., lawyer and general sage of matters congressional, wryly noted, “Obama may have banned lobbying for the White House, but he sure didn’t ban it for Congress.”

Although a Democrat of long standing, Lobel was less enamored of the smorgasbord of financial support the stimulus plan offered to alternative energy technologies than I’d expected. He noted that the plan subsidized everything from wind and solar power to biofuels and better batteries, and that the government has not been good at picking private-sector winners and losers, particularly in the alternative energy sector. (See: The Archer Daniels Midland Profit-Enhancement Program, aka federal ethanol subsidies.) “If you subsidize something enough, anybody will do anything,” Lobel said.

Lobel was not arguing against an economic stimulus per se; the nation does, after all, have a full-on financial head cold (verging into possible flu-monia). But the money borrowed to fund the stimulus plan will eventually have to be paid back, and Lobel wondered whether the plan, in attempting to combine short-term stimulus with long-term economic goals, wasn’t conflating the two. Perhaps the switch to a renewable-energy economy could be made more efficiently apart from the stimulus package. “If they were smart, they’d put on a $1-a-gallon gasoline tax” and give rebates on the cost to low-income citizens, Lobel said.

Lobel has been in and around the halls of Congress a long time; he’s also one of the nation’s real experts on tax law, its uses and its misuses, and in this case he’s spot on: All the pro-renewable stimulus Congress can pass won’t make alternative energy fly like a jet plane unless it is economically competitive with other energy sources. At least in the near-term, alternatives won’t be price competitive until the U.S. creates the mechanism for putting a price on the carbon dioxide emissions that oil and coal put into the atmosphere and that cause global warming. The mechanism could be a carbon tax of some kind (a stiff gasoline tax would be a good start for the transport sector) or a market in which polluters have to pay for the right to put carbon dioxide into the atmosphere.

Different experts favor taxes over a market, and vice versa, for different reasons. There are different plans for what the government would do with the money raised through a tax or market. But with current technology, carbon simply must be “priced in” for solar power from the rooftop and for that electric car in the garage to be cheaper than the electricity provided by coal-burning power plants and Detroit’s current crop of automobiles.

Any real attempt to regulate carbon dioxide will very likely create one of the largest power struggles in recent political history.

Absent a breathtaking breakthrough in technology for removing carbon dioxide from power plant and auto exhaust and sequestering it, putting a price on carbon means, in very real terms, closing down the oil and gas and coal industries over time. The corporate giants in those industries can be expected to fight an effective carbon-pricing mechanism tooth and nail. To keep those companies — and the oil- and coal-state congressmen they effectively own — from killing a carbon tax or market before it can be born, Congress will have to reach complex compromises.

Carbon-emission restrictions will have to be phased in over time (but not too much time), so the better-managed oil and coal companies can change their focus to other energy sources, remaining profitable in a world where the sun and wind supply most of our energy, and oil and coal become very small slices of the power pie. There will have to be worker retraining and assistance for companies that agree to locate new facilities in states hard-hit by the demise of, in particular, coal. As Schneider puts it, “You can’t preserve a job your grandfather had just because he had it. On the other hand, you can’t just throw people out in the street.”

So if you hear Robert C. Byrd, the seemingly eternal Democratic senator from the great coal-producing state of West Virginia, scream long and loud over the next year, you’ll know other Democrats are finally gritting their teeth, plugging their ears and doing something right for America’s economic future.

Initially, I intended this column to focus on the commercialization of thin-film photovoltaics, razor-thin solar cells that are essentially printed onto building materials. The process is reported to be cheaper than traditional, silicon-based photovoltaic cells, in large part because fabrication and installation are quicker. A couple of companies have opened large factories to produce these thin-film photovoltaic building materials; I wanted to visit one.

But it became clear that as the housing market collapsed, the stock market crashed and the credit markets froze, the alternative energy sector sagged, too. I couldn’t get the PR people from the thin-film companies to set up interviews or, in one case, even call back. There were newspaper stories about solar projects suddenly having funding problems. Eventually, I called Miguel Contreras, a senior scientist at the National Renewable Energy Laboratory, to get his overview.

Contreras described a hierarchy in which old and proven solar technologies — mirror arrays that concentrate solar power to make steam to drive electric-generation turbines, for example — are having the easiest time attracting funding because they have a record of reliability. Though they appear to be testing well, he said, the thin-film photovoltaics are “lagging a little bit behind in terms of investment,” perhaps just because they are a newer technology and there has not been time to build as deep a record of reliability.

But there’s another problem in the world of alternative energy finance. In December, Contreras said, he attended a meeting of lenders and found that uncertainty about the credit environment had clearly spread from the housing sector to others, particularly those that are considered higher in risk, including alternative energy technology. “The bankers say that the housing market affected as well the investment in alternative technologies,” Contreras said.

So there you have it: If despite its recent lobby-friendly, earmark-happy past Congress doesn’t turn the alternative energy support in the stimulus plan into tax breaks for oil exploration; if the administration and Congress create a carbon dioxide tax or market in the face of violent opposition from the big oil and coal; and if the administration somehow fixes the Troubled Asset Relief Plan so it actually unfreezes the credit markets that will drive the growth of alternative energy, then the country may —emphasis on the word may — have begun working its way into financial shape. But if significant amounts of alternative energy funding mysteriously disappear from the stimulus bill, shifted to pay for the fantasy non sequitur known as “clean coal” or swapped out for general tax cuts that will gain Republican votes, it’ll be a pretty clear sign: The gym membership has already lapsed, and the drunken financial partying will begin again, just as soon as the patient can stand it.

He just won’t be able to stand it for very long.

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John Mecklin
John Mecklin was the debut editor-in-chief of Miller-McCune, serving from its birth through May 2011. Over the last 15 years, he's also been: the editor of High Country News, a nationally acclaimed magazine that reports on the American West; the consulting executive editor for the launch of Key West, a city/regional magazine; and the top editor for award-winning newsweeklies in San Francisco and Phoenix that specialized in narrative journalism. In an earlier incarnation, he was an investigative reporter at the Houston Post and covered the Persian Gulf War from Saudi Arabia and Iraq for the paper. His writing has won national acclaim; writers working at his direction have won a panoply of major journalism honors, including the George Polk Award, the Investigative Reporters and Editors certificate, the John Bartlow Martin Award for Public Interest Magazine Journalism and the Sidney Hillman Award for reporting on social justice issues. Mecklin holds a master's in public administration degree from Harvard’s Kennedy School of Government and a bachelor's in psychology from Indiana University.

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