Impact of Green Economy Investments in the Recovery Act

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I did a spit take yesterday when I heard MSNBC commentator Mika Brzezinski tell another TV personality that to reduce the federal deficit we all "need to live within our means." I wasn't surprised by the remark so much as angered that yet another wealthy media pundit was lecturing us about being economical.

Usually, the "living within our means" comment refers to "shared sacrifice" of both working families and the rich in order to solve the government's perceived fiscal problems. In real life it means working families and low-income retirees yet again will be the one's to carry most of the burden.

See for example the Republican budget outline announced this month, which cuts tens of billions from education and other programs that benefit working families – with no sign of them budging on the tax cuts for the rich they fought tooth and nail to extend last year. See also their willingness to close down the government and stall Social Security payments to retirees in order to make their political point, further risking economic recovery.

When, during a press conference call dealing the positive impact of President Obama's recovery act on creating "green" manufacturing jobs, I questioned United Steelworkers President Leo Gerard about how he responds to comments like these, he expressed righteous working-class indignation.

"Depends on where I am at. If I was in the shop, I wouldn't use words you could print in your paper," he said. "But on this, I'd just say it's baloney."

"The fact of the matter is that the problem we have in America is not a spending problem; it's a revenue problem," he said.

"During the Bush era, we lost 53,000 factories," he explained. Those factories didn't just employ workers and make things. Those companies paid taxes and made purchases that sustained local economies. Those working families paid taxes and also made purchases that sustained local economies. And the "multiplier effect" rippled through the economy with additional revenues for local, state, and federal governments and even more businesses.

That's basic economics.

"We've now had not 15 million people unemployed (the official figure), we've had closer to 27 million people either underemployed and unemployed," Gerard continued. "And that came about as a result of the financial collapse and the lack of a manufacturing policy and bad trade deals."

"On top of that, you take the years of Bush tax cuts (trillions of dollars), two wars fought off the books, all of the usual stuff, and then last December giving almost a trillion dollars to the rich and ultra rich," he said. "Don't come back to me then and say that an investment that creates jobs, that pays back the investment in eight months, and almost doubles the investment in creation of gross domestic product in the same amount of time is a bad investment."

"More people are working," Gerard said, "and creating real wealth as opposed to the paper wealth created on Wall Street. That's the reason the American Reinvestment and Recovery Act was such a powerful tool, and that's why we need more of it, not less of it."

Both government and private analysis of the manufacturing sector revealed that it has been one of the biggest winners in recent years, and indeed may be driving the economic recovery.

"It's not sexy, but it's got teeth"

In the movie adaptation of the John Grisham novel, The Firm, Mitch McDeere (Tom Cruise) explains to an FBI agent the best way to handle the crooks at the law firm under investigation. It's a pivotal point in the story because it happens when Mitch, who has been pushed around by the FBI and is scared stupid of the gangsters in his law firm, finally grasps how he can bring the bad guys down and escape the clutches of the FBI – all at the same time.

He tells the agent that the firm systematically overbilled its clients and sent those fraudulent bills in the mail. Agent Tarrance responds, "Get 'em with what? Overbilling, mail fraud? Oh, that's exciting."

"It's not sexy, but it's got teeth," responds Mitch. Millions in fines and decades-long prison sentences bring down the corrupt lawyers.

Sexy sound bites like "living within our means" are effective propaganda tools, because working families, the overwhelming majority of Americans, know what it is like to do that. Mika Brzezinski, who has never had to live within any means other than that of one of the most influential families in Washington, has no real life understanding or experience of what she said. But it's catchy and powerful. Who would dispute it?

But Gerard's economic analysis isn't just punditry. It has a basis in real life. According to a new joint report from the Blue-Green Alliance and the Economic Policy Institute, the investments in the green economy (production of renewable energy, weatherization programs, mass transit, etc.) created 1 million jobs, added $146 billion to the GDP, and took some of the biggest steps in protecting the environment in U.S. history.

In fact, the report notes, the $93 billion allocated for the green economy, i.e. less than 12 percent of the price tag of the recovery act, created 29 percent of the jobs and 28 percent of the total GDP created by the recovery act as a whole.

Another 35 percent of the recovery act was "transfer payments to individuals" in anti-poverty programs like unemployment compensation, food stamps, and the like, as well as direct aid to states. Federal dollars paid to states governments helped shore up their budgets and prevent the worst budget cuts. But because of the nature of the political process involved and resistance from Republicans in state governments, this portion of the recovery act has been slowed or even blocked. When successful, however, the money did stop the worst hemorrhaging of the crisis, protecting public safety and public education jobs in the hundreds of thousands. Still, states continue to face fiscal crises and need a second dose, but this time a much bigger one.

One-quarter of total recovery act spending came in the form of tax breaks and tax cuts. Tax cuts, however, are the least efficient means of stimulating the economy, the report explains. Obviously, if you give $1 trillion to the richest Americans, because they form a tiny portion of the population, they simply can't – even if they wanted to – spend enough to create real economic growth.

In addition, tax cuts for businesses are saved rather than spent, especially in an economy where one of the biggest problems is a drop off in consumer demand. Business owners don't hire new people no matter how much of a tax break you give them, until someone comes into the shop to buy something. Those are basic economics Republican ideologues simply refused to accept, risking economic recovery by blocking or trying to block implementation of recovery act programs.

In raw numbers, the economic impact of government spending under the recovery act looks like this. For every dollar in direct spending, such as for the "green economy," $1.75 in economic activity was generated. For every dollar spent in anti-poverty programs, $1.45 in new economic activity resulted.

And, in Gerard's theory, it is such new economic activity that leads to new growth, new job creation, new tax revenue, better public services, and fiscal soundness in government spending, i.e. deficit reduction.

Simply put, spending taxpayer dollars on direct investment in infrastructure and unemployment insurance ain't sexy but it's got teeth.

For every dollar spent on tax cuts for low- and middle-income families, $1.05 in new economic activity was generated. Ok, but not as effective.

On the other hand, for every dollar spent on tax cuts for the richest Americans, 40 cents – four thin dimes – in new economic activity resulted. Even less new activity was created with the corporate tax breaks in the recovery act. In other words, tax breaks for the rich and the corporations actually sucked life out of the economy. This partially explains the slow, uneven nature of the recovery.

And ineffective tax cuts for the rich are the foundation of all Republican Party policy – just so you know.

Photo: President Obama visits a cleaner energy battery factory in Wisconsin. (White House photo)

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  • Joel,
    Very good article. I didn't know a lot of the facts you put out, especially on the recovery act. There are lots of places I can use the stats.
    Keep up the great work on the on-line PA. I love it, always have.
    Comradely,Carole Marks

    Posted by Carole Marks, 02/22/2011 1:06pm (9 years ago)

  • Since the end of World War II, simply look how Big Oil and the Big Three - along with their good friends in political offices - have placed brick walls in front of the green revolution in technology, expansion of public transportation and the reshaping of any debate surrounding the thirst for profits as priority number one. We are now paying dearly for this blue print that is gushing red ink from coast to coast.

    Posted by RDC, 02/21/2011 11:01am (9 years ago)

  • Unfortunately, the wealthy will continue to run the greatest country in the world into the ground economically with their insatiable greed probably forever.

    Posted by Jay Greif, 02/21/2011 9:59am (9 years ago)

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