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December 14, 2008
David Warsh, Proprietor


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Change We /Would/ Believe In

The first false note of Barack Obama’s presidency was an alarming one. He stumbled when he briefly described his National Recovery Plan during his regular Saturday radio broadcast on December 6, promising to create millions of jobs “by making the single largest new investment in our national infrastructure since the creation of the federal highway system in the 1950s.” That simply isn’t credible.

Tackling deferred maintenance is a sound enough idea, but changing the light bulbs and furnaces in government buildings and wiring up the last few schools, libraries and hospitals not already connected to the Internet is hardly a plan calculated to get America moving again, much less in the right direction.

 

Yet a project every bit as far-reaching and ambitious as the federal highway program is to be found on the drawing board, pretty nearly ready to go.  It just isn’t the one Obama seems to have in mind.

 

A little background on what came to be known as the Interstate and Defense Highways Act of 1956. President Dwight Eisenhower, its principal advocate, gained firsthand knowledge of the deficiencies of the American system of two-lane highways and rickety bridges during the summer of 1919, when he was part of an Army convoy that required two months to drive from the Washington Monument to San Francisco along the Lincoln Highway – a government publicity stunt, pure and simple.

 

His impressions were reinforced when saw close up German Autobahnen in the closing days of World War II – the four-lane, limited-access divided highways whose construction during the 1930s served as a global model of public works project. (Yes, Nazis built them, but Weimar engineers came up with the idea; Konrad Adenauer, then mayor of Cologne, opened the first limited-access highway, to Bonn, in 1931, before Hitler came to power.)

 

In the United States, the 1956 Act succeeded brilliantly on its own terms. That it delivered on its initial promise to contribute to national defense was beside the point – perhaps evacuations could have proceeded more speedily in the case of nuclear attack.

 

Mainly it reconfigured the American landscape over the next forty years, taking suburban development away from the railroads and giving it to the real estate barons, boosting the American automotive and steel industries, buttressing the position of American oil companies at the center of the nation’s foreign policy, and so on.

 

Inevitably, the automotive boom had many side effects now viewed as undesirable – chief among them, it turns out, a dramatic increase in greenhouse gases released into the atmosphere via internal combustion.  But therein lies the clue.

 

A really good stimulus package would take aim at curbing America’s contribution to climate change – treating the problem not as a certainty, but as a probability, deserving of a relatively inexpensive insurance policy, pending further developments.  Its centerpiece would be a carbon tax, phased in by degrees starting in 2011, just as economic recovery is expected to begin.

 

The vast sums to be spent by the Federal government in the next two years – as much as $500 billion in both 2009 and 2010 – should be framed mainly in terms of financing the transition to a new set of long-range national goals rather than as short-term Keynesian stimulus.

 

That would mean smaller cars, tighter windows, better furnaces, new housing and plenty of improvements of the public infrastructure as well, starting with health care – a couple of years of intense preparation for the change.  It would mean, too, an immediate major commitment to higher education, on the order of the 1958 National Defense Education Act, and a great deal of energy-related R&D leading, conceivably, to a latter-day Apollo Project.

 

Finally, it would require a down payment on long-term measures to aid the working poor, those whose lives have become organized by the inner logic of the Interstate Highway Act – for example, the drive-’til-you-qualify homeowners who are hardest hit by high prices of gasoline.

 

All of that would add up to quite enough spending to get the economy moving again. The US is not facing a Great Depression or anything like it – only a case of nerves, arising from a confusion of aims.

 

From, say, $120/bbl oil and $6/gal.gasoline, the rest would gradually follow – not suddenly but surely and steadily. Detroit’s rescue would have served a national purpose: its reorganized companies would build cars that people wanted or at least needed to buy. Cost-saving innovations would sweep through the energy sector: new power sources, green buildings, green homes, green agriculture.  Private investment would flow to mass transit, to cities, to re-purposed suburban development.

 

American dependence on foreign oil would be reduced. The nation’s temptation to foreign wars would diminish.  The new measures would be largely self-financing.  Revenues would flow to government, to be spent on the US share of the massive subsidies necessary to enable poorer nations to harmonize their own carbon taxes.

 

Best of all, such a framework would set the right tone vis a vis America’s principal competitors for global influence for the foreseeable future. Now that China and India have set their sights on going to the moon, America should mobilize to tackle the next technological frontier and lead the way, instead of grumbling and griping about the obligations of others.

 

What about the economy itself? Wouldn’t the much-desired recovery, the return to normalcy, be delayed by higher energy prices – or even sunk altogether?  Don’t higher taxes inevitably mean slower growth? For twenty-five years, Americans have been engaged in an increasingly preposterous argument about the relationship between taxation, properly viewed as public investment, and growth.  They are ready for a new and more sophisticated debate. An ambitious conversion program probably would accelerate growth slightly, not retard it.

 

The most fundamental question of all has to do with the choice of how to go about limiting greenhouse gases. There are only two basic ways that the problem can be addressed.

 

One is establish quantitative limits to through government mandate and regulation, which these days usually means establishing aggregate quotas with cap-and-trade systems designed to meet them efficiently.

 

The other is use taxes and subsidies to influence the choices people make. The two approaches achieve the same goal – thery reduce emissions — but  they have very different political and economic consequences. These have been described in many venues, nowhere better than by William Nordhaus in A Question of Balance: Weighing the Options on Global Warming Policies.

 

Because the potential for corruption in cap-and-trade systems is pervasive, the advantages of price-based regulation are very great. Carbon tax revenues could be used to offset others taxes, and to cover the substantial (but not prohibitive) expense of bringing the newly industrializing nations into the system – a program of aid comparable in scope and scale to the Marshall Plan.

 

What are the chances of something like this actually happening? At this point, Barack Obama could sell almost any measure to the American people. In Lawrence Summers, slated to head the National Economic Council, he has hired the best tutor a man could desire. It is up to Summers to sell him on the merits of carbon taxation, vs. the emissions trading scheme envisaged by the Kyoto Protocol and operating with some success in the European Union.

 

But on the architecture of the stimulus plan itself, Obama should resist the temptation to delegate the matter to his economic advisers and, rather, rely on his instincts as a political leader to design the plan himself. America understands itself best in terms of national goals. For the present purposes, Obama should stop thinking about the New Deal and ponder the successes of Dwight Eisenhower and John F. Kennedy instead.

 

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