The lost decade is often talked about in Japan. From 1990 to 2000, the Japanese economy was stuck in the aftermath of a burst housing bubble and the inability to channel investment into the “next big thing.” Of course that was the Internet. Today the U.S. is in a similar situation. We are in a post-housing bubble, a credit and banking crisis. We also face the difficult choice of figuring out the next big thing to invest in. If we miss it or do not get it right we will be Japan in the 1990s and Germany, Singapore, China, and Denmark will lead the next economic expansion. Where to put the money? The answer is simple - it’s The New New Deal. The Obama administration has a chance to set America on the right course. The question is… will it? Will they cave in the old New Deal (bail out the auto industry) or can they embrace the New New Deal? What is the New New Deal? According to Jefferey Sachs:
- The development of mass-market, battery-powered autos that achieve at least 100 mpg of gasoline on fleets by the year 2015.
- An efficient power grid that can carry renewable energy - solar from the Mojave Desert and wind from the Great Plains - to the population centers of the U.S.
- A utility industry that can reduce 80 percent of emissions per kilowatt on newly built power plants by 2016. For the U.S. to achieve this it will have to decrease consumption and increase investment. One policy to help would be for a gasoline tax to keep gas prices high to reduce consumption and create tax revenues to fund R&D. I would suggest a tax that would keep gasoline prices at $4.00 a gallon rising by 50 cents a gallon over the next four years. This would create the incentives to invest in our energy efficient and sustainable future.
Tags: creative class taxes, energy, Japan
November 19th, 2008 at 4:00 pm
Japan’s Nikkei Index went to 45,000. The land under the Imperial Palace was worth more than the state of California. The levels of asset bubble were vastly more extreme than in the US. They also are suffering from demographic exhaustion (an aging, declining population with limited immigration). And they have a famously inflexible economy. None of which affect the United States.
What’s notable about people like Sachs is that no matter what the problem du jour, the prescription is always the same - more of their preferred social policies. We all like to see events as vindicating our world view. But the reality is much more complex.
November 19th, 2008 at 4:15 pm
If I hear someone use the phrase “New New Deal” one more time, someone is going to get slapped!
Isn’t Sachs the guy that advised all the former Soviet Republics to rapidly privatize their industry by issuing shares to all citizens? “Shock Therapy”?
I actually have been advocating “Shock Therapy” for the US: no bailouts for banks. No bailouts for the auto industry. No bailouts for homeowners.
Let these companies fail. Let the banks forclose. Let’s get as much economic turnover and deflation as possible as soon as we can.
Yes, this will result in a couple of quarters of simply awful economic data. Growth will be non-existant. Unemployment will soar.
But it will be temporary and short lived, like the recession of 1983.
November 19th, 2008 at 8:26 pm
Buzzcut:
Great post; I can’t imagine why anybody would want to do anything and associate it with the failed New Deal. Next thing you know they’ll be talking about a Great Society 2.0 - I shudder to think
November 20th, 2008 at 11:38 am
If we let auto companies with anachronistic ideas fail; and keep gasoline high, the market intriguingly enough might take care of the rest:
Forward looking, innovative auto companies will create those new generation high efficiency automobiles; people will make appropriate lifestyle and location changes; new goods and services will emerge appropriate to these newer lifestyles that will tempt consumers into spending again.
If all this is combined with some “stimulus spending” on transit infrastructure, that combined result will be that more people will have more disposible income to spend on something other than cars and gasoline, which should benefit the economy far more.