Wednesday, November 19, 2008

The Green Keynes

The original Keynes joked that green money (I realize that pounds are not green) should be put in bottles burried and let the unemployed go look for them and then spend their "winnings" to jump start aggregate demand. The new fashionable green keynesiam has a benevolent well meaning goal (i.e Tom Friedman's vision) but could lead to a number of Newmans from Seinfeld

Consider this thoughtful blog entry:

New York Times "Dot-Earth Blog"

"I would ask President Obama to combine economic recovery and a new energy agenda (renewable energy, alternative transportation infrastructure, energy efficiency, smart grid and smart land use) into a Green New Deal. Several economists, for example 2008 Nobel Prize winner Paul Krugman, are talking about the need for a Keynesian type fiscal stimulus akin to F.D.R.’s New Deal. And others are talking about the need to make it green.

The Apollo Alliance and Van Jones of Green for All have been talking for years about the potential of a green economy to create jobs and provide opportunities for displaced workers and low income people. Alan Durning’s recent piece on Gristmill explicitly related a green economy agenda to a fiscal stimulus program:…

— Laurie Dougherty, Brookline, Mass.
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Are faith in markets and faith in government perfect substitutes? Will Harvard now send 50% of its graduate class into the public sector? Will President Obama give us a federal government that provides a high level and quality of public goods per tax dollar spent? I hope so but I doubt it.

Contracting issues and corruption must be addressed. Public sector wages would need to be closer to private sector wages to help us avoid another Boston Big Dig (triple cost over-runs and low quality). Monitoring to minimize shirking and credible punishments would need to be figured out and enforced.

If we go ahead with this green public financed big push, will public sector unions gain greater wage increases relative to their private market alternatives? How will we evaluate whether this is money well spent?

It is an interesting question for incentive theorists to think about to ask whether we can achieve two goals at once; is it feasible and desirable to "stimulate" the economy through a public financed green infrastructure investments? How will we pay for this? It is quite difficult to kill off government programs, will this be a temporary program?

Why must the public sector be given a monopoly here to pursue this? I realize that public goods are involved here and that there are large upfront fixed costs to these infrastructure projects.