Why The Department of Energy Should Invest In Renewable Energy

This article provides a defense of the Department of Energy's (DOE) program to fund renewable energy start ups. It is in response to the conservative uproar over the failure of Solyndra, a solar energy company which received loan guarantees from DOE. The article gives a detailed analysis to the decision and makes the case for continued DOE investment in renewable energy. I would like to focus, however, on the broader criticism of the DOE program made by conservatives. They argue that government should not be involved in making investments in private industry. That is a job reserved for the private market because it is better at making investment decisions. Some commentary on this issue follows the analysis of the Solyndra case. Its hard to understand the faith that conservatives have in the ability of markets to allocate capital to the most productive uses after the dot.com bubble and the housing bubble in which trillions of dollars were allocated to businesses that failed, and to the funding of the real estate bubble. They believe in government failure but deny the existence of market failure.

A Concise Description of Our Slow Recovery And How to Restore Employment

This article provides a succinct explanation of the slow recovery from recession in the US. Recoveries from balance sheet recessions look just like this recovery. Households took on too much debt, and paying down that debt reduces consumption which is 70% of the economy. It makes no sense to compare this recession with our most recent recessions, that had a sharp recovery, and to argue that the slow recovery is due to the lack of business confidence in the current administration. We expect that kind of argument from politicians, but we should expect more from economists who know better, but have decided to back up the claims of their political allies.

If we take the advice of those who argue that federal spending should be cut to the level of tax revenue, spending would have to be reduced to 14% of GDP. A cut in federal spending of that magnitude would sink the economy into a deep recession. That's what happens to an economy when households, business and government all cut spending at the same time.

Once we reject the explanation of this recovery provided by politicians, who are primarily interested in winning the next election, we can focus on our real problem. When households and business are not spending the only option is for government to raise its level of spending. Government can borrow at low interest rates and invest in the infrastructure that the economy will need going forward. That will help to restore the economy and provide the opportunity to reduce future deficits as tax revenues grow with the economy, and federal spending can be cut back when it is no longer needed to support an economy in recession. That is what we should do. The only real question is whether our political system is capable of doing what is right for the American people.

Video Of Stiglitz Address to World Bank

This is a video of an address at the World Bank given by Joe Stiglitz. His topic is about the misdiagnosis of our current economic problems and some suggestions for remedying the problem. He argues that the Great Depression was the result of the transition of the US economy from an agricultural economy to an industrial economy. High productivity in agriculture made it possible for 3% of the labor force to satisfy the demand for food. It took time for growth in the industrial sector to absorb the labor pool and for the migration of labor from rural areas to urban industrial locations. High levels of unemployment limited consumption of manufactured products and limited the opportunities for unemployed agricultural labor in the emerging industrial sector. The New Deal helped to lower unemployment but we made some of the same mistakes that we are making today. Government employment actually fell during the New Deal. The loss of state and local jobs was greater than the increase in federal employment. We have experienced a net loss of 700,000 government jobs today due to job losses at state and local level. Our fiscal policy has been pro-cyclical rather than counter-cyclical. It took WW ll to get us out of the Great Depression. It also promoted the transition to an industrial economy following the war. Because of rationing during the war, households saved money to spend on consumer goods and soldiers returned to form households using skills that were provided by the military. The GI bill also helped to transition the workforce to the new industrial society.

The US economy was sick prior to the financial crisis and the Great Recession. We are making a transition from an industrial economy to a services economy. Fixing the banking system was a necessary but not sufficient solution to the unemployment problem. Consumption was fueled by the housing bubble and the assumption of debt. This was necessary since median income in the US is close to its level in 1978. Moreover, spending on real estate accounted for 40% of investment spending. We had a zero savings rate, but income inequality distorted the savings distribution. Savings in the top 20% increased by 15% but the bottom 80% consumed 110% of its income. We will not be able to restore the economy by returning to a system in which the bottom 80% consume at 110% of its income. Moreover, real estate investment will not provide 40% of business investment again.

Rising oil prices also impact the global economy. Demand is shifted from high consumption industrial economies to low consumption oil producing countries. One of the results is lower job growth in the US and much of Europe.

The decision by emerging market economies to build their reserves also limits global economic demand. This is a forced savings mechanism which might have benefited the US if the savings had been allocated to more appropriate uses. The private market system decided to use the savings to finance real estate construction instead of investing in areas that would benefit national economies in the long term. Since many households did not have the income to afford the homes that they purchased at inflated prices, we will be living with the problem of deleveraging for some time.

In his discussions of remedies he argued that monetary policy is not sufficient. Fiscal policy must be used to build aggregate demand. Countries that can borrow at low interest rates can make investments in which the return exceeds the interest rate. This can lower the debt/GDP ratios in the medium term. Public spending on education and healthcare helps in making the transition to a services economy. Shifting the composition of the tax system can also improve fiscal balance while it can also stimulate demand. We also need to tax carbon emissions and invest in the green technologies that are needed to respond to threats of global warming.

He spent some time dealing with the objections that he would expect from the economists in the audience. Most of the macro models that they use are worthless and some of what they are saying about the need for fiscal austerity is based either on a poor understanding of multipliers in our current environment or other ideas that are without merit.

Making Globalization Work For Labor

The International Labor Organization hosted a conference that focused on the issue of globalization and its affect on labor. This article summarizes some of the key research findings. Much of this research challenges conventional views within economics on the relationship between international trade and the impact on labor and national government policy implications.

The Role of Forests In Carbon Capture And Threats To Forests From Global Warming

This article describes the important role of the world's forests and the threat to their existence from global warming. Our forests absorb about 25% of carbon emissions. This is approximately the entire amount of carbon emitted by cars and trucks in the world. The threats to the forests come from insects and diseases that are due to global warming as well as from forest fires and other sources. We may have to update our forecasts on the dangers from global warming if we continue to erode the carbon capture capability of our forests.

Morgan Stanley's Stock Price At 2008 Crisis Level

This graph illustrates the sharp decline in the stock price of one of Wall Street's premier investment banks. The price of Morgan's Stanley shares are back to where they were during the 2008 financial crisis and they are a far cry from where they were at their peak.

An Overview of Issues At Morgan Stanley

I'm back from Europe and it looks like attention has focused on potential weaknesses in the banking system. This article focuses on problems at Morgan Stanley but investors seem to worried about problems in many of our largest banks. They are concerned about exposure to risks in European banks; access to short term debt to fund operations and poor performance in trading.