Green Jobs for Janitors: How Neoliberals and Green Keynesians Wrecked Obama's Promise of a Clean Energy Economy

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In August 2008, then-candidate Barack Obama traveled to Lansing, Michigan, to lay out an ambitious ten-year plan for revitalizing, and fundamentally altering, the American economy. His administration, he vowed, would midwife new clean-energy industries, reduce dependence on foreign oil, and create five million green jobs. "Will America watch as the clean-energy jobs and industries of the future flourish in countries like Spain, Japan, or Germany?" Obama asked. "Or will we create them here, in the greatest country on earth, with the most talented, productive workers in the world?"

Two years later, the answer to that second question appears to be no. Obama's environmental agenda is in tatters. His green jobs plan has done little to make a dent in unemployment, which persists at close to 10 percent. Obama's signature environmental initiative, cap-and-trade, died in the Senate in July. And, during the first year of Obama's tenure, China massively outspent the United States on clean-energy technology.

The story of how Obama's green agenda came up empty is more complicated than the one conventionally told by Democrats and greens, who imagine that cap-and-trade would have been transformational had Republicans and global-warming deniers not gotten in the way. In truth, the president's strategy was flawed from the start. Cap-and-trade would not have birthed a domestic clean-energy economy -- indeed, it wasn't designed to. Meanwhile, the administration's green stimulus spending was split between short-term, if worthy, investments in green technology, to which far too little money was allocated, and over-hyped public-works projects that would never have delivered the new industrial economy Obama promised as a candidate.


Voodoo Economics

Shortly before the House passed its version of cap-and-trade legislation last year, the Center for American Progress (CAP), headed by Obama transition director John Podesta, released a study claiming that the cap-and-trade bill and the stimulus combined would create 1.7 million new jobs. Democrats repeatedly pointed to the CAP report to support their jobs claims. Extrapolating from the report's analysis, it seems that over half of the new jobs, almost 900,000, were supposed to come from building retrofits. The study's authors apparently believed that a mere $5 billion in stimulus funding for weatherization, plus a price on carbon, would leverage $80 billion annually in private investment and lead to the retrofitting of every single commercial and residential building in America in just ten years.

Alongside the CAP report, the Natural Resources Defense Council and the leading green jobs group, Green For All, released another study written by two of the same authors, claiming that roughly half of the jobs would benefit low-wage workers and would offer "decent opportunities for promotions and rising wages over time." Indeed, environmentalists such as Van Jones -- who had come to prominence calling upon young people to "put down those handguns and pick up some caulking guns" and briefly served as Obama's green jobs czar -- claimed that building retrofits and cap-and-trade legislation could save both the planet and the inner city.

In reality, the stimulus's $5 billion weatherization program, according to the Department of Energy, created or saved just 13,000 jobs during the last reported quarter. But, even if more of these jobs had been created, the idea that inner-city youth should see what are essentially janitorial jobs as a pathway out of poverty was always far-fetched. America's black middle class emerged from the steel, ship, and automobile factories of the postwar industrial heyday. Those jobs were high-skill, high-wage, and long-term. They manufactured products that could be sold on domestic and foreign markets, and they provided the economic basis for a dramatic improvement in black America's standard of living. Jobs retrofitting buildings and weatherizing homes are, by contrast, low-skill and short-term.

To be fair, Democrats in Congress and White House officials always believed that while the stimulus expenditures represented a down payment on the clean energy economy, the real action would ultimately be driven by private investments in response to cap and trade, not sustained public investments in innovation and manufacturing.

In this way the green Keynesianism that characterized the stimulus comfortably accommodated itself to the neoliberal policy predilections that have, over the last 20 years, become Democratic Party orthodoxy. Born of fashionable neoclassical economic theory and political expediency after the Reagan revolution, Democratic neoliberalism embraces the notion that private firms are better and more efficient at "picking winners," technological and otherwise, than government. This cliche was never based on the real-world history of technological innovation or economic growth but rather upon the neoclassical assumption that governments must do a worse job than private actors since they are not motivated by profit and cannot act rationally.

Even Jones, who spent recent years railing against neoliberal economic policies, accepts this neoliberal conceit. "The real solution to this whole thing is to put a price on carbon," Jones told Pacifica's Democracy Now in the fall of 2008. "The biggest economic stimulus I can imagine would be a carbon tax or a cap and trade... so that suddenly there is a market signal for private capital to start moving aggressively in a clean energy, low carbon direction."

But cap and trade could never deliver the millions of new jobs that Obama, Congressional Democrats, and greens promised. The primary obstacle to private sector investment in clean energy technologies is not the absence of modest carbon price signals such as those in the Congress' cap and trade proposals and currently in place in Europe. Rather, it is the vast price gap between fossil fuels and clean energy technologies. While fossil fuels are energy dense, widely available, easy to consume, and supported by a well-developed infrastructure, the alternatives are costly, cumbersome, intermittent, or all of the above.

Yet cap and trade enjoyed mainstream credibility for as long as it did in spite of these hard technological realities because economic models seemed to show that a rising carbon price would cause technological innovation and hence emissions reductions. Cap and traders used these models to argue that once we have a carbon price, the market would magically deliver technology innovation because private firms would have an incentive to invest to make those technologies better and cheaper.

But the magic wasn't in the market, it was in the models constructed by neoclassical economists, which simply assume substantial rates of technological change. Innovation -- non-linear, unpredictable, and ephemeral -- is understandably difficult to model. Perhaps more significantly, important innovations have as often as not been the result of public investments in technology which economists, following neoclassical doctrine, are loathe to acknowledge, much less include in their models.

The real world gives us ample reason to be skeptical of carbon pricing claims. The European Union has had a cap-and-trade system in place since 2005, and Norway and Sweden have had carbon taxes since the early '90s. None have spurred much innovation. On the contrary, much of Europe has been on a coal-plant-building binge over the last decade. Where European nations have advanced clean-energy technologies--whether wind in Denmark, nuclear in France, or solar in Germany--they did so through direct investments in those technologies that dwarfed the economic incentive provided by carbon pricing.

The Ideology of Decline

In late May, President Obama told employees at a solar panel factory in California, "I'm not prepared to cede American leadership" in clean energy. But that is in effect what his policies have done. While U.S. policymakers have fetishized carbon pricing and energy efficiency retrofitting, America's competitors have been investing heavily to deepen their domination of solar, wind, nuclear, electric car, and high-speed rail technology and manufacturing.

China, Japan and Korea have moved forward with aggressive plans to out-manufacture, out-innovate, and out-compete the United States in clean tech. China alone plans to spend more than $740 billion (5 trillion yuan) over the next 10 years. While neoclassical economists and their disciples in Washington have presided over the deindustrialization and financialization of the American economy, our economic competitors have used long-term investments to establish dominant positions in advanced, high value manufacturing sectors such as automobiles, electronics, information technology, and now clean tech.

Obama too could have focused on winning a similarly long-term commitment to public investment in green innovation and manufacturing. Instead, he threw his political capital behind cap-and-trade. Despite the fact that the rising domination of key clean energy technologies by our economic rivals could in no way be attributed to a price on carbon -- China, Japan, and Korea don't even have one -- Obama, his Congressional allies, and their cheerleaders in the media such as New York Times columnist Thomas Friedman, have continued to insist that cap and trade legislation was the key to reestablishing U.S. competitiveness in clean tech.

In truth, cap and trade was conceived as a strategy to minimize the cost of reducing emissions, not to create domestic industries or jobs. Indeed, economists typically argue that government should not even concern itself with such issues. To the neoclassical mind, making microchips is no better than making potato chips, as innovation expert Rob Atkinson wryly observes. If China is better at making solar panels and we are better at making foam insulation, then we should just buy our solar panels from China. From this point of view, creating low-skill construction jobs installing compact fluorescent light bulbs in old buildings has the same economic utility as creating high-skill jobs manufacturing solar panels and nuclear reactors for export.

Apply these assumptions to climate and energy policy, and what you get is the failed Democratic agenda. Governments should cap carbon emissions and auction the right to pollute. Doing so would establish a price on carbon pollution that will make fossil fuels increasingly expensive and thus drive private investment and consumption to efficiency and renewables. If all those solar panels and windmills get made in China -- so be it. America will still lead the world in potato chips or something else.

This is not a recipe for American economic competitiveness in clean energy technology and manufacturing. America's nascent clean energy industries need sustained public investments to survive and prosper. While neoliberal greens and their allies were hyperventilating over the death of cap and trade, the stimulus investments in technology and manufacturing were hard at work laying the foundations for a competitive clean economy. Though overshadowed by the public works-style efficiency programs, stimulus-funded investments in clean technology arguably saved the American renewables industry, which was in free-fall after the 2008 financial crisis.

In contrast to the green public works projects, stimulus investments in manufacturing and innovation have largely done what they were intended to do -- support an embryonic domestic industry and help improve clean energy technologies so that they can become competitive with fossil fuels. Those investments helped put American clean energy manufacturing back on a competitive footing globally, and, ironically, created more jobs at less cost than the green public works investments that were supposed to put millions of Americans back to work. Already, Deutsche Bank estimates that the stimulus grew U.S. battery manufacturers production capacity from two percent of the global market to 20 percent by 2012, and the story is similar for other technologies.

Those technologies still have a long way to go before they will be good enough and cheap enough to become the basis for a sustained American economic renewal. But the road map for getting there looks a lot more like what America began through the stimulus investments in technology and manufacturing than through the green public works programs and carbon market making that have distracted the Administration and Congress for the better part of the last two years.

This should not particularly surprise us as the history of industrialization and technology innovation in America is the history of government investment in technology. In the postwar era, the federal government made investments in the development and commercialization of new technologies such as nuclear power, computers, the Internet, biomedical research, jet turbines, solar power, wind power and countless other technologies at a scale that private firms simply could not have replicated. Those investments "crowded in" rather than crowded out private investment and the result was high growth and prosperity that benefited virtually every American.

Unfortunately, neither Obama nor his fellow Democrats still seem to get it. While White House officials, in the wake of the collapse of cap and trade, tout the impressive short-term accomplishments of the stimulus investments in technology and manufacturing, they have done little to date to prevent them from expiring next year.

Change We Can Believe In

Obama appears genuinely moved by the vision of a clean-energy economy. He seems to have convinced himself, however, that America's energy economy can be transformed through carbon markets and efficiency retrofits.

The president's proposal to "make clean energy the profitable kind of energy" -- which was always code for making fossil fuels more expensive -- today needs to be replaced by a focused effort to make clean energy cheap through innovation. Doing so will require large, direct, and sustained federal investments in new energy technologies. This focus on innovation may seem like an indirect way to create jobs, but history shows it is also the one with the strongest record of producing whole new industries -- industries that have driven America's long-term economic expansion.

There is a growing consensus in favor of such an effort, which includes some conservatives and Republicans who opposed cap-and-trade. Support for greater investment in energy innovation includes corporate chieftains, such as Bill Gates, GE's Jeff Immelt, and Intel founder Andy Grove, as well as dozens of Nobel laureate scientists and energy policy experts across the ideological spectrum.

The failure of cap-and-trade to make it through the Senate may thus turn out to be a blessing in disguise. It spares the country a program that would have done little to help either the economy or the environment. And it gives Obama and the Democrats an opportunity to reconsider how they might build the clean-energy economy they were elected to deliver. With the right policies, the answer to the question Obama posed two years ago in Lansing -- will the United States lead the way in creating clean-energy jobs? -- can still be yes.

This piece originally appeared at Breakthrough Blog.

Michael Shellenberger and Ted Nordhaus are co-founders of the Breakthrough Institute and authors of Break Through.

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Ceding Leadership in Green Power

Nicomaco
The race with Euro countries for green power leadership uses the psychology of an auction and a horse race instead of the philosophy of a physician - do no harm. Why not wait and learn from the Europeans? In Spain green power has not turned out as planned. In Germany green power has done better because it is truly distributed on roof tops, industries, homes, etc. which has avoided building expensive infrastructure of transmission lines, regulating facilities to even out the bursts and busts of wind and sun power, and battery storage facilities. Let the Euros be the pilot project and guinea pigs. Then let's learn from them, including keeping the option open of not adopting green power if the price to be paid for green jobs is wrecking the larger economy as happened with sub-prime mortgages. Green power is being financed with the equivalent of sub-prime mortgages (tax credits, tradable green credits, grants, loans, and so-called feed-in tariffs). If we were back in 2003 and could just sit out the Real Estate Bubble would it have been better and would we have ended up the financial leader of the world while everyone else crashed? Little did we know that when Enron was broken up after the California Energy Crisis of 2001 (which Enron did not cause) that governments would adopt their political-economic model for green power.

Has green tech in the US

Has green tech in the US been as dismal a failure as this article would like you to believe? Absolutely not. For example, GM has basically sold out of the first model year run of the Chevy Volt, their first truly mass-marketed electric car. The car was heavily developed, engineered and is now manufactured in the US. This is the type of car execs at GM would have sneered at just 5 or 6 years ago. Ford has an all-electric version of the Focus ready to hit the market next year. Nissan is building their Leaf in Nashville. This my friends is the future and the change in how we drive is enormous. It basically means a total shift in how we use energy. The technology will only improve in leaps and bounds from here on out.

Faulty Premise

" To the neoclassical mind, making microchips is no better than making potato chips, as innovation expert Rob Atkinson wryly observes. If China is better at making solar panels and we are better at making foam insulation, then we should just buy our solar panels from China."

It may sound daft but it's true. Most semiconductor jobs are just chips being fitted onto circuit boards in a mindless, primitive fashion. On the hand, potato chips are being being produced through a highly automated process. More so, that mindless farming to grow those potatoes isn't so mindless. It to has become a highly automated, highly technology driven process.

It's clever rhetoric but it doesn't get around the the flawed notion that government should be selecting winners and losers. The government shouldn't be selecting winners and losers based on their perceived - and in this case the chip vs chip rhetoric, incorrect - technical innovativeness.

As you point out, we need to end agricultural subsidies. The problem is that you then advocate the same actions that led to those agricultural subsidies. There was a time when a fair argument was made that they were very important and would grow the US economy. The problem is, that once they're there, they don't go away. And as we've seen with things like high fructose corn syrup, all those subsidies and protections end up bringing about problems that we didn't anticipate.

A way to do it

Which is sort of tried in the case of Nuclear plants. Give 30 year loans as the government did to the UP and CP in 1862. Let them have a 10 year no payment amount to start off. Given that this proved what was needed to build the transcontinental railroads, as well as land grants to the NP and ATSF (1/2 the land withing 20 miles). Essentially the federal government should perturb the business case, either with a carbon tax that over 10 years goes to levels that makes a difference, ramping up 1/120 of the amount per month, or subsidies, but how to pay for them? Or perhaps a combination. The feds in 1893 did get all their money from the UP at least when it was foreclosed on. In many respects this is a very republican (old fashioned thing) since the RR issue was done by Lincoln, and internal improvements were championed by the Whigs.

Railroads

@Lyle, only about 8% of rail track mileage was built using land grants.

As you point out, those grants helped the North Pacific build it's transcontinental line. But why is that an argument that it is was "needed". After all the Great Northern built it's transcontinental line parallel to the North Pacific and did so without those subsidies. And it wasn't just the Great Northern. The Western Pacific was built privately and more or less on the same central transcon corridor as the UP. The Milwaukee Road ended up building a 3rd Northwest transcontinental on that corridor. While we thought we needed to subsidize those transcons to get them built, it actually turns out we didn't. More so, the building of them really didn't bring about any new technology. It's not as those the telegraph wouldn't have been built. It's not as though not building them would've hampered steam technology nor the much improved diesel locomotives that started appearing in the 1920s.

Assume it is 1864 and you are a capitalist

I often think of what I would do if I had money and it was 1864 would I have invested in a venture to build a railroad 2000 miles across nowhere? Every completed transcontinental made the need for the subsidy/land grants less because it was that much easier to say that the investment would pay off. Note that even with the subsidy the NP went into receivership in 1873 and construction was suspended 1/3 of the way across ND, it took until 1883 to complete. Clearly if you looked at it as a common stock the NP was a disastrous investment. Likewise the UP as it was foreclosed on in 1893. So even then it took someone with vision to build the GN (which todays paid managements in general sorely lack, take a risk that does not pay off welcome to court). By the time of the CMSP&P that was the great railroad boom of the 1900s when money flowed freely to the railroads ala the telecom folks of the 1990s.
In essence the issue is going back to the UP (actually more than the CP) since without the feds it likey would have stopped at Virgina City. Would you invest your money in that venture? Lincoln however wanted the first transcontinental in the worst way and so did what ever he could to get it started.