David Frum has carved out an admirable niche as a voice for sanity inside the Republican Party, so I must admit I was disappointed when his review of my book about President Obama’s stimulus ignored my reporting on the GOP’s departure to crazytown. And while I realize that Frum isn’t really a reporter—more of a big thinker, I guess—I must admit I was irritated when his long response to my “grumbly tweets” harping on the errors in his review made me sound like a thin-skinned liberal. It isn’t true! Well, the liberal part isn’t true. But Frum’s double whack at The New New Deal does raise legitimate questions about green industrial policy that deserve a response beyond 140 characters.
First, while I appreciate Frum’s kind words about my reporting, I want to harp a bit more about his errors. Let’s start with his description of me as “Grunwald, who wrote an early cover story for TIME hailing Obama as FDR Redux.” No, Peter Beinart wrote that story. I specifically explained why Obama isn’t FDR Redux. Frum says Obama “committed nearly a trillion dollars to countercyclical fiscal stimulus” in three years. No, more than $1.5 trillion. Frum describes Obama’s education reforms as “liberal activism.” No, Race to the Top took on teachers unions to promote charter schools and test-driven accountability. Frum also quotes an early passage he mocks as my “final anti-climactic conclusion to the story of the smart grid,” which led him to conclude our grid will not be “appreciably smarter in 2013 than it was in 2008.” If he had read on, he would have learned that the grid is much smarter now, much more capable of self-monitoring and self-healing; I explained how digital troubleshooting prevented a blackout at the 2011 Orange Bowl. More recently, smart meters helped the hapless Beltway utility Pepco restore power to almost all of its customers within two days of Hurricane Sandy.
Before I address Frum’s problems with the stimulus, it’s worth noting that Frum doesn’t really have many problems with the stimulus. He acknowledges that it helped prevent a depression and ease the pain of the recession. The vast majority of it was standard Keynesian stimulus–$300 billion in tax cuts for the non-wealthy, another $300 billion in aid to states (to prevent ill-timed layoffs of public employees and rollbacks in public services) and victims of the Great Recession—to which Frum has no objection. Frum also likes stimulus spending on research and infrastructure, which account for another $100 billion, much more if you include high-tech infrastructure like broadband and health information technology.
Frum’s main objection is with the Recovery Act’s $90 billion in green investments, which he sees as industrial policy run amok, setting a dangerous precedent of public-sector bureaucrats picking private-sector winners and losers. He correctly warns that there are potential costs to this approach—crowding out private investment, substituting government judgments for market judgments, emphasizing long-term economic priorities at the expense of short-term economic stimulus. This approach led to failures like Solyndra, and as I wrote in the book, there ought to be debate about it. (Coming soon, I promise!) But even when it comes to green energy, the vast majority of the stimulus investments do not fall in this venture-style category. The bulk of the $90 billion went to promote energy efficiency (in low-income homes, federal buildings, state and local governments, and just about everything else) and to monetize existing tax credits for clean-energy projects that had stalled because the financial crisis decimated the appetite of investors for tax credits. Frum says he’s fine with using “tax and subsidy to achieve public goals, such as the reduction of greenhouse gas emissions,” and most of the green stimulus complies with his desire that the policies be “neutrally applied.”
Frum is also simply wrong that the $90 billion “seems to have gone up in the ether leaving little behind.” It’s leaving behind a half dozen of the world’s largest solar farms, America’s largest wind farm, America’s first cellulosic ethanol plants, a new battery industry for electric vehicles, and much more. It has doubled the generation of renewable electricity during Obama’s first term, and is helping to drive down the costs of clean energy.
And while it wasn’t always ideal stimulus, it was definitely stimulus; I told the story in the book of a Spanish company that had put its US wind projects on hold during the financial crisis, then announced $6 billion in US investments the day Obama signed the stimulus. Critics like Mitt Romney who claim the green stimulus hurt solar and other green industries by crowding out better green investments are not dealing with reality; green investing was dead in early 2009, and solar power has expanded more than 1000% since the stimulus.
Still, there was some green industrial policy in the stimulus. Most of it was less about picking winners and losers than picking the game of clean energy. The stimulus didn’t just pick Solyndra, or solar manufacturers, or solar, or renewable power; it helped finance all kinds of technological and entrepreneurial pathways that could reduce dependence on fossil fuels, from more efficient internal combustion engines to more efficient hydropower, from algae-based biofuels to LED traffic lights. The hope is that the market will then sort out the winners and losers. I admit there will be more losers like Solyndra; failures aren’t scandals. And Frum admits there will be winners, too; hopefully, some of them will change the world.
I share Frum’s uneasiness about government meddling in the economy. It may surprise him to hear that I’d be glad (once the recovery is in stronger shape) to see the federal government exit the home ownership business, because I don’t think that’s an urgent national priority. But reducing our dependence on fossil fuels is. We’re broiling the planet. We’re empowering foreign petro-thugs. Our economy is ludicrously vulnerable to the whims of Mother Nature or the follies of the Middle East. And you don’t have to believe in Japan Inc.-style industrial policy to see that green energy is the kind of high-tech innovation sector of the future that plays to U.S. strengths. Right now, U.S. clean-tech start-ups have to compete with fossil fuels that enjoy generous federal subsidies that supplement a century of infrastructure advantages; they also have to compete with Chinese start-ups backed by hundreds of billions of dollars in government support. From info-tech to bio-tech, from aerospace to semiconductors, U.S. industries have always benefited from government support. The notion of a purely free market is a libertarian fantasy.
It was interesting to see Frum write yesterday in support of a carbon tax, which at high enough levels could promote similar goals. He’s right. A carbon tax would be great—more efficient, less risky, requiring fewer subjective judgments. Same with cap-and-trade. I interviewed the head of the Energy Department’s controversial loan program; he stipulated that a price on dirty energy would be a better way to get clean energy to scale, to overcome the Valleys of Death that scares private investors away from risky game-changing technologies. “But let me ask a question,” he asked. “Ya got one?” No, because right now, it’s politically impossible. And right now is when these problems need to be addressed. That doesn’t mean government should do everything; in fact, if Frum understood the utility sector, he wouldn’t have suggested that it’s a federal responsibility to make sure consumers know in real time how much electricity their appliances use. But somehow, government has to lead us away from the ruinous energy status quo.
At some level, Frum seems to recognize this, so he tries to draw a distinction between basic subsidies and all-out industrial policy. For example, he says the Recovery Act’s $7500-rebates for early adopters of electric vehicles are a “very different thing” from its $2 billion-effort to create an advanced battery industry. He doesn’t like the idea of government employees—even smart veterans of McKinsey or venture funds—making funding decisions. It doesn’t make him more comfortable that the Energy Department brought in 4,500 outside experts to peer-review grant applications, to make sure decisions were made according to merit, or that the main judgment the public employees made was to require firms to come up with their own matching funds and line up customers in advance, a way of respecting the market decisions at a time when private finance had dried up. But companies that receive tax credits and other government assistance for which they don’t have to compete—a conservative might call such assistance “entitlements”—are still government-funded companies, just like Solyndra. As one of Obama’s economists told me, we’re already way more than a little bit pregnant. Some Pell Grant recipients become drunks on the street, and companies that receive tax breaks and other government subsidies go bust all the time; Frum tries to make the case that those firms that receive taxpayer help are somehow different than firms like Solyndra that receive “government investments,” but I don’t see it.
As Frum says, it’s too early to know how many of these green investments will turn out. I’m more optimistic than he is. But we already know that without the stimulus, there wouldn’t be an advanced battery industry in the U.S.—and without domestic battery suppliers, it’s hard to imagine an electric vehicle industry in the U.S. Without the stimulus, there wouldn’t be an advanced biofuels industry in the U.S., either. We’d have much less wind power and virtually no solar power. We’d be more dependent on fossil fuels and less energy efficient. It’s a healthy instinct to be skeptical of government meddling in the private sector, but the stimulus was an extraordinary response to an extraordinary emergency—not only the economic emergency of 2008, but the energy emergency that still threatens our national, environmental and economic security.