Economy

Why Does Oklahoma Want To Drown New York?

Terry Tamminen — Tue, 10 Nov 2009 22:49:00 -0500

As the Senate Environment and Public Works Committee began hearings on carbon regulation, debate ran along traditional battle lines, but with a new script. Democrats Barbara Boxer (CA) and John Kerry (MA) moved away from discussing the environmental impacts of climate change - - and the reason, therefore, to take action to reduce carbon emissions - - and focused instead on the economic benefits of a domestic clean energy economy. Meanwhile, Republicans James Inhofe (OK) and Lamar Alexander (TN) complained that energy bills would rise and Americans would lose jobs.

It's a good thing that Congress is finally looking at the economics of climate change and carbon reductions, because the overwhelming amount of data - - buttressed by common sense - - shows that reducing carbon will be very good for our economy overall. One of the biggest sources of carbon reductions will be in the area of energy efficiency and that doest cost money, it saves money. Walmart, for example, said that if each of their 100 million customers bought just one compact florescent light bulb to replace an incandescent bulb, those consumers would save over $3 billion in electricity costs over the life of the bulbs (after deducting the higher up-front cost of the new bulbs).

Renewable energy, another carbon-reducing technology, creates jobs in the US and saves money too. Alan Horn, President and CEO of Warner Brothers, told me recently that his studio is covering large soundstages with enough solar to provide up to 10% of their massive energy needs. After a 7 to 10 year payback, they will get that amount of their electricity free for decades to come. Moreover, that multi-million dollar project put people to work in Burbank, California, not China or India, and didn't take away a single job from anyone.

It's misleading when some Senators focus on trivial or entirely bogus costs, but especially troubling when their carbon smokescreen obscures a bigger truth - - inaction will cost far more than tackling the problem. No better example of the mammoth costs associated with denial can be found along our coastlines.

As discussed at a the recent H209 Water Forum in New York, cities around the world are building barriers to protect against rising sea level and increased storm activity that is related to the impacts of climate change and it costs real money - - Venice: $7 billion; London: $8 billion; New Orleans: $700 million; the California coast: $14 billion, plus $1.4 billion a year for maintenance.

In New York itself, $400 million was just spent to upgrade pumps that remove rising waters out of subways. Experts at the conference predicted billions more will be needed to protect telecommunications, power lines, and other NY infrastructure that sits below sea level. Even at the lowest end of the range of catastrophic climate impacts predicted, NY will suffer massive street flooding and property damage unless more protections are built. Further inaction on reducing carbon will only drive these costs higher.

"I'm sure the worker at a cement plant, when he loses his job, won't find much consolation in green welfare programs," said Senator Inhofe at the hearing. Ironically, building this entire additional infrastructure to deal with rising waters will use a lot of cement, so Inhofe was aimed in the wrong direction again. In fact, companies like W.L. Gore make devices to scrub carbon and other pollution from cement kiln smokestacks and create lots of American jobs in the process (and valuable exports too!).

Given all of the obvious economic benefit of evolving to energy that is considerably more efficient/clean/domestic, one can only be left to wonder if Inhofe's positions mean that Oklahoma just doesn't like New York? Or California? Or Venice? Maybe the Senator is just jealous that his state doesn't have a coastline, but unless he and his colleagues start making decisions based on real economic data, his state may also be left without a share of the 21^st century industries that will power the globe and lead us out of the current recession.

Cash for the Real Clunkers

Terry Tamminen — Thu, 30 Jul 2009 00:04:00 -0400

The feds launched the "cash for clunkers" program recently that pays you to scrap your old polluting car if you buy a fuel-efficient one. This is a great idea that can be applied elsewhere to clean the environment and stimulate economic growth. But just how far could this idea go?

About 10% of vehicles on the road account for over 40% of the pollution, so getting clunkers off the road makes sense. California has long had a similar program and we learned from early mistakes. Years ago, California bought clunkers, but then auctioned them off to dealers who licensed them in neighboring states or Mexico and often the same cars were operated in California again. That early program allowed refineries to pollute more if they took clunkers off the road, but all that did was concentrate pollution from many sources into one smokestack that polluted adjacent residential neighborhoods.

The modern program, both in California and the federal version, makes sure the offending clunker (or at least its engine and transmission) are sent to the shredder, never to return. Old programs didn't require the purchase of a new vehicle (so some people turned in cars that were inoperable anyway), but you only get the new federal handout if you use it to buy a new, cleaner car. That stimulates new car sales - - greening the environment and the economy.

So if this works for air pollution and the car industry, where else might it apply? In California we have long had a program to buy back old inefficient appliances, like refrigerators, so people buy new energy-efficient ones. That has helped Californians become 40% more energy efficient than the average American - - and stimulated the economy around appliance sales and service. Other states intent on reducing energy bills and greenhouse gases should copy that model.

And given how much politicians like to raise campaign contributions, why not offer cash for political clunkers - - instead of paying them for votes, pay them to retire early. I can think of quite a few clunker-lawmakers in Washington and some state capitals who actively oppose environmental regulation (even when it saves money, like these cash for clunker programs) who would qualify.

On second thought, with so many governors and members of Congress stepping down or announcing that they won't run for re-election - - including some of the most anti-green politicians in history - - we'll eliminate a lot of hot air without spending the extra money. Let's keep using it to get those polluting cars off the road!

Weighing in on Microfinance and the Financial Crisis

Jamie Zimmerman — Mon, 23 Mar 2009 20:24:00 -0400

Signs point to toughening times for the microfinance industry. A recent article from the Economist has echoed my concerns that selling microcredit (as a concept or a product) will grow increasingly difficult as the global economy stumbles (or crashes and burns) on the heels of a debt-led recession in the United States. Not only in the concept politically less appetizing than it was back when Muhammad Yunus won the Nobel Peace Prize in 2006, the capital fueling the industry is drying up. The similarities and differences between subprime lending that fueled the US recession and the "sub, sub, subprime" lending happening in developing countries through microfinance institutions have been debated and analyzed for over a year now. But only recently has the engine of seemingly-endless capital to MFIs around the world starting slowing, sputtering to slow chug in some instances.

The Economist article argues that the microfinance industry is more insulated from the crisis than many of my colleagues working in the sector would currently state. Just because the Grameen Bank has not faltered in this financial crisis doesn't equate to an entirely healthy sector. Moreover, the decrease in capital, and the resulting liquidity constraints and challenges institutions will face, does not represent the variety of challenges that MFIs, or the microfinance sector, could and will likely face as a result of this crisis. While I commend the Economist for putting on spotlight on this particular problem, the article fails to provide readers with the bigger picture.

Fortunately, CGAP just released last week a more thorough analysis of the potential impacts of the crisis on microfinance. The Focus Note reviews not only the challenges of the institutions, but also those of the clients that frequent these institutions to gain capital for their micro-business or, in many cases, borrow to smooth consumption over time. Essentially, the Note paints a relatively more nuanced picture of the crisis on the microfinance industry and tempers its optimism that the industry is "insulated from the problems of the global economy" (as is speculated in the Economist). On the other hand, CGAP does share my view that this crisis will bring opportunities that could result in a better functioning industry, with potentially better outcomes for the poor.

In my opening remarks at the March 16 USAID panel on Microfinance and the Financial Crisis, I also outlined a number of challenges I either currently see or envision for the industry as the global crisis unfolds, many of which are reflected to some extent in the articles mentioned above, including decreased capital, weakening consumer confidence, increased pressure for tougher regulation, etc.. However, I foresee as serious opportunities for the industry. (Call me hopelessly optimistic, but I prefer to concentrate on opportunities whenever possible, particularly in troubling times.)

First, a debt-led global recession is indeed spurring some to cast a critical eye on debt-led poverty reduction like micro-credit. While this may be understandably worrisome for particular institutions, it's a huge opportunity for the microfinance field in general. The backlash against credit and subprime lending could very well lend itself to a microfinance industry whose health is dependent on a more diverse and balanced portfolio, particularly with an emphasis on savings. In fact, deposit-taking MFIs (who are less dependent on capital investments) are indeed the very institutions most insulated from the crisis so far. Next, the spotlight on savings is not limited to acknowledging the need for deposit-taking for an institutions fiscal health. The microfinance field as a whole is now paying long overdue attention to the other critical financial needs of the poor, namely access to effective and safe savings services. Finally, there is a growing recognition that all people, chief among them the poor and the vulnerable, need to save and create a safety net against economic shocks, rather than relying on credit alone. This is a lesson the US learned too late, but for the microfinance field, it's a very real opportunity to look at economic opportunity and resiliency in a whole new way.

(Transcripts and materials from the March 16 event, including perspectives from other panelists on this issue, can be found on the Microlinks site.)

Ideas Are the Best Stimulus Package

Terry Tamminen — Tue, 10 Mar 2009 17:21:00 -0400

With governments around the world shoveling money out of pubic treasuries in the hopes of stimulating their economies, how about summoning a modicum of creativity to build better mousetraps that consumers might actually want to buy? I mean even at 10% unemployment, that means 90% of the population still has a job and is buying stuff. If we can come up with a few good ideas, we can put people to work making things and, hopefully, sell a few more widgets at home and abroad.

Take two examples that I've certainly been buying lately. American Airlines has a deal with a company called GoGo Internet to have high-speed wireless internet on cross-country flights. I get emails done and surf the web, even downloading movies that are better than the ones on the flight, all for about $12 for a 6 hour plane ride.

Then there's the new Google Earth oceans features. One will allow you to see all of the trash out in the Pacific Ocean, amongst other places, and when you aggregate it, it appears as a continent between North America and China, growing larger by the day. I'm not sure what the commercial value of this feature may be, but it is sure is a brilliant idea for showing a massive problem, caused by the masses, to a mass market.

There's an old saying that we had wheels and luggage for centuries, but only in the last few years put the two together. Ideas can make money faster than complicated government handouts. Now if I could just download better food on that next flight - - I might even take more trips!

Karabell: Don’t demonize debt

Zachary Karabell — Wed, 28 Jan 2009 22:37:00 -0500

As Wall Street continues its slow-motion hari kari, tens of millions of people on the lower-end of the income spectrum are finding that their access to credit is becoming all but nonexistent. As banks set aside ever more cash to cover themselves against potential future losses, the credit spigot that flowed so promiscuously to riskier customers is now not flowing at all.

Even with the promising plan of the federal government to take the more toxic loans off of bank balance sheets and fold them into the so-called “bad bank,” loans to the lower-end of the income spectrum are likely to be hard to come by and inordinately expensive. That is a problem that none of the current plans address and it is real one...

The Case for Savings (Cartoon version)

Mark Huelsman — Mon, 15 Dec 2008 14:26:00 -0500

A little Monday morning humor, courtesy of Tom Toles at the Washington Post :

We understand if you're confused too. While both of these pear-shaped cartoon Economists have a point, we tend to side with the lady to the left.

Higher Power, Higher Profits

Terry Tamminen — Mon, 08 Dec 2008 18:57:00 -0500

Once upon a time, there was a farm in a town called Plainville. The farmer produced natural chickens and turkeys, free from antibiotics and fed with good, plain vegetable feed, avoiding the various "additives" that consumers feared. The result was a factory, jobs, and products that everyone was proud of and, by the way, that made more money for the smart farmer than his competitors.

In fact, this enterprise became so successful that it soon outgrew Plainville. The smart farmer found a bigger farm in another state that was less costly to operate, in part because it featured an energy-efficient processing plant, used renewable energy, and included new ways of reducing waste (remember I said this farmer was very smart!). The new farm employed even more Americans in sustainable, high-paying jobs that wouldn't someday be outsourced.

But one dark cloud loomed over this great example of ingenuity, corporate social responsibility, and investing in the American dream.

The problem was that there was no longer a need for the facility in Plainville and therefore no longer a place for those workers to earn a living. Most entrepreneurs, even the smartest of them, would chalk that up to the price of progress and point to the net benefit of the enterprise, even though one community would now do better than another. But remember I said that this particular farmer - - and business owner - - was very smart?

"What would we do with that factory and those workers if we HAD to keep them in the company's family?" the smart farmer asked himself.

Because it was already set up to process poultry, the farmer wondered if there was some other part of that industry that his company could service and keep the Plainville facility operating. He thought about everything from feather beds to hot wings, but nothing penciled out. Then, in what some say was a thunderbolt from a higher power, he came upon the answer.

Hundreds of thousands of people prefer kosher foods, including things like kosher chickens and turkeys. Because of strict processing requirements to produce any kosher food, there was a shortage of some of these products in the marketplace. The smart farmer realized that the Plainville plant was ideally suited to serve that unique segment of the market. Kosher foods often command premium prices, so by answering the call of a higher power, the smart farmer would keep the old plant operating, save hundreds of jobs, and reap the benefits of higher profits too.

Plainville is not a mythical land, but a town in upstate New York and this is no fairy tale or the product of wishful thinking in a declining economy. It's actually the true story of the Hain Pure Protein Company and its President Dave Wiggins (aka "the smart farmer"). Whether he heard a whisper from a higher power or the lure of higher profits, Dave has boldly demonstrated the value of establishing corporate social responsibility values to guide his company, because when times are tough, if you stick to your principles, you can often find solutions that are great for your company and your community.

As Wall Street and Detroit roam the halls of Congress with tin cups in hand, Hain will keep making good products and profits the old fashioned way - - by harvesting the fruits of their very smart labors. Happy Holidays (and pass the cranberries!).

The Economic Crisis Hits Early Education

Sara Mead — Fri, 05 Dec 2008 17:19:00 -0500

Economy Affecting Arizona Preschools, Child Care Karina Bland, Arizona Republic (November 28, 2008)
Child Care Costs a Concern with Down Economy NACCRRA Early Childhood Focus (November 20, 2008)
The Littlest Victims of the Mortgage Crisis Brigid Schulte, Washington Post (November 17, 2008)
Day Care Enrollment Falls in Tight Economy Mike Markewinski, KSHB-TV (November 15, 2008)
Parents Pull Kids From Day Care as Money Tightens Don Babwin, Associated Press (Novmber 10, 2008)
Preschool and Daycare Enrollment Down Bonnie Obremski, Locally Grown (November 4, 2008)

Any one notice a pattern here? Across the country, families and early education providers are feeling the effects of the weak economy--and it's taking a toll on children's access to quality early education. It's a double whammy: Job losses, reduced asset values, and increased insecurity mean parents have fewer resources to pay for quality early care and education. At the same time, states, which reap fewer tax revenues and greater demand for services in tough economic times, are facing a sea of red ink that will likely lead to some painful belt tightening. So far, states have protected early education and pre-k investments in their fiscal year 2009 budgets, but the worst of the economic crisis hadn't yet hit when these budgets were passed, so larger state cuts are likely to come. And philanthropy, which has also played an important role in funding access to quality childcare for low-income youngsters, is also taking a hit from the financial crisis, which means fewer philanthropic resources available to plug the gaps in our patchwork care and early education system.

Add this to a situtation in which, even pre-downturn, quality early care and education were beyond the resources of many working class and even middle-income families, and where federal investments in early childhood care and education have been stagnant for the past 6 years, and we're likely to see a lot of kids losing access to early care and education. Even families for whom child care is a necessity to enable parents to work, may find themselves forced to downgrade to cheaper, lower-quality, and even potentially unsafe, child care settings.

And this is happening at a time when young children need the benefits of high-quality early education programs more than ever. We know that family stress and economic deprivation can have devastating consequences for young children's development--but high-quality early education programs can help counteract these impacts. Yet at the very moment increasing numbers of families with young children are facing financial stress and economic instability, their children are losing the very early education programs that help them weather the storm.

This is all a good reason for the federal government to step up and make new early care and education investments that can reverse the results of the past 6 years of federal neglect for these programs. Unlike states, which have to balance their budgets every year and thus must cut services at the times when they're most needed, the federal government can borrow to sustain programs during tough economic times.

And, as President-elect Obama said during the debates, early education in one investment that justifies that expenditure even in tough economic times.

In addition, the federal government can act to plug holes in state budgets so that states aren't forced to cut programs at the time they're most needed.

Finally, the economic downturn may provide an opportunity for productive rethinking of how we balance work and family life in this country. As the above articles note, some parents who've lost their jobs are opting to care for their children at home now. While most working parents want to be able to spend more time with their children, this is hardly the way to do that. We have an opportunity to enact policies to improve parents' ability to juggle their responsibilities to both home and work, and we should make sure we take advantage ofthat opportunity.

Bail-out or Build-out – Part 2

Terry Tamminen — Wed, 29 Oct 2008 19:03:00 -0400

As the Presidential race nears the finish line - - with the candidates and voters both gasping for air amidst the ubiquitous onslaught of commercials on everything from lawn signs to Saturday Night Live - - there are no shortages of "new and improved" proposals for dealing with the current financial mess. Well, if politicians can constantly add to their repertoires, so can we.

Earlier this month I suggested we should consider investing in cleantech infrastructure as a way to help America (and the world) work its way out of the current fiscal crisis. That offering laid out a vision for a self-supporting revamp of our transportation system that would create jobs, wealth, and improve the environment. Here's another suggestion, this time focused on our electricity energy systems.

What do schools, fire stations, hospitals, government offices, and city halls have in common? They are all vital public infrastructure buildings and many, if not most, are pretty old. The older they are, the more likely they are to be wasting electricity. How about a National ESCO Project, where we recruit energy service companies ("ESCOs"), engineering firms, electrical contractors, builders, and others to go into these buildings and identify the outdated lighting, HVAC, elevators, and other inefficient uses of electricity? While they're at it, they could also audit water use and waste disposal.

What they will find, as we have in numerous private sector facilities, is that upgrading these things will save so much electricity, that the cost is reimbursed in 18-36 months, after which the owner (that means us, the taxpayers!) starts saving real money, not to mention lots of kilowatts and avoided pollution.

As part of the National ESCO Project, we recruit banks to lend money to these institutions to pay for the retrofits. Remember all of that money that the feds are pumping into banks in the hopes that it will find its way into lending to re-start the economy? This would be some of the smartest deployment of that capital, with multiple ROIs, that anyone could suggest. This is where the feds come in again though - - to ensure more rapid uptake of the offer, they could guarantee the loans, which would not be much of a stretch considering the underlying asset values, repayment revenue streams, and creditworthiness of the borrowers.

In one stroke, you create thousands of jobs, sell lots of efficient new goods/services that generate sales taxes and other revenues to government, reduce pollution, reduce strain on the electrical grid, deploy capital into the marketplace - - and save a lot of money.

If you're among the remaining undecided voters that both candidates seem so eager to please in the next few days, perhaps you would consider supporting whichever candidate backs this "new and improved" economic stimulus plan!

Bail-out or Build-out?

Terry Tamminen — Tue, 07 Oct 2008 18:34:00 -0400

As Washington and Wall Street dicker over a financial rescue plan, everyone is missing the real opportunity to fix the problem. Some see the variously proposed plans as bailouts of dumb borrowers and dumber lenders, while others view it as a chance to restore liquidity to the marketplace so we can all have access to credit again, whether it's for student loans or to finance the acquisition of industrial machinery.

But when the "Great Depression" struck America more than 70 years ago, we didn't just make more money available and hope people would borrow it to jump start the economy. President Roosevelt put us back to work, building bridges, highways, schools, and water projects. All of that infrastructure has served us well over the years, although at the time it must have looked like a lot of pork barrel spending designed to keep workers off of street corners and out of soup kitchens. What if we could do something like that again, but this time, make it a build-out that had fantastic economic, environmental, and social return on the invested capital?

In 2003, President Bush spoke about hydrogen cars in his State of the Union address. Shortly thereafter, the American Petroleum Institute (API) warned that building a hydrogen fueling infrastructure that could reach all Americans would cost $140 billion. Although I'm sure the API had no reason to use scare tactics and biased estimates (well, OK, maybe I'm not THAT sure), let's assume that's an accurate figure.

If we built those fueling stations, we would also need vehicles that run on hydrogen. It takes about $5,000 to retrofit a car or truck to run on hydrogen. Yup, almost any car or truck (or bus or train for that matter) that currently runs on gasoline or diesel fuel will also run on hydrogen gas. It's not the most efficient use of hydrogen (a fuel cell, which converts hydrogen to electricity and thereby powers an electric motor in an all-electric car is far more efficient), but anything is more efficient than digging oil out of the ground and making it into transportation fuel. Let's say we convert 50 million cars and trucks nationwide to run on hydrogen - - that's $250 billion more.

So for just under $400 billion, we could eliminate the need for all of the oil we now import (and a lot of the domestic supply for that matter). We would have given tens of thousands of Americans jobs in the design, building, and servicing of hydrogen fueling stations; and tens of thousands more would be working in the new retrofit business. Detroit could now start making new hydrogen powered cars, knowing that the marketplace accepts these products, so we would simultaneously revitalize our domestic auto industry.

We could recoup 100% of this investment when retailers sell hydrogen fuel with a few cents per unit sales tax, just like the gasoline tax. But we would recoup it even faster with the payroll and business taxes generated from all of the new employment and businesses created with this program.

So there you have it - - a domestic jobs program that will kick the oil addiction, solve global warming, create new industries and jobs that can't be outsourced to India or China, eliminate billions in annual subsidies to oil companies and billions more that we now spend on defense costs to protect our oil supply. For half what we will spend on Wall Street and 20% of what we have spent securing oil in Iraq so far, we will have social, economic and environmental prosperity for as far as the eye can see.

This build-out sounds crazy at first blush until you realize that we already produce 3 trillion cubic feet of hydrogen in America every year, but use the majority of that to strip sulfur from petroleum to make gasoline instead of just putting the hydrogen right into our cars. How crazy is that?! No, make no mistake, we can do this and reap all of the benefits.

Now if we just had another Roosevelt around to get us started...