What to Buy for $1T
deprecession we're going to have a mammoth stimulus package. People I listen to on economics (Paul Krugman, Brad DeLong) think so, so let's go shopping! What could we get for one trillion dollars?
The goal here isn't just to dump in cash, but to buy things that will ensure that the innovation we count on returning to the forefront can get an easy toehold and help us out of our economic problems.
1. Nationwide Broadband (aka the Rural Internetification Act)
We've dropped from like number three to like number 26 in broadband speed X penetration. Everyone needs it, everyone wishes they had more options, and providing the kinds of innovative information services that will provide huge value to people will be greatly enhanced by a vast new market of consumers eager to try out their shiny new 25Mbps data pipes.
Obama's advisors are all over this. He's wired. This one is a gimme. The big problem is probably that it's too cheap. The Australians just bought a system like this for like $5 billion. The US has 15 times as many people, but about the same area. But Australia doesn't have to wire gobs of desert. So say it costs us $25 billion. Employment is pretty significant, and ranges across the economic spectrum: people to put up poles. People to develop routing hardware and software. People to install head-end equipment. People to run companies administering the network. I'm not sure how many jobs we're talking about. On the order of 200k seems about right. The Australians have lined up companies employing 250k that say they critically need it.
More money can be spent on international connectivity. The pace of trans-oceanic bandwidth has not kept pace at all with demand. Laying massive new fiber lines across the oceans will fuel global demand for American information services. Assisting similar internetification stimuli in other parts of the world will do the same. Right now the US is the global leader in information and telecom services. Helping to build networks in places that don't have them extends that reach. These efforts might cost another $25 billion.
Other related projects: free up more wireless bandwidth. Make sure it is accessible in open ways that enable innovation to create a wide array of products and services that people will want to buy. This is a very inexpensive way to stimulate innovation and growth.
2. Intelligent renewables-compatible power grid
Implementing the expert's recommendations on this front after the Great Blackout of 2003 will be costly and largely hasn't been done. Investing a bunch of money here is another broad-spectrum stimulus across lots of different types of jobs. The investment is in an infrastructure which will carry the results of energy innovations to consumers. So as ideas for effective power generation with wind, ethanol, solar, tidal, geothermal, and other clean sources come on-line, they'll be able to easily find markets. (Al Gore likes a smart grid idea, and he has Obama's ear, too.) Price tag: $100 billion or so, over the course of many years. On the other hand, the cost of blackouts (which the project should significantly reduce) is comparable, so there will be money to recoup there.
3. Renewable energy investments
There's some high bang-for-the-buck stimulus investment that can be done here. Government assurances on construction bonds and price minimums for big renewable energy projects can pull out billions in investment capital for mature technology like wind and some kinds of solar. This money doesn't even have to be paid up front: the stimulus is in the form of risk assumption. Fast-tracking approvals for projects like this can get construction jobs created in months instead of years. There's a very broad range of opportunities here, from bond guarantees on mature technology to co-investment on pilot plants with technologies that need to be developed further (cellulosic ethanol, for instance). Total cost would be in the billions somewhere, but the capacity to develop these projects is somewhat limited due to manufacturing infrastructure. Perhaps stimulus in siting green manufacturing plants in the US would be an appropriate component. Or perhaps a relaxation on import rules, if needed. The Obama people are talking about an "Apollo project for energy" so this kind of thing is already on their radar. Costs bandied about range up to $500 billion over many years, but a lot of that includes separate items on this list.
4. More efficient, open cars
We're going to bail out US auto makers. The price tag will be in the tens of billions, and should be accompanied by a lot of pain for the people in charge. The payback in operational terms should be an acceptance of an aggressive increase in CAFE standards and a commitment to a plan for hybrid, electric, and flex-fuel vehicles on a greatly accelerated time frame. There should also be an insistence on open vehicle standards to fuel innovation on after-market goods and services that can live on the car-as-platform. If the government is going to save the lives of car companies, they need to accept the idea that the car's entertainment and information systems will be open, in order to spur innovation in accompanying products. At the same time, the plug-in hybrid and electric and flex-fuel cars the companies build need to be capable of providing a market for the green energy sources we're investing in.
5. Repairing infrastructure (aka the Works Repair Administration)
Really. Some of this stuff hasn't been worked on since the original WPA. Can you spell "levees in New Orleans" ($20B)? How about the nation's dams, which need fixing. There's bridges that need fixing, interstates that could use completing. I'm sure every state has a wish list a mile long. How much of this kind of work to buy is a good question. $150B would be easy to spend. It isn't just make-work. Repairing levees and dams costs, but high-unemployment times are a good time to get things like this done. Infrastructure investments pay off. They guard against the possibility of a disaster just as a recovery is underway, and pay off in stability and positive expectations during the recovery.
6. High-speed rail and transit programs
Rail is severely under-invested. Many countries enjoy high-speed rail services that create opportunities for business travel, commuting, and pleasure. For instance, in Japan, a city like Osaka (population 3M or so) has some 20-30 high-speed trains an hour stop by, bound for all over Japan. Each one holds a couple jumbo-jets worth of passengers. That's the equivalent in passenger-opportunities, although obviously not in destination diversity, of a major metropolitan-area airport serving 10 times as many people in the US. The point is, this kind of transit opportunity opens up travel immensely, and is a huge infrastructure investment in opportunities that might be created which rely on safe, convenient, predictable, inexpensive travel opportunities. The total cost for such a system in the US would be immense. But building some key routes and subsidizing local efforts can coax out lots of investment dollars. The recently-passed California high-speed rail measure will ask the federal government for $10B, to put alongside a state $10B bond and some local money. A dozen other similar projects would bring the federal tab to around $150B, and result in say $500B in total investment. 3:1 ain't bad.
So we've spent some $750 billion so far. I have no doubt there are viable candidates for the other $250B. I didn't even mention healthcare. So this is in the same range as the size of the bank bailout. Spread over several years. The expected return on the bank bailout is uncertain, but probably positive. Structured correctly, this $750B might yield a bit of return, too. Certainly the investment in the internet and transportation and electrical systems would yield significant paybacks. Arguably of comparable size to the outlays, especially if a lot of new innovation comes to depend on these valuable pieces of infrastructure.
Given that the economy runs on trust, and most of the usual vehicles of trust are broken right now, it shouldn't be surprising that the place the government occupies as the "trustee of last resort" may end up being worth a lot of money. When everyone else is selling, the smart money is looking to buy, and the government is able to draw on a reservoir of trust unavailable to any other party right now. It is an opportunity to invest a staggering amount of money wisely, with the concomitant possibility of huge returns. As with any government action, though, the risk of wasting a ton of money in bad, politically-motivated and worthless gambles or downright frauds is a serious hazard. Even good ideas can have their implementation fouled by the same forces. It's not a good time to rush headlong into any investment, but it also wouln't be smart to wait a year and look at them all. A lot of these ideas have been developed pretty thoroughly, over the course of years, by domain experts. Let's take those as starting points and get them right. ¶ 10:29 PM
Monday, November 17, 2008
It looks like to stave off another
The goal here isn't just to dump in cash, but to buy things that will ensure that the innovation we count on returning to the forefront can get an easy toehold and help us out of our economic problems.
1. Nationwide Broadband (aka the Rural Internetification Act)
We've dropped from like number three to like number 26 in broadband speed X penetration. Everyone needs it, everyone wishes they had more options, and providing the kinds of innovative information services that will provide huge value to people will be greatly enhanced by a vast new market of consumers eager to try out their shiny new 25Mbps data pipes.
Obama's advisors are all over this. He's wired. This one is a gimme. The big problem is probably that it's too cheap. The Australians just bought a system like this for like $5 billion. The US has 15 times as many people, but about the same area. But Australia doesn't have to wire gobs of desert. So say it costs us $25 billion. Employment is pretty significant, and ranges across the economic spectrum: people to put up poles. People to develop routing hardware and software. People to install head-end equipment. People to run companies administering the network. I'm not sure how many jobs we're talking about. On the order of 200k seems about right. The Australians have lined up companies employing 250k that say they critically need it.
More money can be spent on international connectivity. The pace of trans-oceanic bandwidth has not kept pace at all with demand. Laying massive new fiber lines across the oceans will fuel global demand for American information services. Assisting similar internetification stimuli in other parts of the world will do the same. Right now the US is the global leader in information and telecom services. Helping to build networks in places that don't have them extends that reach. These efforts might cost another $25 billion.
Other related projects: free up more wireless bandwidth. Make sure it is accessible in open ways that enable innovation to create a wide array of products and services that people will want to buy. This is a very inexpensive way to stimulate innovation and growth.
2. Intelligent renewables-compatible power grid
Implementing the expert's recommendations on this front after the Great Blackout of 2003 will be costly and largely hasn't been done. Investing a bunch of money here is another broad-spectrum stimulus across lots of different types of jobs. The investment is in an infrastructure which will carry the results of energy innovations to consumers. So as ideas for effective power generation with wind, ethanol, solar, tidal, geothermal, and other clean sources come on-line, they'll be able to easily find markets. (Al Gore likes a smart grid idea, and he has Obama's ear, too.) Price tag: $100 billion or so, over the course of many years. On the other hand, the cost of blackouts (which the project should significantly reduce) is comparable, so there will be money to recoup there.
3. Renewable energy investments
There's some high bang-for-the-buck stimulus investment that can be done here. Government assurances on construction bonds and price minimums for big renewable energy projects can pull out billions in investment capital for mature technology like wind and some kinds of solar. This money doesn't even have to be paid up front: the stimulus is in the form of risk assumption. Fast-tracking approvals for projects like this can get construction jobs created in months instead of years. There's a very broad range of opportunities here, from bond guarantees on mature technology to co-investment on pilot plants with technologies that need to be developed further (cellulosic ethanol, for instance). Total cost would be in the billions somewhere, but the capacity to develop these projects is somewhat limited due to manufacturing infrastructure. Perhaps stimulus in siting green manufacturing plants in the US would be an appropriate component. Or perhaps a relaxation on import rules, if needed. The Obama people are talking about an "Apollo project for energy" so this kind of thing is already on their radar. Costs bandied about range up to $500 billion over many years, but a lot of that includes separate items on this list.
4. More efficient, open cars
We're going to bail out US auto makers. The price tag will be in the tens of billions, and should be accompanied by a lot of pain for the people in charge. The payback in operational terms should be an acceptance of an aggressive increase in CAFE standards and a commitment to a plan for hybrid, electric, and flex-fuel vehicles on a greatly accelerated time frame. There should also be an insistence on open vehicle standards to fuel innovation on after-market goods and services that can live on the car-as-platform. If the government is going to save the lives of car companies, they need to accept the idea that the car's entertainment and information systems will be open, in order to spur innovation in accompanying products. At the same time, the plug-in hybrid and electric and flex-fuel cars the companies build need to be capable of providing a market for the green energy sources we're investing in.
5. Repairing infrastructure (aka the Works Repair Administration)
Really. Some of this stuff hasn't been worked on since the original WPA. Can you spell "levees in New Orleans" ($20B)? How about the nation's dams, which need fixing. There's bridges that need fixing, interstates that could use completing. I'm sure every state has a wish list a mile long. How much of this kind of work to buy is a good question. $150B would be easy to spend. It isn't just make-work. Repairing levees and dams costs, but high-unemployment times are a good time to get things like this done. Infrastructure investments pay off. They guard against the possibility of a disaster just as a recovery is underway, and pay off in stability and positive expectations during the recovery.
6. High-speed rail and transit programs
Rail is severely under-invested. Many countries enjoy high-speed rail services that create opportunities for business travel, commuting, and pleasure. For instance, in Japan, a city like Osaka (population 3M or so) has some 20-30 high-speed trains an hour stop by, bound for all over Japan. Each one holds a couple jumbo-jets worth of passengers. That's the equivalent in passenger-opportunities, although obviously not in destination diversity, of a major metropolitan-area airport serving 10 times as many people in the US. The point is, this kind of transit opportunity opens up travel immensely, and is a huge infrastructure investment in opportunities that might be created which rely on safe, convenient, predictable, inexpensive travel opportunities. The total cost for such a system in the US would be immense. But building some key routes and subsidizing local efforts can coax out lots of investment dollars. The recently-passed California high-speed rail measure will ask the federal government for $10B, to put alongside a state $10B bond and some local money. A dozen other similar projects would bring the federal tab to around $150B, and result in say $500B in total investment. 3:1 ain't bad.
So we've spent some $750 billion so far. I have no doubt there are viable candidates for the other $250B. I didn't even mention healthcare. So this is in the same range as the size of the bank bailout. Spread over several years. The expected return on the bank bailout is uncertain, but probably positive. Structured correctly, this $750B might yield a bit of return, too. Certainly the investment in the internet and transportation and electrical systems would yield significant paybacks. Arguably of comparable size to the outlays, especially if a lot of new innovation comes to depend on these valuable pieces of infrastructure.
Given that the economy runs on trust, and most of the usual vehicles of trust are broken right now, it shouldn't be surprising that the place the government occupies as the "trustee of last resort" may end up being worth a lot of money. When everyone else is selling, the smart money is looking to buy, and the government is able to draw on a reservoir of trust unavailable to any other party right now. It is an opportunity to invest a staggering amount of money wisely, with the concomitant possibility of huge returns. As with any government action, though, the risk of wasting a ton of money in bad, politically-motivated and worthless gambles or downright frauds is a serious hazard. Even good ideas can have their implementation fouled by the same forces. It's not a good time to rush headlong into any investment, but it also wouln't be smart to wait a year and look at them all. A lot of these ideas have been developed pretty thoroughly, over the course of years, by domain experts. Let's take those as starting points and get them right. ¶ 10:29 PM
