Center for the Advancement of the Steady State Economy
Regular Contributors:  Herman Daly, Brian Czech, Brent Blackwelder, James Magnus-Johnston, and Eric Zencey. Guest authors by invitation.

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Missed Opportunity in the Budget Debacle

by Brent Blackwelder

The massive budget fight in Congress over deficit reduction threatened to shut down the U.S. government, but it also provided a massive opportunity – one that was completely missed.  Members of Congress could have scrapped wasteful and environmentally destructive subsidies.  They could have made decisive cuts and reallocations in the military budget.  In the end Congress agreed to cuts totaling $38 billion, but another showdown looms over a vote to raise the debt limit.

They may have missed the chance to reorder spending toward what we would witness in a sustainable economy, but the fight is not over yet.  Advocates of a fair and sustainable economy must continue fighting the following battles as the debt ceiling debate takes place:

I.  Cutting Environmentally Damaging Programs. The Green Scissors report of Friends of the Earth and Taxpayers for Common Sense called for budgetary savings of $200 billion over the next five years, primarily by eliminating the subsidies to oil, corn ethanol, nuclear reactors and coal.  Unfortunately, these cuts were not approved because the major campaign contributions from the well-heeled energy interests ruled the day.

II.  Eliminating Nuclear Subsidies. Especially galling in the wake of the nuclear catastrophe unfolding at Fukushima, Japan was the failure of Congress to get rid of  $46 billion in nuclear reactor subsidies. (See my last blog for details.)

The failure (meltdown) rate of the 442 nuclear reactors worldwide is an astonishing 1.5% – simply unacceptable, given the dire consequences that can unfold with a meltdown. Yet the nuclear energy lobby pretends as if a bet on the safety of nuclear reactors is like wagering the sun will rise in the East, when in fact the bet more closely resembles a game of Russian roulette.

As Nobel Prize winning economist Joseph Stiglitz put it: “when others bear the cost of mistakes, the incentives favour self-delusion.  A system that socialises losses and privatises gains is doomed to mismanage risk.”  (Guardian UK April 6, 2011)

III.  Foiling Tax Dodgers.  Experts on tax havens estimate that the U.S. Treasury loses about $100 billion each year as a result of money being placed in offshore accounts, for example in the Cayman Islands.  Major corporations like General Electric, Exxon Mobil, Verizon and Boeing avoid paying tax because they know the techniques of taking all the profits in tax haven countries and allocating all losses to higher tax jurisdictions.  Nicolas Shaxson’s new book Treasure Islands describes this massive tax dodging that is occurring worldwide.

IV.  Reallocating Money Used for Weapons and War.  Finally, the military budget was untouched save for one boondoggle fighter plane that both Republicans and Democrats found unpalatable.  Thus, the U.S. military budget of over $700 billion – more than half of the total military spending in the world – perpetuates the global arms race America is having with itself.  The big outrage is that of the more than $1 trillion spent to date on the wars in Iraq and Afghanistan, most has been done “off budget” under emergency appropriations.  And all of this spending is aimed at stopping less pressing threats.  The greatest security threats today come not from military sources but from the environmental destabilization of the life-supporting ecosystems of the earth.

Afghanistan is an ongoing tragedy spurred by such warfare spending, whether by Russia (USSR) or the United States.  The awful incidents in which civilians have been bombed are exactly what can be expected in this kind of military conflict. It costs about $1.2 million a year to keep a U.S. soldier in Afghanistan.  For that amount of money,  New York Times columnist Nicholas Kristof points out that twenty schools could have been built for the children of that country.  Mountain climber Greg Mortenson has successfully carried out a school construction program in Afghanistan, described in his book Stones into Schools: Promoting Peace through Education in Afghanistan and Pakistan, but he has to scramble for money.

We are coming to the point that every dollar spent on wars in places like Iraq, Pakistan and Afghanistan harms rather than improves our security in two ways.  First, it alienates more and more of the civilian population, and second, it wreaks havoc on the land, rendering much of it poisoned, degraded, and incapable of supporting life.  Afghanistan is a case in point.

Now is the time to reduce military spending and demand that at least one fifth go into a program to shift to a sustainable economy and to restore degraded watersheds.  Lester Brown, in his latest book World on the Edge, calls for $200 billion per year to be spent on clean energy, empowerment of women, and ecosystem rehabilitation.

Expenditures like these would characterize the refreshing budgets that would emerge as nations shift to a steady state economy.  But to transition to a sustainable economy, we need to start winning the four fights described above.

3 Responses to “Missed Opportunity in the Budget Debacle”

  1. Philip Lawn says:

    Although spending choices are important, the US Fed Govt can finance these initiatives without having to cut spending. It can finance them because it is the monopoly owner and issuer of the US dollar (unlike US citizens, who are the users of the currency, and therefore are budget constrained). The US Fed Govt creates its own revenue as it spends (seigniorage). Given that the US economy is currently operating well short of its potential output level, an increase in net spending would not be inflationary, since the spending would simply mobilise idle resources, like the millions of currently unemployed US citizens.

    Some people would respond by saying that an increase in Fed Govt spending would be inflationary and lead to high interst rates. Over the past few years, the US Fed Govt deficit as a % of GDP has been the highest since WW2. Why is core inflation in the US low and the Fed funds rate marginally above 0%? Because, even with this level of deficit spending, the US economy continues to operate well short of its potential output level. Hence, the net spending of the US Fed Govt should be increased (larger deficit), not reduced. The proposed spending cuts will consign many more millions of Americans to the poverty scrap heap and deprive many Americans access to decent health and education services. Moreover, the larger deficit will not increase the tax burdens on future generations, because the ability of a currency-issuing central govt to spend is not affected by the so-called budget position (i.e., a surplus doesn’t increase its capacity to spend; a deficit doesn’t reduce it). Central govt taxation exists merely as a means of regulating aggregate spending (i.e., to regulate the amount of private sector spending power it destroys) to enable the central govt to muscle its way into the economy (i.e., divert resources from the private sector to the public sector) in a non-inflationary manner.

    The only contraints faced by central govts to achieve a sustainable, just, and efficient economy are real constraints, such as ecological constraints, productive capacity constraints, and social and political contraints. They face no fiscal contraint – they can create as much spending power as they like at virtually zero cost. The sooner this is acknowledged, the sooner we can move way from degenerative debates about “how much can a central govt afford to spend?” and move towards crucial debates like “what is an appropriate size of govt relative to the private sector (i.e., what is an appropriate macroallocation of resources?)”. The latter debate is important because I believe a sustainable, just, and efficient economy (a qualitatively-improving steady-state economy) requires greater public sector involvement, largely because a SSE will require considerable investment in natural capital and critical infrastructure with essentially public goods characteristics, much of which has been run down in many industrialised nations over recent decades. It will not be attained by having limited resources allocated to provide households with a second or third flat-screen TV.

  2. Podargus says:

    It is a pity that this site appears to take a fashionable anti nuclear line as nuclear generated electricity is the only practical non polluting way to ensure an orderly transition to a steady state economy.

    Renewables such as solar and wind will just not cut it when it comes to base load power because the power source is unreliable.If you think that reliable base load power can be dispensed with in some sort of cloud cuckoo land Shangri-La then you are in for some very nasty surprises.

    If the anti nuclear lobby gets its way then what will actually happen is that fossil fuels will continue to be burnt until they can’t.By that time climate change will have caused such disasters that the largely imaginary risks of nuclear will recede into history.But by then it will be too late.

    History is replete with example of nations which took a wrong turn,apparently contrary,in retrospect,to all notions of sensible behaviour.The results have not been pretty.

  3. Mark R. says:

    These big budget issues certainly are important, but the basic point of big industry funding political campaigns makes change a highly unlikely prospect. Shame and media publicity hardly seem sufficient.

    The surest way to go is by shifting focus away from government activity, and focussing on the range of activities by people creating successful alternatives. Denmark has reached 20% renewable energy with a significant boost from co-operative wind enterprises, and Germany achieved some 5% in their much larger economy. Various efforts by Americans are showing similar signs of success. Consider the Maryland solar co-operatives, and MDBC´s cradle to cradle certification, following organic, fair trade, and forest stewardship efforts. By recalling these and other constructive and concrete exercises in green entrepreneurship, and directing our organizing capacities in those directions, we can begin to create the necessary popularity and popular competence to create the necessary changes at the national level.

    The European Union has been organizing to cut subsidies with some success, I believe. Germany had banned nuclear power development for some time, similar to trends in the US over the last few decades. The EU has at least shown some signs of stronger regulatory strength when it comes to corporations, such as their fines of Microsoft for anti-trust or the like earlier in the decade. As for war, Germany and France opposed the US invasion of Iraq in 2003, I submit as an example of pro-peace consciousness. The social capitalisms of various European countries also includes a climate in which businesses with social philosophies, even co-operative corporate governance have succeeded. The EU´s Worker´s Councils show this trend, as do huge co-operative businesses. See the International Co-op Alliance for more examples.