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There is discomforting new green jobs data that suggest the USA might have already lost much of its technology leadership to green energy development abroad, including wind, PV energy, and electric cars. http://abcnews.go.com/WN/wind-power-equal-job-power/story?id=9759949 Perhaps we have an entrenched private energy investment mindset, less flexible than our green energy competition in China, etc. It may take a crisis or pervasive discontent to shake up the status quo.

Austin, Texas, like many other areas, had recently anticipated being a leading green energy development center. However, a lot of the anticipated venture capital has dried up, probably shifting a lot of the burden of industrial development to the federal level: http://theragblog.blogspot.com/2010/02/austin-and-texas-economic-slump-finally.html

If so, why not shift the US investment policy to play to long-run global US trading strengths? Why not subsidize research that could lead to the restructuring of US food production based on energy efficient agriculture? Why not publicly fund sustainable-agriculture research, even before rising food prices force such a shift?

Basic farming technology is probably a good example of what needs to change in an era of increasing resource constraints. Electric tractors already exist, but their improvement and promotion through private effort is minor when compared to the public money devoted to GM. http://www.econogics.com/ev/etsites.htm

Why not develop a five or ten year crash program to electrify much of US agriculture? Why no basic research on automated tractors? Presumably we could design tractors to follow optimum curved rows for terracing, and to memorize and automatically repeat the same path over all the various stages of crop production. This would have many advantages by saving water and energy. Obviously such a program would benefit from steady government sponsorship.

It is likely that traditional grain and soybean production in the Midwest will remain major sources of calories in the US diet well into the future, augmented with more locally grown produce and less meat. It is reasonable to advocate planning a new industrial policy for agriculture based on expert opinion and an improved appreciation of how US agriculture is likely to fit into an energy-limited global economy.

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and, Keynesians Discover Oil

The predominantly Keynesian Levy Economics Institute at Bard College in New York state has developed some of the best quantitative models to explain how various the interacting trade and macroeconomic factors affect the global economy. One interesting recent addition is that the Levy Institute economists have recently begun to understand how central and unique oil is to the global economy. See the Dec. 2009 paper; “Sustaining Recovery: Medium-Term Prospects and Policies for the US economy”. http://www.levy.org/pubs/sa_dec_09.pdf

“…The government should devote more effort and money to developing alternative energy sources and encouraging energy conservation, as a devaluation alone would not have a large impact on oil imports. Such initiatives dovetail with other efforts to improve air quality and slow global climate change…”

The Levy group is making what are likely optimistic assumptions that imply that no matter what the price of oil, the US faces the necessity of devaluation due to the factors pushing continued deficits. The Levy group sees that after any kind of dollar devaluation, importing oil at its world market price is going to be a growing problem for the US economy. They thus advise a crash program to develop energy alternatives and develop national self reliance (although likely without reading the Hirsch Report and trying to determine the timing requirements).

They also assume that the global price of oil in current dollars will only rise by 2% a year in the midterm. Those of us who see oil as peaking in the next few years may well conclude that this oil price forecast is probably too optimistic. Thus the difficulty of a smooth-landing type of dollar devaluation would be made more difficult than their models suggest.

The background problem, as they see the politics working out, is that the current government stimulus spending tends to become a permanent commitment. They suppose that Obama cannot for political reasons reduce government support for the investment banks or jobs programs. The downside is that the resulting deficit necessarily destabilizes the dollar.

However, the federal stimulus spending policies that Keynes prescribed to revive a deflating domestic economy tends to undermine the other function of the dollar as a standard reserve currency. A continuing large US deficit is likely at some point to cause a collapse of global confidence, a panicky self-reinforcing dumping of dollars, or perhaps hyperinflation and no end of bad results. The conclusions of the Levy economists in this respect echo the warnings of the political conservatives who oppose Obama’s stimulus spending.

The best hope seen is to achieve an orderly depreciation of our dollar, reflecting its shaky status as an unbacked global standard reserve currency. The alternative option would be an abrupt and disorderly collapse of the dollar as a standard reserve currency, with unpredictable global economic chaos in its wake.

But devaluation would send domestic oil prices soaring again, which would depress the already fragile US economy. Therefore, the authors of this analysis advocate that the dollar be carefully and gradually devalued by mutual agreement with China if possible, with the continuing stimulus being oriented toward energy restructuring to match.

The proposed course of controlled dollar devaluation treatment amounts to a serious, harsh, unpleasant medicine, involving lots of targeted government intervention. Sort of like chemotherapy; a most unpleasant experience but clearly better than the alternative.

Roger Baker is an Austin-Texas-based, transportation-oriented environmental activist, recently with a particular interest in energy-oriented economics. He is a founding member of and an advisor to ASPO-USA, is active in the Green Party, the ACLU, and others. He writes for the Texas-based cyber-journal, “The Rag Blog”.

(Note: Commentaries do not necessarily represent the editing and publishing team’s positions; they are personal statements and observations by informed commentators.)