New New Deal

* Book: THE NEW NEW DEAL by Michael Grunwald, Simon & Schuster, New York , 2012

Review

Hazel Henderson:

"In THE NEW NEW DEAL, Michael Grunwald describes how U.S. President Obama, after less than two months in office, passed his American Recovery and Reinvestment Act (ARRA) and how this much-maligned "stimulus" not only turned the economy around, but laid the "New Foundation" he had promised for a 21st century economy. Grunwald's in-depth reporting reveals how ARRA really worked and reveals its unrecognized boost to the now rapidly growing green economy, in spite of all the obstacles. This untold story is riveting, with blow-by-blow accounts and interviews with the full cast of characters: the Obama team with its green energy visionaries installed at the lumbering Department of Energy (DOE); its squabbling economic advisors; the fossilized grandees in the Senate and anti-science nitpickers in the Congress as well as the gotcha media.

The Washington bureaucrats were rudely stampeded by Obama's urgent timelines to save the cratering U.S. economy losing almost 800,000 jobs a month with GDP falling by 9% as he took office in late January, 2009. Grunwald documents the deep passive resistance in Washington to the first African-American president, his tall brilliant lawyer first lady and this spectacular new family in the White House. The Republicans openly vowed to make Obama a one-term president and block his every legislative move. They would oppose his use of similar Keynesian stimulus to that used by George W. Bush and preceding presidents back to Franklin Delano Roosevelt. The 1930s New Deal of FDR had been bitterly fought by the economic fundamentalists at the University of Chicago, the neocons and the laissez faire academics and foundations that spread their message throughout Latin America.

Fast forward to the 2007-2008 crash of deregulated Wall Street, the collapse of Lehman, AIG, Fannie Mae, Freddie Mac and the rapidly-contracting domestic money supply which relies on private bank loan issuance and the securitization of their mortgages, car and credit card loans. As credit shrank and securitization markets dried up, economists were divided by their textbooks between Keynesian stimulus, tax cuts, lower interest rates versus laissez faire, austerity programs and "cleansing" of the over-leveraged bubble. The Bush administration's hated $700 billion TARP rescue was rammed through Congress by Treasury Secretary Hank Paulson, to their utter confusion and the fury of voters who asked "Where is MY bailout?" TARP was sold to Congress to help homeowners modify the terms of their underwater mortgages and prevent waves of foreclosures. Instead, with no strings attached, Paulson switched to direct bailouts of the biggest banks, on the textbook theory that his would "trickle down" to Main Street and the real economy. Only in 2012 did lawsuits by Bloomberg and pressure from over 300 Congress members force the Fed to reveal the additional over $16 trillion it had dished out its discount window at zero interest to big banks including many in Europe from 2007 to 2010. Bush-appointed Inspector General of TARP, Neil Barofsky surveyed all commitments of taxpayers funds by all government agencies, including the takeovers of Fannie, Freddie, GM, Chrysler, AIG, etc., totaling $23.7 trillion (see Bailout).

Grunwald portrays the Obama administration's travails over its $787 billion ARRA, miraculously enacted in February 2009 - far bigger than FDR's New Deal. He details the many studies showing how this derided "stimulus," supposed a failure, had actually reversed the free fall and succeeded in creating 2.5 million new private sector jobs in the face of the staggering losses of 700,000 state and local government jobs in textbook efforts to balance state's budgets. While the Fed realized that the domestic money supply was collapsing, Bernanke's textbook answer was feeding more free money to big banks, where instead of "tricking down" most went offshore to create asset bubbles in Brazil or bet on the euro or how soon EU sovereign bonds might default. We cannot untangle to what extent Obama's ARRA, the TARP, or the massive efforts at the Fed including the money-printing QEs 1, 2 and recently 3, saved the U.S. economy from a second depression. This focused for the first time on the politics of money-creation itself and credit-allocation, as the public saw daily on TVs their money rolling off printing presses.

The most interesting hidden story that Grunwald tells is the extent to which Obama's $787 billion ARRA including $90 billion for the green sectors and how start-ups leveraged another $100 million of private capital. Grunwald takes U.S. inside DOE and recounts how Nobelist physicist Steven Chu created ARPA-E turning this turgid bureaucracy into a hot-shot venture capital group and running rings around its Bush era loan guarantee program. The scientists and venture capitalists Chu recruited sacrificed their bigger salaries to join Chu and fostered the invention of electro-fuels, accelerated research augmenting that of their National Renewable Energy Lab and jump-starting dozens of now thriving companies in solar, wind, geothermal, alga-base biofuels and the deeper revolution in energy efficiency. This stellar performance was overshadowed by the Republicans in Congress witch-hunt over the Solyndra deal which was a small part of the less than 2% failure rate of Bush's original loan guarantee program and caused largely by the massive drop in prices of solar panels due to China's exports.

As one who voted for Obama and a private green investor, I too had been disappointed by his administration's performance. I opposed his focus on carbon cap and trade, since climate change requires a much broader approach to the problem: by phasing out subsidies for fossil fuels and focusing more on the solutions now finally espoused by those 191 countries, the OECD, the World Bank and the G-20 in moving to direct investment in growing the green economies to scale. I also faulted Treasury Secretary Timothy Geithner for focusing on banking and finance rather than understanding that housing and the foreclosure tsunami were in fact, just as important macroeconomic issues. Yet after reading Grunwald's THE NEW NEW DEAL, I have a deeper understanding of the multiple sources of opposition Obama faced: the entrenched power of Wall Street, the fossil fuel and nuclear lobbies, the medical -industrial complex, big agribusiness - all fighting to maintain their positions and subsidies." (http://seekingalpha.com/article/874111-book-reviews-the-new-new-deal-is-green)

More Information

• Book: Clean Tech Nation. by Ron Pernick and Clint Wilder, Harper Business, New York, 2012