Recovery (OR Where do we spend money next?)

One concern that’s beginning to filter through the blogosphere seems be an uncertainty about what will bring our economy out of its current slump. Where will investment go? What will drive consumer consumption? What will spur growth?

Matt Yglesias thinks:

American households won’t have that much capacity to consume additional stuff. Americans will need to start making more products and services that people in East Asia and Germany and the oil-exporting countries want to buy. My understanding is that the main export goods we specialize in are airplanes, defense systems, and pop culture.

Which sounds a little tongue-in-cheeky…  Paul Krugman has similar concerns:

To be sure, the Obama administration is taking action to help the economy, but it’s trying to mitigate the slump, not end it. The stimulus bill, on the administration’s own estimates, will limit the rise in unemployment but fall far short of restoring full employment. The housing plan announced this week looks good in the sense that it will help many homeowners, but it won’t spur a new housing boom.

What, then, will actually end the slump?

Krugman also points out that Japan crawled out of their lost decade by increasing exports, but the whole world can’t increase exports.

It seems to me that the answer will be found in things we are not yet doing, namely clean energy. If we impose some type of carbon pricing mechanism, and lead the world in doing the same, we will simultaneously create a profitable sector of our economy where American ingenuity and entrprenuership can flourish and create a significant revenue stream for our (and other) governments which can be used, in our case, to continue the internal investment (in infrastructure, schools, education, trasportation, etc). Both sides of this should create jobs and, partnered with something like the Employee Free Choice Act, help grow incomes to a point where we can become good little consumers again (only with a little more restraint, this time).

Of course, getting something like this through the increasingly obstructionist Republican party doesn’t seem all that likely, but one can hope.

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