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In macroeconomic theory, a stimulus package has a clear, ­simple function: during economic slowdowns, governments increase their own spending to compensate for the fact that consumers and businesses are spending less. “A stimulus is a sudden and dramatic intervention into the economy,” says Robert Stavins, director of the Harvard Environmental Economics Program. And the key to its effectiveness is that it is labor intensive and quick. While some projects to make buildings more energy efficient might qualify as a short-term boon for the economy, Stavins says, other energy-related projects, like rebuilding the electricity grid, will take years and have little immediate effect. “Greening the infrastructure is highly desirable, but it is not going to happen quickly,” he says.

The concern over the stimulus bill’s technology spending is not just that it offends conventional macroeconomic theory about the best way to boost the economy; it’s that it might harm the very technologies it means to support. Because the bill was written quickly and shaped by political expediency, economists and experts on innovation policy are leery of many of its funding choices. Could extending billions of dollars’ worth of fiber-optic lines to rural communities, for example, become a boondoggle? Or what if utilities run high-power transmission lines to remote solar or wind farms, only to find that the electricity they produce is too expensive to compete with other sources 

As a historical analogy, experts point to corn-derived ethanol. Once the darling of alternative-energy advocates, the heavily subsidized biofuel is now routinely condemned by both environmentalists and economists. Yet because ethanol’s use in gasoline is now mandated by federal law, and a large industry is now invested in its production, its production is likely to continue even though it offers few environmental benefits over gasoline.

The problem with the stimulus package is that it is “very much a heterogeneous bag of things,” says Daron Acemoglu, an economist at MIT and an expert on the role of technology in economic growth. “It’s very much like pork-barrel politics,” he says. As a result, it’s hard to properly evaluate the different spending programs. And, he suggests, “when you make investments in bad projects under the name of stimulus and in the name of technological investments, you’re doing damage in a number of ways. First of all, you’re not helping; second, you’re confusing matters; and third, you’re poisoning the well for the future.”

Solar Bottles
Less than a week after the passage of the stimulus bill, Robert Atkinson is taking stock of the legislation. Maybe it’s the early hour or the freezing weather that still grips Washington, DC, in late February, but the president of the Information Technology and Innovation Foundation (ITIF), a nonprofit think tank that argues for federal policies to promote technology, doesn’t seem in a celebratory mood. Despite what would seem to be a huge victory for his cause, he still seems irritated by the bickering over the details of the stimulus package.

Much of the bill’s spending plan is strikingly similar to proposals that his own group has presented. In a report published in January, the ITIF estimated that roughly a million jobs would be created by spending $30 billion on broadband, smart-grid technology, and health-care information technology in 2009. While the stimulus bill broke down the spending slightly differently and extended it over several years, such forecasts of job creation served to justify the inclusion of heavy technology spending in the legislation.

Likewise, a study prepared last fall by UMass’s Pollin and his colleagues shows how spending $100 billion over the next two years on energy-related investments could create two million “green” jobs. The report identified six funding areas, including solar, wind, and advanced biofuels, that it argued would create jobs and facilitate transition to a “low-carbon economy.” Although Pollin says he researched and wrote the paper as an academic, the work was published in September by the Center for American Progress, a think tank whose CEO, John Podesta, led Obama’s transition team. And like the ITIF study, Pollin’s report foreshadowed many of the spending provisions in the stimulus legislation. Pollin notes that while the bill’s spending for energy conservation and renewable energy is lower than the total recommended in his report, many of the legislation’s details “are kind of what I proposed.”

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Credits: Technology Review, Tommy McCall
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