What’s more, says Greenstein, the benefit to local economies will be limited. His analysis shows that the largest financial gain from expanding broadband access goes to broadband suppliers themselves. Increasing broadband use can also benefit equipment makers and companies such as Google and Amazon, he says. The advantage that households would gain in switching from dial-up access to broadband is hard to quantify, but it “can’t be big,” he says. “I’m skeptical there are many local benefits from this.” What is clear, according to Greenstein, is that any benefits add up to far less than the hundreds of billions of dollars that have been cited by Washington advocates of the stimulus spending.
Of course, advocates of federal spending to extend broadband service argue that it provides more general benefits to society. Remote communities would gain increased educational opportunities, easier access to government services, and eventually, perhaps, improved medical treatment through online interaction with physicians. But, says Greenstein, many of these benefits are several years away, and it is debatable whether expanding conventional broadband services–rather than, say, using wireless technologies–is the most effective way to deliver them. What’s more, he adds, the $7 billion expenditure in the stimulus bill seems arbitrary. “How they got that number is a puzzle to me,” he says. “Why not $15 billion? Or $3 billion?”
What Green Economy?
Innovation in science and technology is estimated to account for as much as 90 percent of new economic growth. The reason is that better technology allows more things to be produced more cheaply and can create entirely new markets; in the terminology of economists, it increases productivity. For economists, the most dramatic recent example is the information technology boom that began in the mid-1990s.
Beginning in 1995, productivity began to grow at a much faster rate than it had in years. (While strong productivity growth in the decades after World War II fueled the prosperity of that era, it fell off abruptly in the mid-1970s, contributing to an economic slowdown.) The jump first seen in 1995 was initially viewed as an anomaly, but productivity continued to rise over the next several years. As economists scrambled to figure out why, entrepreneurs raced to take advantage of the “new economy.”
Though it took economists several years to figure out exactly what was driving the bump in productivity, Dale Jorgenson, a professor of economics at Harvard and former president of the American Economic Association, says it is now clear that the decreasing cost of computer hardware and software dramatically increased the role of information technology in the economy during the 1990s. Even though IT spending represented only about 3 percent of GDP, it was having “a tremendous impact,” says Jorgenson: “IT probably accounts for almost all the growth in productivity in the boom of the 1990s, and it is still perking right along.”
Could the green economy be the new new economy, with energy technologies replicating the success of information technologies in boosting productivity? Jorgenson is skeptical. In fact, he says, today’s scenario is the “extreme opposite” of the one in which market demand drove the use and implementation of information technology in the 1990s. “A lot of these [energy] technologies that are going to be subsidized are not commercially viable without a subsidy,” he says. “These things have been around for a quite a while, and have never gotten to the stage of being financially viable without sizeable subsidies. What does a subsidy mean? It means it’s not good for the economy. It doesn’t meet the market test, so there has to be some other reason to do it.”
Of course, the other reason for investing in new energy technologies is to address climate change. But Jorgenson says the best way to encourage innovation for that purpose is through carbon pricing–either a direct carbon tax, which he advocates, or the cap-and-trade program that is now being debated in Congress. Such a market-based program would produce “a shift to noncarbon technologies,” says Jorgenson. Meanwhile, if there is going to be a carbon pricing program in the near future, he says, it “doesn’t really make a lot of sense to be funding energy stuff” in the stimulus bill. It will be less risky, he says, to let the carbon pricing scheme determine which of the renewable-energy technologies are viable in the market.