Following Keynes, Joseph Stiglitz proposes solutions that would heal the economy and the environment in one fell swoop.

Recently Joseph Stiglitz, the Nobel-prize-winning economist and Senior Fellow and Chief Economist at the Roosevelt Institute, gave a very interesting speech in South Africa concerning climate change and the global economy. He argued that by implementing policies that help to reverse global warming, we can also reverse the global economic downturn. Although he also pointed out many barriers to doing so, he outlined some interesting policy proposals.

For me, the most interesting part of his speech concerned the use of a Keynesian approach, not just for a single country, as is usually done, but for the entire world economy. Keynes pointed out that when the private sector is unable to generate enough demand in the economy, that is, it is unable generate enough spending from consumption and investment, then the government must step in to kickstart spending. Thus in recessions and depressions many now acknowledge that at some point it may be necessary for the government to spend more than it takes in to get the economy moving again. (See numerous articles from Marshall Auerback on this basic idea.)

There are a couple of fine points to what Keynes was saying, however, that are either often glossed over or challenged. First, he asserted that when demand is low, saving can get in the way of recovery. So -- and this is the part that is ignored -- since the rich save more than the poor, their excess income gets in the way of recovery. The horrendous implication, from the rich person’s point of view, is that they should be taxed more. The less direct way to put this, which is the way it is discussed even in much of the progressive media, is that an “unequal distribution of wealth” leads to negative economic outcomes. The important statistic for the US is that while in 1970 the top 1% of households pulled in about 10% of total income, now they receive close to 25%. Not good, from a purely Keynesian perspective.

So what does this have to do with climate change? Since he was speaking in South Africa, it was easy for him to point out that the world distribution of wealth is very unequal. Because of this inequality, it will be much harder for developing countries to create less carbon-intensive economies through large-scale investment than for developed countries. In addition, the poorer countries consume more and the richer countries save more. So an obvious policy approach is to tax financial transactions, which moves money from something that (to be charitable) involves savings into consumption and investment by developing countries. The richer countries could also simply give grants to the poorer countries. Stiglitz claimed that about $200 billion per year would be required to help developing countries make the transition to a less carbon-intensive future, which could be financed from a financial tax.

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The second implication of Keynes’ ideas is that the economy needs more investment when it is in a downturn. We certainly need a good deal of investment to create less carbon-intensive economies, and it so happens that, according to Keynes, investment, particularly in factories, is the best way to pull economies out of slumps. While he famously suggested that digging holes and filling them up again would also do the trick, he clearly preferred doing something useful with investments on the grounds that investment is generally good for a society and that it is a surer way to speed recovery than consumption.

Stiglitz argued that what we have now is an inadequate level of global aggregate demand, which is to say, there isn’t enough consumption and investment for the entire global economy to pull out of the recession. Thus, he stressed, reversing climate change is an opportunity for the economy, not a drag. We need investment for the good of the climate and we need investment for the good of the economy -- therefore what we have is a win-win situation.

But how do we encourage investment? Stiglitz’s answer is to put a price on the emission of carbon, thus stimulating investment into less carbon-intensive technologies. He thinks that eventually carbon will be priced at 80 dollars per ton, which means that it will probably be cheaper to build a wind farm than to build a coal plant. In fact, it might become more economically rational, with a price on carbon, to shut down an existing coal plant and build a new wind farm to replace it. And new wind farms mean new investment, which means increasing global aggregate demand, which means pulling out of the global recession.

Of course, there are roadblocks in the way of this process. For one thing, there is the power of the greatest emitters of carbon, the oil and coal industries, among others. Then there is the expense that a price on carbon would mean for poorer countries -- thus the need for the richer part of the world to subsidize the poorer part. Even rich countries, of course, would not take easily to a price for carbon, as we saw in last year's defeat of lukewarm cap-and-trade legislation. Stiglitz argues that for an international treaty to be effective, it needs to have enforceable sanctions, such as hitting the offending nation's exports with a price increase. But as the managing editor of South Africa’s largest newspaper argued in a generally favorable response to Stiglitz’s lecture, trade sanctions would mean that developing countries would be hurt, thus requiring some more subsidies in order to equalize the playing field.

In all, I think Stiglitz laid out the foundation of a very workable global economic strategy. I would propose another element: encouraging direct investment and construction of infrastructure on the part of governments. While Stiglitz mentioned the idea of regulation and praised mass transit as an adjunct to the general policy of pricing carbon, it was not a focus of his approach. But here is another possibility for a win-win -- if developed countries sold or gave factories to the developing countries to create the wind turbines, electric rail and cars, and solar plants that would allow them to reduce carbon emissions, it would give the developed countries a huge boost economically and the developing countries the capability to become much wealthier in a sustainable way. Think of it as a global Marshall Plan or Works Progress Administration. The developed countries could promise, say, one trillion dollars per year in machinery to the developing countries, which would be a strategic, targeted, Keynesian method for pulling the entire world economy out of its slump. And it would go far to meet what Stiglitz called the greatest challenge we have ever faced: the threat of global climate change.

Jon Rynn is the author of Manufacturing Green Prosperity: The power to rebuild the American middle class, available from Praeger Press. He holds a Ph.D. in political science from the City University of New York.

Want to break our addiction to oil and create jobs? Take a page from Teddy Roosevelt and Ike Eisenhower.

As incredible as it sounds, Republican presidents, along with their Republican Congresses, have initiated some of the biggest public works projects in American history. Theodore Roosevelt single-mindedly pursued the construction of the Panama Canal and Calvin Coolidge signed the legislation to build what became known as the Hoover Dam. Democratic presidents continued and expanded on these accomplishments, as when FDR followed up on the Hoover Dam and built many others, including the TVA system. During his administration, the first ideas and plans for a national highway system were developed, which that great socialist Dwight David Eisenhower then pushed through in 1956.

Today there is a crying need for an interstate high-speed rail system. In 1954, only $175 million had been allocated to a national road system, clearly too little to do the job. In 1956, $25 billion was allocated for a system that wound up costing $425 billion in 2006 dollars. In the last couple of years, the Obama administration has committed $8 billion to high-speed rail, mostly for small, unconnected segments. The US High-Speed Rail Association estimates that in order to build a functional, 17,000 mile system (the Interstate Highway System is currently 48,000 miles), it would cost about $600 billion over 20 years. The New York Times recently ran an article comparing a high-speed rail network to the Interstate Highway System.

But what would motivate the construction of such a system? By the 1950s, the Big 3 car makers were reputedly saying things like "what's good for General Motors is good for the country," and that included a national road system. The suburban boom, with critical help from the federal and local governments, was in full swing, and with it, the shift from trains to cars as the main passenger vehicle. As a young lieutenant, Eisenhower had participated in the first transcontinental truck convoy. Ike then witnessed the autobahns that Germany built at the end of World War II. Even with a political environment that had barely emerged from the McCarthy-ite hysteria over communism, the political will existed to construct one of civilization's most ambitious examples of public construction.

The reasons for focusing on high-speed rail are oil, oil, and also, oil, in that order. Professor Michael T. Klare has done a good job of explaining all three. First, the supply of cheap oil is leveling off, and will probably start to decline in the near future. This is known as the "peak oil" argument. After all, the Earth does not have infinite resources, and the oil supply certainly is not infinite. While the rise in the price of oil in the summer of 2008 was probably in part the result of financial manipulation, it was mostly caused by demand overrunning supply. It was a grim reminder that even short-term fluctuations in the price of oil can have colossal economic impacts.

Second, the coming scarcity of oil will lead to major conflicts among nations, including the possibility of more wars. The Iraq War may have been a small-scale demonstration. As oil exporters use more and more of their oil for their own population and their ability to pump oil declines, the amount of exported oil will decline even quicker than the supply of oil in total. Even without wars, much of American foreign policy and part of its huge military burden is attributable to the warping effect of our dependence on oil.

Third, as we saw this summer, oil has devastating environmental effects. A Gulf oil spill equivalent takes place every year in the Nigerian delta, which according to some estimates is rich in oil. The exploitation of oil has regularly been destroying ecosystems for decades now. Even more ominously, burning oil accounts for almost as much greenhouse gas emissions as coal, about 18% of total global greenhouse gases.

For all of these reasons, we need to shift the transportation system from a 99% dependence on oil to at least a 90% dependence on electricity. Electricity can be generated in a renewable, pollution-free manner, as I have argued previously. The US can supply all of its own electricity, forever.

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It took from the beginning of the 20th century to after World War II to switch from electricity and coal to petroleum, so it will take decades to switch back to electricity. So the sooner we start, the better. The powers-that-be in 1900 were streetcar operators and railroads; now the oil companies and car companies, plus suburban real estate interests, have an even larger voice in government. They will surely fund groups that claim that the government should stay out of what it was once involved in: spending the equivalent of trillions of dollars to transform the transportation system and urban structure. It will take an educated public, hopefully worried about the long-term future, to push the government to spend trillions in moving to a system based on electric trains.

Trains are the best way to use electricity for a transportation vehicle. This is because trains can use an overhead electrical wiring system (or in the case of subways and some light rail, an underground one). That is, they can obtain their energy from outside the vehicle. They don't have to drag around their energy in a fuel tank. They can also tap into the continental electrical grid, which can be fed by many different sources.

According to Chris Steiner in his book "$20 Per Gallon", at $8 per gallon airline flights under 350 miles will no longer be profitable, and at $12 per gallon flights under 500 miles won't be either. Europe, China, and Japan are feverishly working to create major high-speed rail routes over just these lengths with trains that run at least 200 mph.

However, in order to move away from oil, we will also have to move most freight with trains instead of long-haul trucks. The Millennium Institute estimates that transferring freight to electric rail, including at least part of a passenger rail system, would cost between $250 and 500 billion. But the bigger problem would be that much of the commercial infrastructure of the country, including the big box stores like WalMart and hundreds of suburban malls, would probably have to relocate to more dense city regions in order to take advantage of an electric rail system.

Which brings us to the biggest problem of all: replacing oil-dependent cars. Robert Bryce and Kris De Decker argue that electric cars have always been over-hyped and that there is no reason to think that they will ever replace the large, high-speed, long-distance automobiles that we have now. So let's assume that they are right and that electric cars will always be slow, say with a maximum speed of 30 mph, fairly small, and with a range of about 50 miles. As the City of New York is now informing its residents, that speed would actually decrease the likelihood of death from accidents to only 20% -- and driving at 20 mph has even more beneficial effects.

But this would only be practical if three very far-reaching changes were made. First, most people, even in suburbs, would have to live about 10 miles away from a town center. Second, those town centers would have to be tied together and linked to a city center by an extensive and rider-friendly electric train system. Third, the city centers would have to incorporate buildings at a high density and transit systems large enough to avoid the need to use nonelectric cars.

There is another good reason to build these systems besides not using oil: if the high-speed trains and subways and electric cars and high-rise buildings were built using goods manufactured in the U.S., then the manufacturing economy of the U.S. could recover, and with it, the middle class and the long-term prosperity of the country.

If the Republican Party can make big changes, why not the Democratic Party?

Jon Rynn is the author of the book Manufacturing Green Prosperity: The power to rebuild the American middle class, available from Praeger Press. He holds a Ph.D. in political science from the City University of New York.