The US government’s response to the 2008 financial crash was this century’s greatest missed opportunity. On the one hand, $700 billion in bailout money went to prop up banks, insurers, and automakers through the Troubled Asset Relief Program, or TARP. On the other, the Obama administration’s stimulus program—formally, the American Recovery and Reinvestment Act—spent an estimated $831 billion to create jobs, spur buying, and in the process deliver the closest thing that we’ve seen thus far to a Green New Deal.
Among other things, the Recovery Act enabled tens of billions of dollars’ worth of investment in climate-related infrastructure as well as loan guarantees and cash grants to clean-energy companies. It was a turning point in making wind and solar cost-competitive. The stimulus program invested $90 billion in these technologies, and renewable power generation doubled over the course of Barack Obama’s first term.
Despite these successes, the investment was far too small. True, the administration conceded some ground to the idea that governments should spend their way out of a recession, thereby avoiding the full-blown austerity trap that continues to plague Europe. But by 2010, Obama returned to an attempt to cut the federal deficit, keeping the greatest accomplishments of the stimulus quiet.
What’s more, the banks helped to undermine whatever progress the Recovery Act might have made in curbing emissions through its proto–Green New Deal. Since 2016, JPMorgan Chase—which received $25 billion in TARP funds—has poured $196 billion into coal, oil, and gas projects around the world. Wells Fargo was given the same amount and has invested in new fossil fuel infrastructure to the tune of $152 billion, and together, major banks financed $1.9 trillion worth of fossil fuel investment over the same period. Combined with relatively high oil prices and cheap postcrash credit, the bailout’s infusion of cash into the financial system helped spur the natural gas boom.
Bailouts tend to get presented as a binary. Either let flailing firms fail or save them to prevent economic disruption. That’s a false choice. “The key thing to remember,” economist J.W. Mason says, “is that bailouts are not just handouts…. They are also moments when the government has maximum leverage over the private sector. If we are going to be paying the piper in the next crisis, we should be thinking now about what tunes we want to call.” In this view, the Obama administration’s response to the 2008 financial crisis offers a cautionary lesson: It was too heavy on carrots and too light on sticks.
The next crash will be a once-in-a-lifetime chance to decarbonize the economy, so the next recovery cannot aim to just blindly increase output and demand. An industrial mobilization on the scale of a Green New Deal could cause a short-term spike in emissions, but it will need to transform consumption qualitatively by giving more people access to real prosperity, not just the ability to buy more cheap junk. Sociologist Daniel Aldana Cohen has aptly called for a “last stimulus” that would dramatically shrink those parts of the economy we don’t need (fossil fuels, speculative finance, building more McMansions) while increasing those we do (renewable energy, public transit, care work, affordable housing, education, the arts, and more).
We can’t know for certain what sectors will falter when the next crash hits. But as in the past, Wall Street will likely come begging. Should that happen, the next administration could finally bring it under democratic control and in line with the planet’s limits. Any bank that wants a check from the federal government, for example, should have to stop financing the companies wrecking the earth. Bailout recipients should be subject to a strict carbon audit that examines the lifetime emissions of projects they finance.
Another good starting point might be a blacklist for investments in the 20 fossil fuel producers that researchers have found are responsible for one-third of all carbon emissions since 1965. While that number includes private and state-owned firms, such a list could keep major banks from assisting with deals like the IPO for Aramco, Saudi Arabia’s state-owned oil company and a notorious polluter. Similar standards should be applied to insurance companies. As of 2018, the 10 largest insurers in the United States were holding just over $50 billion in fossil fuel investments. Just two of those disclosed that they considered climate change when making investment strategies.
The auto bailout was another wasted opportunity. When the federal government took out multibillion-dollar stakes in Chrysler and General Motors in 2008, it imposed some terms: requiring mergers and consolidations within the companies, firing GM chief executive Rick Wagoner, and setting new auto efficiency standards. But the administration largely squandered its leverage. As Obama proudly proclaimed, “The federal government will refrain from exercising its rights as a shareholder in all but the most fundamental corporate decisions.”
With the transportation sector accounting for 29 percent of US emissions, the auto industry now demands a more fundamental reorientation that would move the country away from car-centric planning and into robust networks of affordable public transit. If car companies want in on the action next time, they should be compelled to play by the rules of a Green New Deal. Labor would benefit significantly from this. The United Auto Workers—which called its first strike in 12 years this September—has borne the brunt of the industry’s ups and downs. At a minimum, any suite of climate policies (whether passed in response to a recession or not) should include trillions of dollars’ worth of investment in no-carbon trains and buses and aim to phase out the production of combustion-powered vehicles that use fossil fuels by around 2025. It could ensure that workers who were laid off before the legislation went into effect are rehired and receive wages comparable to or better than those they received before.
New procurement standards mandating zero-carbon fleets could see unionized workers building tens of thousands of electric vehicles for agencies like the US Postal Service. That massive purchasing power could help create and enforce labor and environmental standards up and down the supply chain—for example, in the mining of minerals like lithium and cobalt, which are currently extracted under inhumane working conditions.
Though going electric might, by industry estimates, eventually require 30 percent fewer workers, the transition would involve heavy investment and a correspondingly high labor demand. In the long run, job losses could be amply offset by cutting the workweek to four days while maintaining higher wages.
Of course, none of these changes could happen in a vacuum. The context for any such arrangement should be building an economy that extracts far less from the earth. While this all sounds wildly ambitious, it is not without precedent. During the domestic mobilization of World War II, US manufacturing was partly nationalized to supply the needs of the Allied forces, and the National Guard seized plants whose owners failed to comply. GM stopped making cars entirely. The US essentially ran on a centrally planned economy.
Wars and recessions are often a prerequisite for renegotiating the relationships between the state and the economy. With this in mind, the government should take full advantage of the next crash to address the greatest existential threat that humanity has ever known and to do it with everything we’ve got.