Financial crisis: What have we learnt a year later?

When the crisis deepened a year ago, Barack Obama introduced into the presidential campaign the theme of a “green recovery,” based on a surge of investment in renewable energies, new electric vehicles, environmentally efficient “green” buildings, and ecologically sound agriculture.

In the heat of the battle against financial panic, policy attention turned away from that green recovery. Now the US needs to return to this important idea.

Debt-burdened consumers in the US and Europe will limit their spending for years to come as they rebuild their wealth and pension assets.

But the resulting economic slack gives us the historic opportunity to compensate for low consumer spending with increased investment spending on sustainable technologies.

Government policies in the US and other rich countries should stimulate those investments through special incentives.

These include a cap-and-trade system for greenhouse-gas emissions, subsidies for research and development on sustainable technologies, feed-in tariffs and regulatory incentives for renewable energy, consumer subsidies and other inducements for the uptake of new “green” technologies, and implementation of “green” infrastructure programs, such as mass transit.

Sustainable energy

The rich world should also provide the poorest countries with grants and low-interest loans to buy sustainable energy technologies, such as solar and geothermal power.

Doing so would add to the global recovery, improve long-term environmental sustainability, and accelerate economic development.

The crisis can yet be an opportunity to turn from a path of financial bubbles and excessive consumption to a path of sustainable development.

In fact, seizing this opportunity is the only recipe for genuine growth that we have left.

Sachs is Professor of Economics at Columbia University.