Thomas L. Friedman, “Still Digging,” The New York Times, 12/08/10

Tom Friedman admonishes, “We don’t seem to realize: We’re in a hole and still digging. Our educational attainment levels are stagnating; our infrastructure is fraying. We don’t have enough smart incentives to foster both innovation and manufacturing…” Of course superior education is necessary to remain competitive, and we must fix it for the long-term. However, the focus in the short-term must be jobs and economic growth.

Historically, with the notable exception of the internet bubble, to climb out of recession we have needed growth in one of two core industries, automobiles or housing. Today, automobiles are a smaller portion of our economy, with much of that industry comprised of imported cars and outsourced parts. The housing market is sitting on a huge inventory, and heightened foreclosures threaten further price decline. Infrastructure construction could certainly help today.

What then? An industrial policy for alternative energy with strong incentives for innovation and domestic manufacturing could put America back to work in the short-term while working to lessen our demand for imported oil.

Congress should create a matching Feed-In-Tariff for state utilities. FIT’s have been successful in driving demand in the countries using them; the German FIT has made them the number one installed base for solar panels, and the recent Ontario FIT is driving installation there. Congress can also ease the adoption of state and local PACE bonds (Property Assessed Clean Energy Bonds) by forcing Fanny and Freddy to accept these bonds as a first lien against properties, perhaps at some cap of installation cost to value. Most states have as their RPS targets (Renewable Portfolio Standards) about 25% of energy from renewables within three to four years time. However, these targets are moot without the incentives of FIT’s and PACE bonds.

The implementation of a VAT as part of tax reform and deficit reduction will make domestic production, including solar, more competitive, but a stronger incentive is needed to assure home-grown manufacturing jobs. My suggestion would be to restrict the protection of a U.S. Patent to solar equipment that is at least 80% domestic value-added in manufacturing.