The New New Deal

by Grunwald, Michael

  LaHood’s larger point was that Tampa–Orlando would be just one link in a more balanced, more sustainable, less dangerous transportation network. Population was growing and fuel prices were rising, while road and airport capacity was dwindling. “We can’t just keep building more highways that turn into parking lots,” he said. Making rail a viable option outside the Northeast would require better trains, not just bullet trains.

  The way to go fast, railroaders say, is to stop going slow.

  My train to Orlando took so long because of that half hour beside the oak, plus several longer stretches at jogger speeds. Almost all of Amtrak’s tracks are owned by freight lines, and they’re riddled with time-sucking choke points, like sharp curves and grade crossings that require slow speeds for safety, or long single-track stretches that force trains to wait next to oak trees for oncoming traffic to pass. In Chicago, I visited one of America’s worst blockages, an old-fashioned “diamond” in the Englewood neighborhood that pits seventy-eight commuter trains against sixty Amtrak and freight trains every day. It’s like an intersection in the middle of an interstate. I arrived well after rush hour, but I still saw gridlock; one Norfolk Southern train hauling grain, lumber, and steel across the country was delayed at least forty minutes. Amtrak trains from Detroit routinely wait even longer.

  That’s why the high-speed grants included $133 million for an overpass that will replace the diamond and ease the chronic Amtrak delays. The Englewood Flyover will also save suburbanites over twenty minutes a day on their commutes, and start untangling the spaghetti bowl of convoluted tracks that carry one fourth of the nation’s freight through Greater Chicago. Throughout the area, I saw similar workaday projects that would add capacity and subtract choke points: sidings to allow faster trains to pass laggards, grade separations to avoid conflicts with cars, advanced signal systems with automated crossovers to replace hand-thrown switches. The goal is to make Chicago the hub of a truly competitive Midwestern rail network—not by building new bullet-only lines from scratch, but by gradually improving the existing network.

  “It’s not sexy,” says Szabo, a fifth-generation railroader who once worked as a switchman on the Illinois Central and a conductor on Chicago’s commuter rail. “But if you take out enough pinch points, you’re going to make trains more attractive.”

  For example, over $1 billion worth of Recovery Act upgrades will slice over an hour off travel times between Chicago and St. Louis. The work will only increase the top speed to 110 mph, half as fast as the California bullet plan. But it will make the Amtrak option faster than driving, which should make it more attractive, so that Amtrak can run more frequent trains, which will make it even more attractive. One reason the Northeast Corridor is so popular is the convenience of knowing the trains run every hour. Similarly, a new bridge to eliminate a single-track snarl between St. Louis and Kansas City should dramatically improve on-time performance, converting a train people don’t take unless they have to into a train people might take because they want to.

  Ever since Amtrak was chartered in 1971 to take over the money-losing passenger lines of freight railroads, it’s been the ugly duckling of the transportation world, starved of funding for maintenance, neglected by presidents of both parties, notorious for dreadful service. The Recovery Act was a first step toward respectability.

  “There’s been a total focus on aviation and highways in this country. It’s nuts!” says Amtrak CEO Joe Boardman, another Republican. “Now we can start to build a railroad that works.”

  At the same time, projects like the Englewood Flyover and that bridge in Missouri will help freight railroads, which move our stuff around the country less expensively and more fuel-efficiently than long-haul trucks, and maintain their tracks on their own dime. This is another untold story of the stimulus, its unprecedented aid for freight upgrades that will unclog the arteries of our commerce—including a $100 million TIGER grant for further untangling of Chicago’s spaghetti bowl. Shifting cargo from gas-guzzling trucks to trains that can move a ton of freight 457 miles per gallon is one of the most powerful ways to reduce oil dependence and promote economic competitiveness.

  But that’s not how high-speed rail was marketed. By the spring of 2010, Obama had overhyped high-speed, underplayed intercity, and barely mentioned freight. The bullet train projects that got all the love didn’t have shovels in the ground, while the incremental improvements that were under way didn’t seem to justify his lofty rhetoric. The administration had spread the cash around multiple states to try to build broad support for future investments; instead, it created multiple targets for political attacks.

  “We’re giving birth,” Szabo told me. “That can be messy and painful.”

  High-speed rail was the Recovery Act’s most extreme example of a long-term project—not only because of its start-up lags, but because it would require a sustained national commitment to achieve its objectives. Tampa–Orlando made sense as the first leg of Tampa–Orlando–Miami, but as a stand-alone project it was basically an expensive commuter line and glorified Disney shuttle. California’s $2.25 billion grant, the largest in the country, was only enough to finance a start-up track to nowhere in the Central Valley, from the small farm town of Corcoran to the unincorporated burg of Borden; it would require tens of billions more to get anywhere near Los Angeles or San Francisco. And as a one-off investment, $400 million for Ohio’s 3-C service would be a laughable waste; at go-kart speeds, it would never draw drivers off the highway. It was defensible only as a first step toward competitive speeds, as a link in a real regional network, as a hedge against oil shocks that could make long drives expensive and short flights extinct.

  In other words, the legacy of the stimulus investments in high-speed rail would depend on what happened after the stimulus. Congress did approve another $2.5 billion in 2010, but at that rate catching name-all-the-other-countries could take over a century.

  Still, as Szabo pointed out, you’ve got to start somewhere. He liked to show a photo of some smiling men in suits surrounded by desolate Kansas flatlands. Behind them is a sign celebrating the first eight-mile stretch of the interstate highway system.

  “It didn’t get built all at once,” LaHood says. “People had a vision.”

  Driving Change

  It was hard to imagine a more vivid argument against our addiction to oil than the fiery explosion on BP’s Deepwater Horizon in April 2010. It killed eleven men on the rig, and it spilled five million barrels of crude into the Gulf of Mexico, ravaging the coastal economy and filling the airwaves with pitiful images of blackened pelicans. It felt like a teachable moment about the hidden costs of fossil fuels; all that oil amounted to less than one third of what Americans used in an average day.365 But Obama had stopped talking about climate change in public; it polled badly, and cap-and-trade was dead. And in a culture that holds presidents responsible for everything that happens “on their watch,” the spill didn’t make Obama look prescient. It made him look impotent. Why couldn’t he stop the gusher? Why wasn’t he hauling anyone to jail? Even Malia asked him: “Did you plug the hole yet, Daddy?” So the BP spill, like the Massey coal disaster in West Virginia before it, or the Fukushima nuclear meltdown in Japan after it, did not create much of a groundswell for renewable energy.366 It just forced the president to spend three months talking about something other than jobs.

  Behind the scenes, though, Obama was doing more than any previous president to wean the nation off oil. Promoting high-speed rail and freight rail that would take cars and trucks off the road was just one strategy. He also jacked up fuel efficiency standards for cars and trucks, which should eliminate one sixth of U.S. oil imports by 2025. And he went all-in on electric cars and trucks, starting with the stimulus. It provided $7,500 rebates for early adopters, funded a forty-fold increase in the number of charging stations, and created an advanced battery industry from scratch. It was no coincidence that the first mass-produced plug-ins, the Chevy Volt and Nissan Leaf—“Obamobiles,”
to skeptics—hit the streets “on his watch.”

  The battery effort was one of the most ambitious stimulus programs, positioning the United States as a major player in a twenty-first-century manufacturing industry almost overnight, repatriating lithium-ion technologies that were invented in America but had followed the consumer electronics business to Asia. Before the Recovery Act, the U.S. had a chicken-and-egg problem: Nobody wanted to build or buy electric cars because the batteries were too weak and expensive, and nobody wanted to try to make better and cheaper batteries because nobody wanted to build or buy electric cars. But now thirty stimulus-funded factories are creating a supply chain that could support half a million plug-ins by 2015. Battery packs aren’t easy to import—the Volt’s weighs more than a washer-dryer—so if plug-ins are going to be made in America, batteries probably have to be as well. And if plug-ins are going to be popular in America, batteries have to get much cheaper; they’re the main reason the first-generation Volt retails for luxury-car prices without luxury-car features. So the Recovery Act also aimed to cut battery costs 70 percent by 2015, while improving their power and extending their range.

  A123 Systems, the firm that raised its stimulus matching funds by going public, was founded in Massachusetts by MIT geeks who named it for a techno-measurement used to calculate forces at nano dimensions. Its initial research into the “nanophosphate powder” that gives its batteries extra kick was financed by an Energy Department grant. But it still built its first five factories in Asia, partly because of cheaper labor and land, mostly because that’s where the supply chain and know-how were. Thanks to the Recovery Act, A123 built its next two factories in Michigan. Four of its suppliers also won stimulus grants to build U.S. plants. So did one of its customers, Navistar, which retrofitted a shuttered RV factory in Indiana to make electric trucks for companies like FedEx. Another customer, Fisker Automotive, snagged a federal loan to make electric cars in a shuttered GM plant in Delaware.

  “Without government, there’s no way we would’ve done this in the U.S.,” A123 chief technology officer Bart Riley told me. “But now you’re going to see the industry reach critical mass here.”

  A123 built its first U.S. production line in Livonia, Michigan, in a former Technicolor plant that once made VHS tapes; at the opening, Obama hailed the birth of a new industry providing good-paying green jobs. But the first thing I noticed on a tour of the cavernous factory—and I often noticed this in stimulus-funded plants—was how few people were working there. Robotic arms, conveyor belts, and stacking machines were doing the heavy labor. “We’re automating the hell out of this stuff,” explained my tour guide, Jason Forcier, the head of A123’s automotive division. I saw a few welders, and some employees monitoring the machines; robots haven’t yet learned to engineer or maintain or repair themselves. But battery production is high-tech, capital-intensive work. It’s not like T-shirt production, where the United States can’t compete with lower-wage countries. It means fewer jobs, but it also means the jobs might not migrate overseas.

  “We know we’re going to get undercut on repetitive-labor jobs,” Biden says. “The answer is to move to the next thing.”

  MIT professor Yet-Ming Chiang, the Taiwanese-born material scientist who developed the nanophosphate powder that is A123’s special sauce, believes America’s special sauce is our what’s-next culture of creativity and experimentation. He started messing around with chemistry sets in his bedroom after coming to America as a boy, and he doubts he would have become such an unconventional thinker within the structure of an Asian education. His latest venture, another alphanumeric firm called 24M, emerged from a brainstorming session about the smart grid at A123; it has spun off to create an unorthodox “flow battery” that could store renewable energy on a game-changing scale.

  If we want that kind of innovation in America, Chiang says, we need to make things in America, so that those brainstorming sessions keep happening in America. When high-tech factories flee the country, high-tech people follow.

  “This is what we’re good at,” he says. “We can’t just be a service economy.”

  A123’s stimulus grant did create a thousand jobs in Michigan, mostly for laid-off autoworkers, but the company still could fail. In late 2011 it announced 350 layoffs of its own after Fisker had problems with its Karma sports car. Its stock has tanked. Overall, though, Michigan expects its new battery industry—which received nearly half the Recovery Act’s battery grants—to employ 63,000 people in a decade. Those aren’t WPA numbers, but they’re a lot more than zero; the entire U.S. steel industry only employs about 60,000 workers. That helps explain why the battery program, like the auto bailout, now has bipartisan support in Michigan. “It helped save this state,” says Jack Kirksey, the Republican mayor of Livonia. “Things were looking like: Last one to leave Michigan please turn out the lights.” At the ribbon cutting for a new battery plant in Holland, Michigan, Obama archly noted that some stimulus opponents—he was talking about Republican congressman Pete Hoekstra—had shown up despite making “the political decision that it would be better to obstruct than to lend a hand.”367 He had a point, but politicians like ribbon cuttings, and they like major employers; batteries are now Michigan’s fastest-growing industry.

  “All our competitors are setting up shop here, and so are our suppliers,” says Forcier, whose father and two grandfathers worked at GM. “It’s all coming together.”

  Some analysts predicted the battery push would be a flop reminiscent of President Carter’s botched bet on synthetic fuels, producing a glut that would outstrip demand for electric cars. Fossil fuels, while terrible for our security and our environment, are highly efficient for transportation; the Leaf can go less than eighty miles on a charge, while the Volt has even less battery stamina, although it has a backup gas tank to combat “range anxiety.” Even Steve Rattner, the private equity investor who oversaw the auto rescue for Obama, blasted the battery program in his book Overhaul, predicting weak returns on investment.

  “Green jobs may be the fad of the moment, but in supporting them we need to forgo irrational exuberance,” Rattner warned.368

  Sure enough, Ener1, the owner of one stimulus-funded Indiana battery factory, would follow its best customer, the Norwegian electric carmaker Think, into bankruptcy in early 2012. On a visit to the plant, Biden had proclaimed that firms like Ener1 would “reshape the way Americans drive, the way Americans consume, the way Americans power their lives.” Privately, though, he had been underwhelmed by the Think. “It looked like a Yugo, a midget car,” recalls one aide. “It looked like a car you put in the back of another car.” Biden asked his team: “Who the fuck names their car ‘Think’?”

  But creative destruction is part of capitalism, far preferable to the government propping up troubled companies forever. As Obama told the CEO of A123: We’re just getting you started. You’ve got to make this sustainable. Stimulus-funded failures naturally attracted far more attention than the routine failures of businesses that receive run-of-the-mill subsidies and tax breaks ever do. They invariably prompted accusations of Democratic “crony capitalism,” even though Indiana Republicans like Governor Mitch Daniels and Senator Richard Lugar were avid supporters of Ener1. But if battery investments had been completely risk-free, they would have been made long before the Recovery Act.

  Some pioneers always get scalped.

  “Are some of these companies going to fail? Duh! Of course!” says Ron Bloom, Obama’s former manufacturing czar. “It’s no different than Pell Grants. Some of those students getting government assistance are going to end up drunks on the corner. But overall, society gains enormously from investments in education, so we make the grants. What’s your alternative? Give up? Let China make everything?”

  Bloom’s views were not a majority opinion inside the White House. Obama’s economists—except Jared Bernstein—were skeptical of his efforts to single out manufacturing for government support. Larry Summers had a revealing email exchange with a Soly
ndra investor who said the federal loan to the solar firm, while nice for him, seemed “haphazard,” an indication that “the government is just not well equipped to decide which companies should get the money and how much.” Summers replied: “I relate well to your view that gov is a crappy vc and if u were closer to it you’d feel more strongly.”

  But Obama took a broader view of “return on investment” than a profit-minded private equity firm would. As Biden says, it would be a shame to trade our dependence on foreign oil for dependence on foreign batteries. Even Summers told the Solyndra investor that “there are all kinds of externalities to renewable investments,” suggesting that lower emissions were the kind of public goods that private investors undervalue. And whatever valid concerns economists had about industrial policy, they hadn’t convinced our competitors; China’s stimulus poured hundreds of billions into its green industries. I kept hearing the same mantra from clean-energy executives and industrial-state politicians: We’re not competing with companies. We’re competing with countries.

  “We’re in a war for jobs, and we can’t just forfeit,” former Michigan governor Jennifer Granholm says. “Yeah, we’re doing some industrial policy. Good! It’s about time! Because China really does industrial policy.”

  The Recovery Act didn’t provide cradle-to-grave corporate welfare. It offered a one-time injection to create a domestic battery industry, which was a prerequisite for a domestic electric vehicle industry, which may become a prerequisite for a domestic car industry. Automakers ended up selling about twenty thousand electric vehicles in the United States in 2011, about twenty thousand more than they would have sold without Obama’s help. Some industry analysts still doubt electric vehicles can compete on their own, and their association with Obama, who has pledged to buy a Volt when he leaves office, has turned them into culture-war fodder. “You can’t put a gun rack in a Volt,” Newt Gingrich snarled, inaccurately, while campaigning in Oklahoma. The industry also endured a blitz of awful publicity when a Volt battery (assembled at a stimulus-financed factory in Brownstown, Michigan, with cells from the plant Obama visited in Holland, Michigan) caught fire three weeks after it was destroyed in a crash test. Chevy made fixes to protect drivers who might be tempted to remain in a destroyed Volt for three weeks after totaling it, and regulators pronounced the car safe. But the Volt fire seemed to create a teachable moment in a way that the BP spill never did, and right-wing critics have declared Obamobiles dead.