There’s a “magic bullet” for some of the biggest challenges facing the U.S. economy, according to famed value investor Jeremy Grantham.
In an investor note dated October 30, the GMO co-founder called for a “new Marshall Plan” to combat problems including “depressed” economic growth, rising wealth inequality, and climate change.
“The economy of the developed world has been steadily becoming less dynamic for the last 50 years and the GDP growth of the developed world has fallen from over four percent a year to less than two percent a year,” Grantham wrote. “We need a long, sustained, and massive public works program — a second coming of the Marshall Plan, if you will — to jolt the U.S. and the global economy into a few decades of accelerated growth.”
The Marshall Plan, also known as the European Recovery Program, was a U.S. foreign aid initiative to help rebuild Western European cities and infrastructure that were damaged during World War II. Grantham said a similar program could be enacted now to build green infrastructure that would mitigate climate change.
“We face the shorter-term economic threat from Covid-19 and the long-term economic threat from climate change,” he wrote. “We have a clear incentive, I would argue an imperative, to produce a very large and sustained public works program.”
Grantham has spent the last couple of years sounding the alarm on climate change, which he has called “an existential threat to the world as we know it.” Last year, Bloomberg reported that Grantham had pledged 98 percent of his net worth, or about $1 billion, to fight climate change.
With the country now dealing with the economic fallout from Covid-19, Grantham thinks it is time for the U.S. to launch a major fiscal program to build new infrastructure for clean energy, transportation, and industry. Although making the entire global economy environmentally sustainable “will take tens of trillions of dollars, over several decades,” he argued that current negative real interest rates make it “a very advantageous time for governments and corporations to borrow and invest.”
“Infrastructure spending, particularly green infrastructure spending, pays a respectable return on investment as far as the eye can see,” he added. “If financed at negative real rates, it is the commercial bargain of all time.”
Beyond combatting climate change, Grantham said a green infrastructure program would also address growing income inequality by providing “hundreds of thousands of jobs and raising wages for both skilled and unskilled labor.”
Plus, it would help the U.S. challenge the “growing dominance of China in the energy and industrial technologies of the next century,” Grantham added. He cited, for example, China’s fleet of 400,000 electric buses far outnumbering the 400 electric buses in the U.S. today.
“Not only does green infrastructure produce a good return, jolt the economy forward, and help with inequality, it also helps create an environment where the U.S. can at least fight it out with China for leadership in what will become the dominant industries of 2050,” Grantham concluded. “Above all, it will insure against the staggering costs of a failure to control our climate, which at worst will be incalculable — the disintegration of a reasonably stable global society. So now is the time. Bring it on.”