How Big is your Green Stimulus?

Moving on from my earlier post about the green paradox of thrift I have been paying some attention to the discussions about green stimulus. The idea is for the government to either borrow or leverage indirectly private-sector money to be invested in sectors considered 'green'. Since how we define green industry or even the green economy is contested this has been a process subject to considerable lobbying and tendentious argument.

The world leader in terms of green stimulus is Korea, which according to a report from the UN’s Environment Programme update on the Global Green New Deal has sent 79% of its investment money in the direction of green sectors, compared with 34% for China, 18% for France, 13% for Germany and 12% for the USA. Korea plans to invest the equivalent of US$83.6 billion by 2013 including US$44 billion on building energy security and US$22 billion building up its green production sectors. In absolute terms, China’s green stimulus of US$ 218 billion is the largest of the G20 countries: China is investing massively in its railways (48%) and in energy efficient buildings (35%). The investment in Green Keynesianism from the UK is too small to feature in these comparisons.

           

French energy journalist Yves de Saint Jacob describes how France's traditional commitment to a state industrial policy has been redirected towards apparently green sectors. In sympathy with the tone of this paper he raises the question: 'Is economic revival compatible with sustainable development, or, to turn the problem on its head, perhaps a little cynically, is recession the only effective means of reducing CO2 emissions?' before describing the really significant investments made since Sarkozy's election in 2012. France is investing massively in its rail network and its canals with public finance of €8bn. and the hope of leveraging in more from the private sector. The aim is to emerge from the recession with significant improvements to non-road transport including a new tunnel between Turin and Lyon and a new Seine-Nord canal linking Europe's northern ports to Mediterranean markets. In addition there are significant investments across the country's already impressive TGV network and significant investments in so-called green production sectors: €500m. is being spent on incentives to encourage the development of greener cars, while consumers are being offered €1000 when they trade in their older car (at least ten years old) if they buy a lower-emission replacement. In the construction sector €850 is being spent on refurbishment to improve energy efficiency.

Amongst pro-environmental economists and lobbyists the call has been for a Green New Deal, this time explicitly echoing the largest Keynesian response to the Depression: Roosevelt's New Deal programme of infrastructure investment and job creation. This call began in the UK with the report from the Green New Deal Group that grew out of Colin Hines’s work with the New Economics Foundation. Rather than the flagship-style policies of Sarkozy and Obama, this group focused instead on the urgent need to ensure safe and warm homes for elderly people with energy prices rising rapidly. It was a form of human-scale development approach to Green Keynesianism that would have warmed the cockles of Schumacher's heart as much as the living-rooms of elderly pensioners. From an economic perspective it proposed a triple win: health for the vulnerable, jobs for the workless, and stimulus for the economy. It was almost totally ignored, with the government instead proposing its Green Investment Bank, another example of using public money to leverage private money but socialising the risks and making no attempt to ensure socially beneficial allocation.

The Green European Foundation has funded a thorough comparison of the progress of such Green New Deals across the members of the EU. The research, conducted by the Wuppertal Institute, confirms the widely differing sizes of stimulus packages as well as the proportions directed towards green transitional investment. In both cases the UK is well towards the bottom of the rankings. In Figure 5 the UK is shown to be one of only two countries whose green economy actually shrank between 1999 and 2004 (the other being Greece). While Finland’s eco-industry grew by 54% during this period that of the UK shrank by 18%. This is clear evidence of the misallocation of resources that results from an over-emphasis on finance. The country's reliance on the financial sector to gain foreign exchange also explains the UK’s apparently positive performance in terms of the efficiency of its GDP in energy terms. If your wealth is earned through invisibles such as insurance and financial products and your production has been off-shored this can mask an underlying failure to invest in green transition which can threaten long term energy security and economic viability.

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Cold Comfort

Age UK have offered their regular and timely alert about the cost to the country of our inadequate housing stock, but this year they have tailored their message for the age of austeria. Is it more likely to achieve the desired response from policy-makers when couched in terms of saving money to the NHS? Do we really care so little about life that merely listing the numbers of thousands who die because of the cold is no longer enough?

The figures, although seemingly rather dubious, are none the less impressive: illnesses caused by cold homes cost the NHS £1.36bn. per year. The cold puts pressure on most bodily systems but stress on the heart and lungs leads to strokes, heart attacks and respiratory diseases all thriving in the cold months. There are at least 27,000 deaths that need not have happened if we had a properly insulated housing stock.

This situation is not new - the English, after all, invented the draft and being cold inside your home is a particularly British habit, as those who have travelled in central or northern Europe can attest. So why is it not tackled? First, is the problem of its lack of glamour. It is so much more thrilling for a politician to be seen by a model of the next airport or the vast Severn Barrage. Surely there is also something cultural hanging over from the cold dormitories in which so many of our politicians spent their childhoods. Perhaps they still believe that it was chilblains and cold baths that made the empire great.

But there are also important economic reasons. Huge infrastructure projects such as high-speed railways generate the sorts of balance-sheets where large sums can be siphoned off through various consultancy roles and offer lucrative contracts to the sorts of corporations that have the government's ear. The persistent work of improving the quality of our homes offers jobs in the local community for people who have only their vote to offer. The Green Party has been arguing for the local solution for years, proposing £2bn. to £4bn. per year investment to insulate four million homes per year at the last election. This is not glamorous and receives little media attention, short of failed attempts to rubbish the figures.

The failure to invest in energy insulation is demonstrative of our failure to tackle the issue of climate change as a whole within an economy focused on profit and individualism. The deaths of old people this winter are the price we pay for having such an economic system, as is the legacy of ill health for many children who grow up in cold homes. During my visit to Berlin recently the most obvious indication that I was in former east rather than former west Berlin were the huge district heating systems linking properly insulated buildings to sources of state-generated power. It is one of the lessons of a planned rather than market system that when the state makes providing you with a warm home its business, standards of energy efficiency are likely to be much higher. While few of us would welcome a centralised planning system, the failure to tackle effectively either cold homes or energy efficiency suggests that this is another area where the market is failing - and with lethal consequences.
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Easing Eurozone pressures

Richard Douthwaite, of the Dublin-based think-tank FEASTA, has produced a useful paper offering solutions to the Eurozone crisis from an Irish perspective. The solution, which he terms 'deficit easing', is similar to that proposed by the more radical proponents of the Green New Deal, i.e. that money is created by governments to be invested in the transition to a low-carbon economy. This will support economies otherwise facing depression, while making our basic support systems resilient to climate-related weather shocks.

Since, as shown in the graphic, all the countries of the Eurozone are in debt, and therefore engaging in austerity measures, any policy designed to grow or trade our way out of the economic decline cannot be effective. The second graphic shows how all the debt, both public and private, is interconnected. So a collective solution is the only hope of success.

Richard's paper has the clarity and conviction that would be expected from one of the world's leading alternative economists. I would be inclined to add two small additional points. The first is the political point made by Robert Peston, who fished around in a lengthy and probably extremely tedious report from the Bank of England to find the nugget of data: in 2009 public support for the banking sector amounted to £100bn. This is more than half the so-called 'structural deficit' and indicates the cost to all of us of not finding a structural solution to the banking crisis.

Second, Richard's paper surprisingly makes no references to the link between financial expansion and resource exploitation. He has argued this elsewhere and would I'm sure be in agreement but it is important that all radical economists keep this planetary perspective in mind - and continue to draw attention to it - when proposing our monetary solutions.
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More on Money

As the bank results roll in, and the bonuses roll out, it is good to have a reminder of where this money came from. This letter to the FT from an economics professor at Strathclyde makes the point that the money queased into the economy might have achieved its aim if it had been spent directly into the real economy, rather than sent via the banks, who merely absorbed it into their profits. He does not make the additional point that it could have funded the Green New Deal type proposals we desperately need to build our low-carbon infrastructure. Tweet

Queasy Come; Queasy Go

I want to think again about quantitative easing - the government's new favourite policy that enables it to make money by decree. This is necessary because the favoured method of money creation in this late form of financialised capitalism is by banks lending it and then accepting each other's debts. Once they realised their mutual debts would never be paid this source of cash dried up, and so the government stepped in to spend money directly into the economy. In essence, this is exactly the sort of money system that green (and other) critics of debt-based money have been calling for.

So what's the problem? That is easy to answer: the money that is being created is not being spent on the real economy, but rather injected into the financial upper circuits of the global economy, where it does nothing of real value (it would be far better if the policy worked as illustrated in the cartoon). As Colin Hines argued back in the spring, this money should be being spent on building the infrastructure for a low-carbon economy.

In fact it is being used to buy two sorts of debt. Most is being spent on government debt, which means that the government's debt management agency can afford to sell more government bonds without having to offer impossibly high rates of interest on them - the more UK national debt there is out there the more expensive it becomes to create more. Some is also being used to buy junk corporate debt, thus 'helping the banks to rebuild their balance sheets', otherwise known as 'new lamps for old'.

The pushing of all this new money into the financial system was proposed on the basis that it would miraculously find its way into the real economy. There is no evidence or even convincing argument as to why that might happen. In this form of capitalism, the reverse process is dominant - with money being sucked out of the real economy into financial operations where more money can be made more rapidly.

The policy has two real consequences - both iniquitous. As more cash floods into financial organisations, they use it to buy assets of various sorts, so QE causes a new asset bubble. This value can then be used by the wealthy members of society who own assets to purchase other assets, such as more property or land, hence exacerbating the inequality that already haunts our economy.

Secondly, the policy extends the gap between the money supply and the real economy. The money that has been created is a claim on future goods, and hence this policy is creating a pressure for more economic growth, with the consequent exploitation of more energy and resources. Hence QE to support the finance sector is an environmental disaster in the making.

As it is being used currently, quantitative easing is magnifying the worst consequences of the financialised economic system we are suffering under. The one glimmer of light is that it has proved beyond question that money can be created in this way, but when it is, it should be used to invest in positive outcomes for society, rather than to support the unequal distribution of resources. Tweet

True Blue Never Fails

At last the Tories have come out of their policy closet and given some detail on what they actually plan to do after the next election. And we see that they are the same old party. Their response to a recession is to cut public spending and pick on the vulnerable. Cuts in the health budget and tax breaks for business: business as usual for the true blues.

The slogan for the first day of 'business' was peculiarly misplaced: getting Britain working. It is hard to see how forcing the sick and disabled from one form of social security benefit to another is going to create the millions of jobs that our economy is short of, according to the conventional economic paradigm, based as it is on wage slavery. Any attempt to resort to the traditional pasttime of threatening the marginal with starvation is more likely to get Britain robbing.

Why is it that those on the right are so desperate to force others into unpleasant, poorly paid jobs, that generate little of value and a great deal of carbon dioxide emissions? Could it be that they detest their own jobs and feel others should suffer alike? Light greens are much more likely to offer to share some of their work through reducing work hours, or their income through a citizens' income scheme. Darker greens would argue for freeing access to resources - especially land - so that people can provide for their own needs outside the market system.

And what of the Tories' promise to be the 'new green'? This fake and shallow veneer has rapidly peeled away. 'The environment' will barely feature at this week's conference as the planet's fair-weather friends revert to type and blow on the dog-whistle of oppressive Victorian policies that works so well within their electoral niche.

As Colin Hines argued back in the spring, within the conventional paradigm the obvious answer to the two-sided crisis of environment and economy is to send the quantitative easing money in the direction of real green jobs, with real green consequences: retrofitting Britains' tragically leaky housing stock would be a good place to start.

It's hard to know whether the reason this will not happen is that Boy George can't work out the economics - or whether he just can't resist his in-built propensity to beat up on the working people of this country. Or perhaps I should say the people who would be working if the money that might have enabled this had not all been spent on those who live from rents rather than wages. Tweet

Money system of last resort

In a system that relies on debt to create money, as capitalist money systems do, there is always a temptation for individual banks to take imprudent risks and be unable to repay their creditors. Because greed tempts bankers to destabilise their own business, and a run on the bank leading to bank collapse would undermine faith in the whole system, capitalist economies have a 'lender of last resort'.

The lender of last resort in the UK economy is the Bank of England. When banks hit sticky times they turn to the Old Lady for a shot in the arm, and she must oblige. This is exactly what happened last year, when banks had massively over-borrowed, they were loaned vast sums by the Bank.

You may be left asking where this money came from: who were the creditors? The answer is that, because there was no one left to lend money, the government itself acted as what we might think of as the 'borrower of last resort'.* When all else fails, a government can decide to create money by political fiat - the quantitative easing policy. And who do they borrow money from? The answer, I'm afraid, is you and me - and we are now being asked to pay this back through spending cuts, higher taxes and more work.

Leaving aside the question of whether the UK is really capable of paying back this level of debt without unacceptable suffering and civil unrest, let us consider for a while longer the concept of a borrower of last resort. When demand in the economy is so low that we are in a self-reinforcing downward spiral, as we are now, a capitalist economy requires the government to step in and borrow, just as it would expect the central bank to step in and lend to banks. So rather than cuts and austerity in the public sector we need to see borrowing and investment.

So far I have only considered the last resort in a financial sense, but what about the ecological crisis we are facing: the ultimate situation of last resort. Surely it is time for the government to act as borrower of last resort and produce a massive spending package to create the infrastructure and home renovation projects we need to achieve the carbon reduction targets that are now enshrined in law? Mad as it may seem, if you insist on creating money as debt, that is the only way that we are ever going to be able to buy ourselves a future.

*Thanks to Richard Douthwaite for this useful thought - and so many others. Tweet

Man Armed with Sausage Roll Arrested by Pigs

No, not an indication that her majesty's finest have taken a vegan turn, but rather a sign of the increasingly desperate nature of policing when the political direction of the country is entirely at odds with the well-being of its citizens.

Early evidence that the police are being used to defend the interests of capital (now frequently called 'business') was widespread at the policing of the G20 demonstrations in London in April. Given the shocking amount of public money that had been given to reckless bankers the level of restraint shown by protestors was admirable. The police failed to live up to this standard.

The latest flashpoint in the struggle between the people and the state is on the famously radical Isle of Wight. The Vestas factory near Newport is the country's only producer of wind turbines. Its closure was made public on the same day that the government announced a fivefold increase in the number wind turbines that would be operating in this country. So much for the Green New Deal. Money can be found for the banks but not for manufacturing.

If ever there was an industry that was worth supporting this has to be it. If we have a future at all it clearly belongs to the renewable generators. These are the skills and the products that will be part of our sustainable economy. But yet again hot air has won the day and there is no action to back it up.

The workers have taken affairs into their own hands and reclaimed the factory. They are being supported by protestors who are resupplying them with food, which the police are preventing them from passing on. Hence the sausage roll incident. The Times reports that the arrested man's custody sheet accused him of being 'armed with supplies of food'. Sausage rolls have now been elevated to the status of casus belli. These are the Climate Change Wars and we may have found the 21st century equivalent of the War of Jenkin's Ear.

A full report is available from Indymedia. Tweet

Ooh, give me some more pain, darling

I enjoy discussing a conspiracy theory over a pint as much as the next person and, given the shallow and irrelevant nature of most media chat on issues of importance, one can only gain a sense of what is really afoot from trying to read the clues. I would condemn this as undemocratic and unaccountable government in normal times, but just now I am seriously hoping that what we see is not going to be what we actually get.

Apart from the concern about paying the money back, it seems a strategy that is highly likely to fail in its own terms. How many of us feel inclined towards a pre-Christmas splurge this year? Isn't it much more likely that we'll save the money? Rather than encouraging consumption, investment in a low-carbon economy a la Green New Deal would be a strategy worth getting into debt for.

The only justification for racking up spending at the rate we are expecting this afternoon is to keep an unsalvageable system on track for long enough to put something better in its place. The media tidbits about higher income taxes in the future are window, meant to conceal and to impress those amongst the electorate who have longed to see new Labour give some indication that it still represents the have-nots more than the haves. The level of revenue it is likely to accrue for future spending is a pathetic £2bn. and can make no difference to the big picture.

As I blogged previously, what happened in Washington ten days ago was equally meaningless. In this case window-dressing to impress the punters that the big players were talking to each other, and were agreeing, and that they could really make a difference. Hence the Nuremberg-style backdrop: negotiation to impress rather than to make any serious plans.

But I really hope serious plans are being made somewhere. Given the dire situation we are in even a completely undemocratic and secretive policy-making process would be better than the economic freefall and possible social breakdown that is threatening. Gordon Brown might be the person to lead this debate - a politician with a good grasp of economics is valuable in such a crisis. If we see other governments following a similar finger-in-the-dyke strategy to our own Darling's after today then I think we can assume that this is the case. We can hope that a longer-term plan is being assembled and we can do our best to democratise that process by debating our own plans for a steady-state and sustainable economy in pubs, on buses and in any media to which we have access. Tweet

Green New Deal: What's the Deal? And How Green Is It?

Chatter about this mind-catching proposal is everywhere in green circles. My hearty congratulations to the authors who have managed to capture the imagination and direct it towards economics. I've been trying to do that for some time and know how challenging it can be.

It is fairly inevitable in a recession that the government will become a more significant part of our economy. If nothing else, as the economy as a whole shrinks, the public sector grows relative to the private sector, where jobs are dependent on immediate spending. Add to this that, in a civilised society, we pay something to those who are out of work and the balance is bound to shift towards government spending.

This means our money - either now or in the future - and therefore we have a democratic right to decide how it is spent. Some of the proposals for this spending from Labour and the Tories are very far from green - such as the building of more roads and other vast infrastructure projects. We need to think big but also think local: this would be the heart of a truly green new deal.

For me the priorities for spending would be local green banks, preferably organised as mutuals, which could lend money to small, local businesses according to strict criteria about their sustainability. This would underpin the growth of the local green economy and ensure that we emerged from the recession with a much greener economy.

And more important than money, we should be thinking about food and energy. As the pound sinks on the foreign exchanges we will realise the foolishness of government statements that food security is of no strategic importance. As we negotiate in international markets from a position of weakness we will regret the fact that our main export is financial services. Who will buy? Hardly anybody at all I would have thought. Tweet

By the waters of Leman . . .

So here we are again. Financial journalists and politicians trying to make sense of a world they have long reassured us could never come again. A world they vaguely remember from old men's stories and scratched black-and-white moving images. A world where banks collapse and stockbrokers commit suicide - well scrap the last part because there was at least some honour amongst thieves in the 1920s which appears strikingly absent today.

Because nobody believed this would ever happen again nobody has a plan to deal with it. We are all dredging around for what we can remember reading in the work of Galbraith, deliberately written to prevent us taking the same path towards economic destruction caused by financial irresponsibility. A path we have stumbled along in recent years with increasing speed as memories of the last significant financial crash have faded.

Vince Cable managed to dredge up the name of the Glass-Steagall Act, which I also recall from undergraduate economics. A lesson well learned from the last crash which required the creation of a wall between commercial and domestic banking activities and was designed - if memory serves - to prevent the risky behaviour of venture capital investors from dragging down the small saver - precisely what appears to be happening now as a result of the Act's repeal.

Clearly re-regulation of financial activities is crucial and urgent, but it isn't sufficient. Boom and bust is not an inevitability, it is merely the periodic consequence of an economic system which creates money in an irrational and undemocratic way. Without monetary reform we will only be storing up more problems in the future. The suited chaps who will bear the brunt of public opprobrium in the coming months were bound to create ever more ingenious ways to persuade people to borrow their unreliable money, because otherwise the whole system would have seized up. It is the system, not the greed it generates, that is at fault.

That is not to say that we should allow these city rogues to retire to their recently acquired country estates. The artificial value they created in the financial sector has been translated in many cases into real value as they bought up land, gold and other safe assets. We should use the money laundering legislation to trace the path this money took and claim it back through windfall taxes. This is the only way that the pain of recession can be fairly and democratically shared. Money generated from these windfall taxes can be used to fund the Green New Deal that leading environmentalists are calling for.

And because this is a blog which strives for erudition as well as political insight, here is a stanza from T. E. Eliot's The Wasteland which was dredged up from my memory:

THE river's tent is broken: the last fingers of leaf
Clutch and sink into the wet bank. The wind
Crosses the brown land, unheard. The nymphs are departed.
Sweet Thames, run softly, till I end my song.
The river bears no empty bottles, sandwich papers,
Silk handkerchiefs, cardboard boxes, cigarette ends
Or other testimony of summer nights. The nymphs are departed.
And their friends, the loitering heirs of city directors;
Departed, have left no addresses.
By the waters of Leman I sat down and wept...
Sweet Thames, run softly till I end my song,
Sweet Thames, run softly, for I speak not loud or long.
But at my back in a cold blast I hear
The rattle of the bones, and chuckle spread from ear to ear. Tweet