These were the notes for the talk I gave on funding the Green New Deal last night for Brave New Europe:
Funding the Green New Deal
Good evening
We're talking about the Green New Deal - which is pretty much universal - but in a European context - where there is ample variation in funding mechanisms
So tonight we're talking with a UK focus and covering the principles that can apply anywhere - thinking very particularly about the theory and practice of this
What is the GND?
- A plan to tackle
- Climate change
- Threats to biodiversity
- Social exclusion
- The need for jobs
- Written in 2008
- Updated regularly
- But still suggesting that we
- Making housing thermally efficient
- Green energy generation
- Transform transport
- Build sustainable infrastructure
- Transform agriculture
- Meet local need e.g. social housing in the UK
- The training and support services that all this requires: a strong social element.
- Creating
- A carbon army of people employed
- A whole new way of living
How much will it cost?
- Estimates in the U.K. vary from £60bn to £100bn a year
- That is 3% to 5% of GDP per annum
- This is the 10 year figure
- If spending is sufficient in that decade it is thought the returns then reduce the net costs
- So assume the same in the EU
Is funding the real question?
- Modern monetary theory would suggest:
- If the balanced economy requires the spend then do it
- If the resources are available and unused in the economy then do it
- If the resources are not available in the economy but the work is essential then tax to make the resources available and then do it
- Is there any choice but do a GND? I suggest not. So, the MMT decision criteria are appropriate.
Is funding the right word when governments can create money?
- Yes, because money is still required even if it is created
- Yes, because even in MMT there is a funding cycle
- G = T + ∆B + ∆M (government spending can be equated to tax revenues, plus the net changes in borrowing and government created money supply)
- Which has also to be related to the proportion that is government and non-government funded
Funding options
- Borrowing
- The private sector
- QE
- Tax reform
- A combination of these
Key issues:
- QE works, even in the EU
- The key issue is being sure how the right funding benefit gets to the right state
- QE has so far:
- Not produced inflation
- Not resulted in a loss of confidence in currencies
- Has not collapsed the credibility of government
- Has not undermined the role and credibility of central banks
- But QE has:
- In an overgeared world there is simply no chance of significant interest rate rises
- Left conventional monetary policy dead in the water
- And it is likely to stay there
However QE has also resulted in a massive increase in private wealth in all countries where it has been used
- Government money creation creates private assets
- MMT teaches us that
- Inequality is rising fast
- Direct money creation would have exactly the same consequence - this is not a flaw in QE - it is the result of deficit spending
- This means simply saying running direct deficits is not the answer to funding by QE if we care about inequality - and I do
So what to do?
- First, run the deficits
- The situation demands it
- Urgent action is needed
- Second, tax the resulting wealth
- Biden has this right
- But remember that we are not taxing to fund anything - government spending is not dependent on tax per se, even in Europe (I would argue, given the role of the ECB and its ability to attribute the benefit of its money creation to states) but is instead a fiscal control mechanism
- Instead, we are taxing simply because this is required to tackle the growth in inequality - we are taxing because the rich are rich
- Third, also tax if required to tackle inflation if it happens - but this is a different tax policy
- And there is an urgent need to rethink indirect taxes on a progressive basis to make this possible
- Fourth, change the tax reliefs on savings so that instead of subsidy being given to conventional forms of saving they only go to savings that provide real capital to underpin programmes supporting the management of climate change
- Remember almost all saving now is unrelated to investment - it is in cash or shares and second hand property and so speculation and that produces nothing
- We actually need to re-establish the link between savings and capital
- We can do this e.g. in the UK restrict ISAs to Green Recovery Bonds and then make these available in pensions as well with the proceeds being used to directly fund the GND programme
- Fifth, set up suitable governance structures for this to manage direct investment and indirect via private sector partnerships and stake holdings
- Germany is clearly ahead in this. Others need to copy its lead.
How much can be raised?
- In the UK £70 billion is saved in ISAs a year
- Well over £100bn is dashed in pensions a year
- The subsidy is nearly £60bn a year
- There is enough saving to provide the capital
- The tax incentives have to be changed
- And in the UK 80% or more of savings are in some form of tax incentivised asset - so tax incentives work
We have the power to make the required changes. It is time to do it
For those who are interested, this is the MindMap where it began life, complete with typing mistakes:
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The older President Bush, I recall talked about “the vision thing”. I presumed he saw it as an election gimmick rather a clear strategy.
This is a clear and coherent vision for the future. We can only hope some politicians pick it up.
An excellent exposition — but predicated on growth. To me, it does not seem to take proper account of pertinent facts. The climate has already changed. April was the coldest month ever recorded for the UK. Ireland and the Arctic have been ablaze. Antarctic melting cannot be stopped — so neither can sea-level rise.
Worldwide, emissions are still rising almost in lockstep with economic growth — even if the end result of your proposals might be more sustainable. What’s more, like other rich countries, the UK relies on poor countries for an extravagant quantity of food, minerals and timber – which is horrendously unjust as well as unwise.
We could give ourselves more time to adjust if we cut emissions to zero — fast. But ‘net zero by 2050’ means ‘Emit now, while we try to convince ourselves that the next generation will be able to clean up later – with technology that cannot work at the necessary scale.’ [Prof Kevin Anderson]
There has to be rationing such as Tradable Energy Quotas (TEQs) and also of housing. How will we cope when coastal communities start to be inundated at scale?
In 1953, a major sea storm combined with heavy rainfall struck England, Scotland, the Netherlands and Belgium.
In the UK, sea walls were breached in 1,200 places. 250 square miles of land were flooded and 30,000 people were forced from their homes. 24,000 properties were greatly damaged at a cost estimated as £50 million (1953 prices or about £1.2 billion at 2013 prices). [Wikipedia].
The Thames Barrier was built to protect London but it will not do so indefinitely.
As well as sea-level rise, ‘the UK is set to see about a 10 per cent rise in annual average rainfall by 2100 compared with 1985-2005’ [IPCC 5th Assessment Report Summary for Policymakers (p20).]
Thinking of concrete and sea-walls, cement is ‘the massive CO2 emitter you may not know about” https://www.bbc.co.uk/news/science-environment-46455844
In ‘Less is More — How Degrowth Will Save the World’, Jason Hickel advocates: 1 End planned obsolescence, 2 Cut advertising, 3 Shift from ownership to usership, 4 End food waste (much of it the result of supermarkets rejecting odd shaped or blemished items), 5 Scale down ecologically destructive industries.