This blog post was written by my Finance for the Future and Green New Deal colleague Colin Hines and was first published on the Green Alliance blog on 3 April:
Here we go again. A rocky international banking system is once again in need of help from governments and central banks. During the last banking and Covid crises in the UK this took the form of the Bank of England using quantitative easing (QE) to create £875 billion, without any borrowing, to provide money to prop up the banks and wider economy.
The problem was that ‘Bankers' QE' did not lead to investments across the nation to compensate for the economic downturn. It was mostly used by the banks to inflate the assets of the already wealthy in property and shares. ‘Covid QE‘ was a little more egalitarian, as some of the new money generated by the Bank of England was used to pay for furlough, via the Coronavirus Job Retention Scheme, at a cost of £70 billion.
QE has never been used in social or environmental crises
Neither of these QE programmes helped in any way to fund the kind of growth in economic activity the UK needs to rebuild its crumbling social infrastructure or adequately protect the environment. This will require hundreds of billions to be spent, to increase decentralised economic activity, which both reduces inequality and insecurity, whilst rebuilding social and environmental infrastructure. It will also be crucial that this is done in a way that minimises the throughput of energy and raw materials.
On Monday 20 March, the banking crisis was knocked off the top news slot by the Intergovernmental Panel on Climate Change (IPCC) report delivering a “final warning” on the climate crisis. Trillions of dollars will need to be spent globally over the next decades to address this threat.
To ensure this occurs, the gap between the scale of funding rich countries' central banks are prepared to create to save their economies from the banking and Covid crises, compared with what they make available to solve the climate crisis has to be urgently closed. The way to achieve this was made clear over a year ago by Mia Mottley, the prime minister of Barbados, in her address to the COP26 climate summit in Glasgow. She made the crucial point that: “The central banks of the wealthiest countries engaged in $25 trillion of quantitative easing in the last 13 years. Of that, $9 trillion was spent in the last 18 months to fight the pandemic. Had we used that $25 trillion to finance the energy transition we would now be reaching that 1.5 degrees limit that is so vital to us.”
The lessons of the last week must be don't just bail out the banks, bail out society and the planet, and that money is not the problem.
We have to challenge the myth of funding constraints
In the UK, prior to this latest banking crisis, the government's justification of its refusal to adequately rebuild social infrastructure, to reduce regional inequalities and protect the environment was that, in these straitened times of Covid recovery and the Ukraine war, there is not enough spare money to fund such desperately needed improvements.
The major opposition parties have been incredibly cautious and have done little to adequately challenge this mantra. From the Liberal Democrats and the SNP very little has emerged in terms of funding proposals. Keir Starmer's disheartening promise was not to open a “big government chequebook” (cue for the young to reach for Google dictionary).
Given that, it will be very interesting to hear the opposition parties' response to the tens of billions being made available overnight, if needed, to prop up the banks again. If they support that move, this could open up the possibility for Labour to rethink its ‘sound money' approach and free it and the other opposition parties up to make a credible case for how the next government can pay for the investment this country so badly requires.
The sudden re-emergence of ‘money is no object' thinking by the Treasury and Bank of England to support the banks should also allow Shadow Chancellor Rachel Reeves to think back to her first job in Threadneedle Street, where she studied the quantitative easing programme in Japan, which she described as being “… so remote from normal economic policy but it turned out to be a pretty good grounding from what happened in the UK a few years after.”
A hopeful, alternative plan is possible
The hundreds of billions needed could be found from three sources. First, a huge programme of quantitative easing must be restarted. Second, the estimated £55 billion a year of tax breaks for pension savers and the tax subsidy on the £70 billion a year going into ISAs must be redesigned to support employment-creating investment with social and environmental goals. Third, increased revenue through a fairer taxation system where the wealthier contribute far more must be a goal.
Such an adequately funded, hope inducing, alternative plan should be at the core of all parties' manifestos. Unions, NGOs and political activists should make this ‘money is no object' thinking the core of their lobbying until the next election and unite around a call for a ‘Social and Green New Deal', funded predominantly by a third tranche of QE money. In short, make 2023 the year of QE.
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Investment in renewables have for the most part positive NPVs and not bad IRRs. They are investable. The only surprising thing is that govs of all stripes, including the UK, don’t regard them as such (& thus fund what amounts to “a sure deal”). Energy efficiency has a more complex business case, but one that is doable. That the UK is unable to address that business case (tending to think in terms of grants etc) is a reflection on the imbecilia virus that seems to have replaced Covid in government circles (I include politcos and what is left of the Uk’s “civil” service). That the Tories are unable to articulate anything resembling a “Social & New Green deal” is hardly surprising, that Liebore is more or less ditto suggests that both parties have long passed their sell by date: Tories & Libeore delenda est (misquoting Cato).
All not helped by the very low level of understanding of science amongst the civil service in government departments. A key topic of conversation in a recent meeting with the Royal Society – I had not realised how shockingly low it is. Then add to that the apparent inability to see expenditure on renewables or any other aspect of climate change as anything other than a cost. This despite multiple heavy weight reports identifying both the direct savings (energy) and wider savings through avoiding or mitigating the consequences of climate change.
When you mentioned Cato I immediately thought of the Pink Panther. Sums up much of the current situation. Now I think about it, its almost a metaphor for ignoring the disaster going on around us.
https://youtu.be/vQ1B2FeDYoI
Thanks for that
– one of the problems with RES is that those implementing legislation, lobbying for policy or indeed developing policy, are functionally incapable of building a discounted cash flow for a renewable project. They don’t understand the role of WACC (weighted average cost of capital) the importanace of debt or indeed what LCOEs (levelised cost of electricity) means. Whilst it is easy to criticise the UK – similar imbeciles define policy in the EU – they talk in terms of subsidies for RES – when there are +/- none – they fail to understand the need to have a stable & predictable income stream for RES tech where costs are ALL up front. On and on it goes. Both pathetic and amusing at the same time.
Mostly I have contempt for politicos and the bureaucrats that pretend to advise them – inumerate and imbecilic.
BTW: We have been lobbying for proper elec market reform – passing across my desk today – the news that in Germany (& thus Denmark and Benelux) intra-day prices hit -Euro4500/MWh (MINUS Euro4500/MWh). Yes the market would have given you Euro4500 to take a MWh. All due to renewables an a failure to reform markets. You have noticed some blogs on the subject of economics (being not fit for purpose) well this is what happens when they ain’t.
Staggering
“Money is no object” is a good, catchy slogan if ever there was one. All that remains then is the will to do it.
Whilst the main opposition parties are broadly on-side when it comes to tackling climate change and public services (to pick the two big ones – and I know they could go a lot further), the moment the subject of funding comes up they all scuttle away and hide. As a result it’s just hand wringing. No-one has yet had the courage to call out the tax and spend narrative. Or to call out the real cause of the financial crisis – bank misbehaviour. Or to call out how QE was just used to bail the banks out and pump asset prices rather than something useful like rebuilding the economy or tackle climate change.
Admittedly the media are still stuck in that rut with honourable exceptions, as are the bulk of the economic commentariat. However, it needs a lot more concerted and loud voices to challenge the status quo.
Agreed.
It’s a total misallocation of resources really that we are seeing and one of the enablers of it is fascism – dividing people’s attention from is this more core issue.
This is how we perpetuate things as they are and why we may be doomed to failure as a species.
Renewables should come after a total revolution in Building Regs. but of course this will cause outrage from powerful companies still producing products that should have been banned decades ago. It is possible to build houses and commercial property that requires minimal heat input. The same way that air change systems should have been introduced decades ago for both homes and commercial property still aren’t but are essential for good health – what cost to the NHS? Building housing on ‘flood plains’ without any measures to prevent flooded homes and businesses is insane.
The UK has the best environment for cost effective renewables in the whole of Europe, not only wind but tidal flow as well. Completely unthinkable is to stop using water to flush toilets, a terrible idea put forward by Thomas Crapper’s assistant for which he took credit. The awful pollution of rivers and sea need not happen and the huge expense of building/operating sewage treatment plants is avoided but again the powerful civil engineering industry would be up in arms. Human waste is far more nutrient rich than that of animals. Composted in cost effective plants using minimal human labour we could actually increase the fertility of arable land. Rivers that once produced a bounty of salmon and trout could become effective again. cleaner seas would produce more fish.
The UK wind industry wasted over 20 years dogmatically sticking to the wrong design and number of turbine arms, so that now we are having to buy foreign. Universities should have a priority in their engineering depts. devoted to traiblazing new concepts in energy production.
Just how many MPs of all political party have current knowledge and proven skills of a real world scientific training?
I’ve long observed that the two sectors that complain the most about regulation are the City and construction. Coincidentally two of the biggest Tory donors. The built environment is an open goal for energy saving yet the industry has been allowed to get away with building rubbish, commercial and residential. At the same time it has been generating blatantly excessive profits.
Just kicking off a major programme tackling the standards of new builds, along with upgrading what has been built in the last 20-30 years would be a good start. It would also help drive down the cost of the technologies involved. The older, hard to tackle properties can be tackled later after the easier stuff has been done.
[…] Cross-posted from Tax Research UK […]
The above contributors are probably much better qualified to comment than I am – simply a retired physics teacher – but Colin Hines article seems to miss the extreme urgency.
Recently you posted: https://www.taxresearch.org.uk/Blog/2023/03/22/its-really-not-rocket-science/ In that post Joanna Haigh, Emeritus Professor of Atmospheric Physics at Imperial College London said:
‘We are seeing extreme events almost everywhere – from record-breaking heat waves, extreme droughts, wildfires, storms and flash floods … even in traditionally temperate climates.
Some aspects of the climate are changing far quicker than predicted. In particular, the regions with the most ice are heating up very fast: Siberia, the Antarctic, the Arctic.
There are also potentially dangerous feedbacks that, if we reach various tipping points, could *tip our world into a period of runaway warming that we will be able to do nothing about.*
For example, satellite data has revealed increasing ice loss in the Greenland and West Antarctic ice sheets which might be irreversible beyond two degrees warming. This could *raise sea levels by more than 10 metres* which would inundate many coastal cities and create hundreds of millions of refugees.’
Colin Hines wrote “QE has never been used … to fund the kind of growth in economic activity the UK needs to rebuild its crumbling social infrastructure or adequately protect the environment. This will require hundreds of billions to be spent …
Richard, there is no time for Colin Hines’ prescription.
Here is what was recommended two years ago by Professor Steve Keen;
‘War’ footing needed to correct economists’ miscalculations on climate change
https://www.cnbc.com/2021/05/24/war-footing-needed-to-correct-economists-climate-change-failings.html
Key Points
• Economic forecasts predicting the potential impact of climate change grossly underestimate the reality and have delayed global recovery efforts by decades, a leading professor has said.
• Mainstream economists “deliberately and completely” ignored scientific data and instead “made up their own numbers,” Steve Keen, a fellow at UCL, told CNBC.
• Now, a “war-level footing” is required to have any hope of repairing the damage, he said.
“Fundamentally, the economists have totally misrepresented the science and ignored it where it contradicts their bias that climate change is not a big deal because, in their opinion, capitalism can handle anything,” Professor Keen told Street Signs Asia.
Keen said the repercussions of climate change were foretold in the 1972 publication “the limits to growth” – an incisive report on the destructive consequences of global expansion – but economists then, and since, failed to heed its warnings, preferring instead to rely on market mechanisms.
“If their warnings had been taken seriously and we had done as they had suggested, changing our trajectory from 1975 on, we could have done it gradually using things like a carbon tax,” he said. ”Because economists have delayed it by another half century we are, as a species, putting 3 to 4 times the pressure on the biosphere.”
“As a result, the only way we can reverse this is effectively by adopting a war-level footing for a massive mobilisation to reverse the amount of carbon we have put into the atmosphere. This requires us to drastically reduce our consumption.”
Referring specifically to a report produced by economists and the Intergovernmental Panel on Climate Change (IPCC), which was instrumental in outlining global climate targets including those presented at the Paris Agreement COP21, Keen said even their most severe estimates were a trivial under-estimate of the damage we expect.”
This is because *they completely and deliberately ignore the possibility of tipping points,” a point at which climate change can cause irreversible shifts in the environment.*
“I think we should throw the economists completely out of this discussion, sit the politicians down with the scientists and say these are the potential outcomes of having created that much of a change to the biosphere; we are toying with forces far in excess of ones we can actually address,” he said.
Keen’s comments come as world leaders wrapped up their final day of meetings at the Arctic Council – an intergovernmental forum covering wide-ranging geopolitical issues from climate to trade.
It is very difficult to quantify and that is why economists have made up their own numbers. I use the words ‘made up’ advisedly because they have simply pretended that 87% of industry will be unaffected by climate change because it happens indoors.
Nordhouse says in carefully controlled environments. He says all manufacturing, all services, anything not under a roof he reckons will not be affected by climate change. If that is right we have no problem. If it is wrong we are screwed, and of course this is a crazy bad assumption. The other is that he is assuming that that he can use the current patterns of weather, temperature and GDP. On that basis, argues that Maryland, just outside New York which is 10 degrees colder than Florida, will only suffer a 20% fall in GDP if its temperature rises by 10 degrees. But according to scientists if a 10 degree rise in temperature occurs, the entire band from 40 degrees North of the equator 240 degrees South will be uninhabitable by humans because heat exhaustion will be deadly for 50 days or more, even in New York.
Interviewer: The reality you are describing is worrying compared with some of the estimates that we have heard, so what kind of economic firepower needs to be thrown at the problem? Is there still time if we were to get more resources on the table here? If we had started this 50 years ago when ‘L limits to growth’ which is a far superior piece of research compared with anything done by economists subsequently, if the warnings had been taken seriously, changing our trajectory from 1975 on, we could have done it gradually using things like carbon taxes. Because economists have delayed this by half a century, we as a species are putting 3 to 4 times the pressure on our biosphere. We are not going to do it through market mechanisms. I think the only way we can do this is by adopting a war level mobilisation to reverse the amount of carbon we have put into the atmosphere. We have to drastically reduce our consumption now. That is the mindset we need. Unfortunately economists are encouraging the mindset of consensus, such as let’s take advantage of these new transport routes through the Arctic Ocean.
The economic section of the IPCC report was written by a mainstream economist, the maximum damage that it shows for a 3 or 4 degree rise in temperatures, is about a 15% fall in GDP. That deliberately and *completely ignores the possibility of tipping points.* Even their most severe estimate was a trivial underestimate of the damage we expect. I think we should get the economists completely out of this discussion and set the politicians to face, these are the potential outcomes of that much of a change to the biosphere.
I am sorry but I genuinely do not understand.
Are you saying that we do not need a green new deal?
Are you also saying that we do not need new housing, energy systems, transport, infrastructure, agricultural reform, and so on?
Are you suggesting that the infrastructure that underpins are assisting society can be abandoned?
Of course, we need transformation, can we use seriously suggesting that needs should not be met?
And, if you are, how do you think that your programme is deliverable?
What Colin is suggesting is a massive reorientation of the use of resources in society. My point is a simple one: is that wrong? Or is it simply not enough?
To precis Joe Burlington’s post is quite simple – the existential crisis facing this planet was foreseen over 50 years ago – growth. What he didn’t mention was the underlying momentum for this economic growth was of course the explosive growth in the human population.
Would there be the incredible pollution of our oceans created by rivers spewing chemicals and plastics into them possible if human numbers had not reached the unsupportable number of 8 billion and rising?
All the problems come down to this simple numbers game. All the questions you put in reply to Joe’s post can be answered simply, that the whole structure of modern societies have to change and change drastically. All the endless drivel about not enough working people to support an ageing population. There is if you eradicate all the parasitic and totally unnecessary occupations. How many consumer products are created because people are programmed to ‘want’ but not need. Look at how few people now are needed to fulfill an operation compared to just a few decades ago.
How long will it take for this bulge in elderly to die off, perhaps 15-20 years. Then the question wouldn’t be about building more homes but in knocking down considerable numbers and rewilding. If the one child policy had not been rigidly enforced in China there would now be an extra 400 million Chinese, that is virtually the whole population of Europe.
There was a time just a couple of decades ago when the population of Beijing used bicycles not cars, before China built massive industrial complexes to produce consumer goods for the West – there was little to no pollution.
Look at the obesity in the UK – fat unfit slobs eating junk food, drinking far too much alcohol. Replace with a population that eats sensibly, exercises regularly that walks or cycles where idiot Labour politicians don’t urge people to ‘go to the pub’. Noise is bad for health – walking and cycling don’t create noise or pollution. Think of the huge reduction in workload for the NHS not to mention the huge reduction in cost or loss of working days. The rentier class and the bailed out banks causing the absurd price of properties and rents properly controlled and this class collapsed and gone – Stress dissolved, people relaxed and enjoying life – think of the effect on crime as a whole, this huge cost reduced – saving after saving – not pie in the sky.
The insanity of commuting long distances to work, the huge amount of energy used, the loss of time for work and importantly time spent with families.
There is a huge restructuring of society needed, this is the real and desperately needed revolution that has nothing to do with outmoded politics or religion – does that answer your questions Richard?
I know all this
I have written all this
But let’s not pretend we will go through a transition, and that is only us we are lucky
It is nit possible to change everything now
And if we tried everything would collapse
Sorry. I want massive reform. I say so. So dies Colin. But we know basic questions like how do we pay fot it without total collapse have also to be answered
Your challenging questions appear in quotes below.
“I am sorry but I genuinely do not understand.”
I like your blog is because you use evidence – statistics, trends etc – and apply logic.
Too many politicians, use *unsubstantiated repetition* of vague concepts. They use slogans rather than presenting the evidence for necessary action.
During a Radio 4 interview, the late Lord Lawson shouted down a scrupulously careful Met Office scientist with ‘That’s speculation!’ again and again until the interview was abandoned.
I fear ‘growth’ is a ‘vague concept’ which politicians have used to avoid arguing for rational policies which are too easily ridiculed by employees of the likes of Rupert Murdoch – who uses a selection of news to entice enough readers to please advertisers. Most of the public are unaware, for instance, of the devastating floods in Malawi following cyclone Freddy.
“Are you saying that we do not need a green new deal? Are you suggesting that can be abandoned?”
We do need new deals – and yes, we need them to be ‘green’. The paramount need, though, is to cut CO2 emissions and I would start with the rich. They are excessively wasteful. (Look at what gets thrown away at your local recycling centre.) In addition, they have too much housing space. They travel too frequently, too fast and too far. The pollution is killing people directly now, and the way things are going, as James Lovelock pessimistically forecast ‘Billions will die.’ To give our children a fractional chance, *the imperative is to cut CO2 emissions enormously and immediately*.
In May 1940, when Churchill took over as PM he said: ‘We will fight on the beaches, in the towns, … in the hills. We will never surrender … If necessary (we will fight) alone! …
You and Colin Hines want promises of “new housing, energy systems, transport, infrastructure, agricultural reform, and so on.”
You are right that, we cannot abandon ‘the infrastructure that underpins society’. It must be funded. But a sea-level rise of one metre (let alone ultimately ten metres as Prof Haigh fears) would (will?) ruin agricultural production – and not just in East Anglia.
“Of course, we need transformation, can we use seriously suggesting that needs should not be met?” “What Colin is suggesting is a massive reorientation of the use of resources in society. My point is a simple one: is that wrong?”
The “massive reorientation” is right but I fear that, as a whole, it gives the wrong impression. The idea that we simply need to adjust what we are doing when what I think is needed is:
Energy rationing. UK petrol was rationed from September 1939. In March 1942, the ration for personal motoring (including travel to work) was reduced … to zero.
In addition, I advocate an examination of everything that uses energy and valuable resources.
Our children’s lives are at risk. Do we add to the risk by allowing, private flying, motor racing, speed boat racing, water skiing, Olympics and international sport? What else is allowed that should be judged against the lives of people who are suffering now, in Africa, Bangladesh, the Caribbean, the Pacific islands …?
In 1973, there was an OPEC crises. Ted Heath introduced a maximum speed limit of ‘50mph from midnight tonight’.
After Pearl Harbour in 1942, the US introduced a 35 mph speed limit on all roads. The limit remained in place until the end of the war.
In war-time, and for 5 or 6 years after, food was rationed. Fuel including electricity was expensive. People were careful with coal for heating (in open fires mostly). Parents insisted that no light was switched on in an unoccupied room.
Aluminium whether for planes, cars , fizzy drinks or anything else, is hugely energy-intensive to manufacture
“Or is it (the proposed Green New Deal) simply not enough?”
It’s a change of emphasis when what is need is a radical reorientation of our way or living – which has emerged gradually to depend on ownership of private cars – for instance. Supermarkets rely on car ownership. Village schools have been abandoned in favour of those that rely on cheap transport.
“And, if you are, how do you think that your programme is deliverable?”
Churchill did it somehow. He said *I promise nothing* but blood, toil, tears and sweat.’
Noted
But people will not go with you as yet I fear
So I am doing what I think possible
It may but be enough
But it is a long way better than where we are