The FT reported yesterday that:
A coalition of Danish pension funds plans to invest $50bn in clean energy projects by 2030 in an effort to galvanise support from other institutional investors to fight climate change.
The Danish initiative, which is supported by Danish prime minister Mette Frederiksen, is led by PKA, a $45bn pension fund representing 320,000 members. Denmark's pensions sector has invested more than $19bn since 2010 in clean energy projects and measures to reduce the damage from pollution caused by the energy sector.
Peter Damgaard Jensen, PKA chief executive, who co-ordinated the pension coalition, said the fight to prevent a climate catastrophe was “the greatest challenge” facing the world.
Last week I wrote about funding the Green New Deal and mentioned the role that pension funds could play in this. The Danish investment, in a country one-tenth the size of the UK, suggests that almost all the funding we need could come from such sources in the UK. I have not been so ambitious. But the point is clearly made by Denmark.
And all pension funds might need to note this:
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The reality is “sort of” the other way around. For perhaps 5 to 6 years various Danish companies have been trying to persuade Danish pension funds to invest directly in RES projects. Companies active in this area include: Rockwool, Vestas, Orsted. I know this first hand, cos I met some of the pension funds with with above mentioned companies. The initiative by the pension funds could thus be considered an outcome of the hard work undertaken by Danish companies to make pension funds more “comfortable” with RES investments. Sadly, the UK lacks any RES companies of the stature of the 3 mentioned (all global players) & thus the educative process in the UK, vis-a-vis pension funds, may well be much slower.
Oddly & interestingly & on a related note, the Director General of DG Clima, Mauro Petruccione, at a conference earlier this year which I attended, claimed that green investments did not pay. I will leave readers to puzzle over this statement by a “leading light” in the European Commission. I have contempraneous notes btw.
Fair enough – but at least there is dialogue
If the government can create the money then why would we need pension funds (which reinforce inequality) to fund it?
This is similar to when you suggest that the an MMT government would continue to issue gilts? Why?
Because there is capital in society and it needs to be out to use
And creating new money to fund what can be done with existing capital would create inflation which would require contraction elsewhere in the economy
Whilst bonds are a productive way of controlling interest rates – MMT says so
The capital required isn’t the numbers on the screens of the pensions funds which have multiplied primarily due to fictionalisation though: it’s material and human capital which tangibly exists.
Using pension funds is obviously better than doing nothing but it has to recognised that it would drive inequality.
There is such a thing as financial capital and it has consequences
“And creating new money to fund what can be done with existing capital would create inflation which would require contraction elsewhere in the economy
Whilst bonds are a productive way of controlling interest rates — MMT says so”
I’m afraid that’s not correct.
1/ Creating new money instead of leveraging unspent capital is no more inflationary. MMT is clear on this. To suggest it is shows a misunderstanding of monetary operations and inflation causality. Pensions that remain unspent can not be inflationary. To use new money whilst leaving pensions unspent will not be inflationary unless you can show your working. The question, as always, around MMT is in the spending and the real resource availability – not in the money creation. You can create as much money as you like – it will not lead to inflation unless and until it is spent in competition on limited resources. If the pension funds start competing for the same resources, it could lead to inflationary pressures without a corresponding increase in output. A lot will depend on demand deficits within the economy because in low demand economies (sub-full employment), increased demands usually precipitates increased output rather than price rises – at least initially. We need to be careful in our explanations and not to fall into orthodox narratives around monetary operations and inflation.
2/ Bonds do not in themselves “control” interest rates. MMT is clear about the interest rate setting. It is determined by government through its central bank. It can always pay interest on its overnight reserves in order to hit its target. The natural rate of interest for currency-issuing governments is 0, as you know. Bonds are effectively corporate welfare and arenot required to finance budget deficits…. that is MMT 101.
Best wishes
With respect – you really do need to understand financial capital and its implications
Quite clearly you don’t
And the claim you can create as much money as you like is wrong – and MMT makes that abundantly clear
Thanks. It’s great to see Denmark take a lead again (especially here), but if a government were able to use MMT (as is Denmark, sovereign currency, tax paid in it), why would it want to use pension money instead of new money?
@qwertboi – indeed. It is also likely to be more inflationary for pension funds to invest this money as it will be looking for returns on capital which can surely only be paid for by higher prices downstream. As we fund their dividends, our costs rise…..will we not pass this on where we can? We’ve seen the same thing with PFI.
Actually creating money does NOT cause inflation. MMT is clear about that. Friedman has been proved wrong. I’m surprised you can’t distinguish between money creation and spending flows.
https://www.forbes.com/sites/johntharvey/2011/05/14/money-growth-does-not-cause-inflation/#5b743ae442f5
http://elliswinningham.net/index.php/2019/03/01/inflation-money-as-an-epiphenomenon-a-brief-rebuttal-of-henwood/
Or take this example: The government issues £3 trillion in new reserves to purchase a priceless (sic) masterpiece by Leonardo Da Vinci for the National Gallery. The money is deposited in the account of the seller, who never spends a penny of it.
Please show the macroeconomic effects of this reserve injection and its subsequent inflation.
Now shall we live in the real world?
Take Scott Fullwiler in the FT earlier this year who emphatically agrees that of course spending can create inflation
Maybe that’s because we can’t assume that recipients of spending do not themselves spend
Richard – I never said spending can’t lead to inflation. I said creating money doesn’t lead to inflation. Read my posts carefully. Now perhaps you can tell everyone the difference between money creation (vis Friedman’s quantity theory of money) and spending and why they shouldn’t be conflated.
You are also ignoring Professor Mitchell’s article – which is actually headlined “Printing money doesn’t cause inflation”.
People reading your responses will hopefully realise you have misread my comments.
The GND is all about spending
Politely, you are a very boring pedant
You deliberately missed my point, which related to spending and the government spending cycle, and then said I’d got my argument wrong
If you think that’s a way to advance MMT, you’re deeply mistaken
As it happens, many recipients of money don’t spend. The exact amount unspent is the fiscal deficit. Nothing to assume – figures are published monthly.
I do know about sectoral balances
And now let’s talk about the real people the GND will be spent on
And very politely, I suggest you join the real world when doing so because I find the type of extraction you offer boring from wherever it comes in the spectrum
Additionally – from the one person who should know that “printing money” doesn’t cause inflation:
http://bilbo.economicoutlook.net/blog/?p=13834
It can….
MMT agrees it can
The number of sources that say that is as long as your arm
With respect, it is a crucial distinction. To accept Friedman’s flawed analysis is to perpetuate his mythological nonsense around the QTM. Telling me to live in ‘the real world’ as a way of avoiding the distinction makes you appear rather intolerant. As an academic, I would have thought you would be open to criticism, however subtle, and see it as an opportunity to develop your own understanding. This is not pedantry – it is about framing. You should know about that, as you were on the ‘Framing the Debate’ talk with Bill Mitchell at SOAS. You act as if no one can teach you anything. I have posted links to numerous academic articles written by professors of economics which support my view and make the distinction, yet you revert to insulting me rather than accepting I was correct. Perhaps you think Matt Forstater, Bill Mitchell, Stephanie Kelton, Ellis Winningham, Randall Wray and Warren Mosler aren’t living in the real world either? Regards.
I was making the point that I was talking about spending in my piece and you discussed a different issue
That is pedantry to make a point
So with respect, my point stands
And you can infer nothing from my comment about you to imply opinion of others
If your are then, respectfully, the problem is all yours
Although I could add that Bill’s presentations at SOAS was one of the most turgid talks I have ever endured