In my previous blog on the Huffington Post, I suggested the government print the money needed to transition the British economy from its addiction to fossil fuel into clean energy derived from renewable sources.
While people agreed with the dangers facing humanity due to climate change and the need for governments and society to tackle seriously our dependence on fossil fuel, the article was criticised, by some, on two points; (a) the inflationary dangers to the economy associated with printing money and (b) that it is not the business of government to do this and the market should be used as the instrument by which the transition to renewable energy should occur. Let me address these two serious points.
I am not an economist; my training is in engineering science. I believe, however, not being an economics expert is an advantage. Look at the mess the experts have got us into. I will start from first principles.
Before the advent of money, people exchanged goods and services within a small community, pooling their skills and expertise for the benefit of everyone. Money was invented to ease that exchange and to spread it more widely. It follows that if money is created by simply printing it and is given to people to spend on consumer goods that are, in the main imported, the result will be inflation, eroding its value.
If we take the 2008 economic crash, for example, a housing bubble was created by the banks printing money and financing mortgages recklessly, inflating house prices, thus creating an illusion of financial affluence for homeowners. Feeling affluent, people borrowed more money to spend, sucking in more imports until the inevitable collapse of the debt bubble.
If we, as a society, deem climate change the greatest threat facing humanity and that urgent action is needed to limit our CO2 emissions, then printing money to achieve that aim need not be inflationary because there is corresponding work associated with it, creating sustainable growth and boosting GDP. Systems will be manufactured, people will be employed, and opportunities for export will open up.
The stern report (2005) commissioned by Britain's Chancellor of the Exchequer concludes:
"Using the results from formal economic models, the Review estimates that if we don't
act, the overall costs and risks of climate change will be equivalent to losing at least
5% of global GDP each year, now and forever. If a wider range of risks and impacts
is taken into account, the estimates of damage could rise to 20% of GDP or more.
In contrast, the costs of action - reducing greenhouse gas emissions to avoid the worst impacts of climate change - can be limited to around 1% of global GDP each year."
There we have it, apart from the devastation unchecked climate change would wreak on the lives of hundreds of millions of people around the globe, it turns out that it is economically more advantageous to act to reduce emissions than to do nothing. Britain's 1% of GDP is equivalent to £16bn. Even if there is a risk of inflation, it is likely to be modest. Let us not forget the problem facing Europe at the moment is deflation, not inflation. In any case, if needs be, the government could start a reverse quantitative easing action to take back some or all of the £375bn pumped into banks.
Why am I suggesting printing the money? Because we all know that if one is to suggest the government borrows the money, or reprioritise its spending to find the 1% of GDP, nothing will happen.
On point (b) - leaving it to the market- the mechanism used in Europe for that is the European Emissions Trading System. "It was supposed to create a market for carbon, whose escalating price would force companies to abandon fossil fuels and replace them with less polluting alternatives". George Monbiot's Guardian article makes the point that as a result of the lobbying power of the fossil fuel industry, the price of carbon is kept too low to influence the industry's behaviour. In fact, the price of carbon needs to be in the region of 30 to 40 Euros per ton to make an impact, instead the price is 2.8 Euros per ton.
If anything, he argues, the system is making the situation worse as it means companies can carry on polluting and expanding their operations. The other point, of course, is that because renewables are only a small part of the energy market, fossil fuel companies have their finger on the light switch and that gives them immense leverage with politicians.
Advocates of "no state money in any enterprise" forget the considerable investment by the taxpayer to create valuable products and services before private enterprise was ready and willing to invest. Professor Mariana Mazzucato of the University of Sussex reminds us of some of these:
"Where would Google be today without the state-funded investments in the internet, and without the US National Science Foundation (NSF) grant that funded the discovery of its own algorithm? Would the iPad be so successful without the state-funded innovations in communication technologies, GPS and touch-screen display? Where would GSK and Pfizer be without the $600bn the US National Institutes of Health has put into research that has led to 75% of the most innovative new drugs in the last decade? The state's role in each of these cases was not just about correcting "market failures". What the state did was to take on the greatest risk, before the private sector dared to enter - acting as an "entrepreneurial" state."
I believe our descendants will face a bleak future if governments do not take serious measures, including printing money, to bring renewables to a point where they can challenge the fossil fuel industry. It is time to question, rethink, and confront orthodoxies.