Keynesianism And Green Economy

Keynesianism and green economy
One of the most striking features of the global financial crisis that emerged during 2008 was the degree of consensus that the overriding priority was to re-invigorate economic growth. From the International Monetary Fund to the United Nations Environmental Programme, from political parties across the politician spectrum, and from within both liberal andcoordinated market economies, the call was for mechanisms that would “kick-start” economic growth again.
The reason for this consensus is obvious enough. It flows immediately from the structural reliance of the economy on growth to maintain full employment. When spending slows down, unemployment looms large. Firms find themselves out of business. People find themselves out of a job. And a government thatfails to respond appropriartely will soon find itself out of office. In the short-term, the moral imperative to protect jobs and prevent any further collapse is incontrovertible.
But what about the long-term version? When the economy falters, the clarion call from every side is to get the economy “back on the growth path”. And this call is not just to increase the GDP. It is, for the most part, tostimulate consumption growth: to restore consumer confidence and stimulate high street spending. It is, in effect, a more or less united call to re-inspire the dynamics that will continue to drive unsustainable throughput.
Those inclined to question the consensus wisdom are swiftly denounced as cynical revolutionaries or modern day luddites. “We do not agree with the anti-capitalists who see theeconomic crisis as a chance to impose their utopia, whether of a socialist or eco-fundamentalist kind”. “Most of us in this country enjoy long and fulfilling lives thanks to liberal capitalism: we have no desire to live in a yurt under a workers’ soviet”. (“The green lining to this chaos”. The Independent, 2008. October, 12).
With that confusingly-attired bogey-man looming over us, kick-startingconsumer confidence to boost high street spending looks like a no-brainier. And internecine warfare is all saved for arguing over how this is to be achieved.
Kick-starting the economy
The whole point about a circular economy is that there’s no simple answer to this question.
There are multiple points of intervention. But none of them is risk free. The three main contenders are: to stimulatecredit to businesses and consumers (for example by cutting interest rates), to increase people’s spending power (for example by cutting taxes) or to increase public spending on jobs and infrastructure.
The first option more or less characterizes the way in which the consumer boom was built and protected for so long throughout the 1990s and early 2000s. There is a logic to it. Stimulating creditincreases the availability of investment capital to firms and at the same time reduces the cost of debt to consumers. We’ve seen already how crucial both of these things are in keeping consumption going.
But making credit easier and cheaper also played a critical role in creating the global financial crisis of 2008. The danger for the developed economies is that we are already at the limits ofconsumer indebtedness and face a sharply rising public sector debt as well. Pushing these any further stretches the boundaries of financial prudence.
Reducing the interest rate also reduces the incentive to save, at a point when the savings rate has collapsed to virtually nothing. This route appears to be an encouragement away from economic prudence by firms and households.
Perversely, this may workin favour of recovery, at least in the short term. One of the dangers of the second option, putting more money in people’s pockets, is that government doesn’t have control over where it gets spent. People are more inclined to save during recession. If your financial security looks threatened, it’s not a bad idea to have something put away for the future. Ironically, more saving is the last thing...