The case for the Green New Deal

Green New Deal Group

The Green New Deal Group

• Larry Elliott, Economics Editor of the Guardian

• Colin Hines, Co-Director of Finance for the Future

• Tony Juniper, Environmentalist and SustainabilityConsultant

• Jeremy Leggett, founder and Chairman of Solar Century and SolarAid

• Caroline Lucas, Green Party of England and Wales MEP

• Richard Murphy, Co-Director of Finance for the Future and Director of Tax

Research LLP

• Ann Pettifor, former head of the Jubilee 2000, fellow, nef (new economics

foundation) and director, Advocacy International

• Charles Secrett, Advisor on Sustainable Development, former Director of Friends

of the Earth

• Andrew Simms, Policy Director of nef (the new economics foundation)

www.greennewdealgroup.org

The Green New Deal

• Published on July 21, 2008

• Inspired by Franklin D. Roosevelt’s New Deal programme launched in the wake of the Great Crash of 1929, the Green New Deal Group propose a modernised version is designed to tackle our current crash: the interlinked crises of climate change, recession and energy depletion.

• The Green New Deal Group combine expertise from the City, to the oil industry and the labour and environmental movements.

A Green New World?

A Green New World?

“Together, we face two crises: climate change and the global economy. But these crises present us with a great opportunity - an opportunity to address both challenges simultaneously. Managing the global financial crisis requires massive global stimulus. A big part of that spending should be an investment- an investment in a green future. An investment that fights climate change, creates millions of green jobs and spurs green growth. We need a Green New Deal.”

– Ban Ki-moon, UN Secretary General, December 2008

“We hereby propose the Green New Deal to help create more jobs, while at the same time realizing an eco-friendly economic growth ”

– Han Seung-soo, Prime Minister, South Korea, January 2009

“I received orders from the Prime Minister to draft a Green New Deal plan. The orders were to create something that would create jobs by the millions and will fundamentally change Japanese society.”

– Tetsuo Saito, Environment Minister, Japan, January 2009

A Green New World?

“We need to accelerate towards a green economy. We are talking about nothing less than the transformation of our economies in effect a global Green New Deal”

– Achim Steiner, Executive Director, UNEP, October 2008

“We need a Green New Deal to meet our carbon emissions targets and create jobs in renewable energy and green technology. We need an ambitious and coherent strategy for the future, which is matched by investment by Government to kick-start key projects.”

– Lord Chris Smith, Chairman, Environment Agency, November 2008

“The current volatility in global energy markets and the broader economic slowdown must not push us off-track from our efforts to address climate change. We must put in place the framework that will guide investment during the recovery and we must start the green infrastructure that will enable the sustainable economy going forward. We think there is an enormous opportunity to develop a ‘Clean Energy New Deal’ to achieve energy security, economic and environmental goals.”

- Nobuo Tanaka, Energy Director, International Energy Association, December 2008

What informed the development of the Green New Deal?

The need to address triple crunch –

• financial crisis;

• peak oil and

• climate change.

The need to build an alliance between

• industry,

• labour and

• the green movement –

to challenge the dominance of the finance sector over the real economy and the ecosystem

The need to adequately finance a response to these crises

First Risk:

Misunderstanding of money/credit

= Policy errors

The deep flaw in classical theory of economics:

That money (deposits/savings/credit/gold)

exists only as the result of economic activity.....

Economic activity generates saving, it is not constrained by

saving.

JM Keynes (and Adam Smith/John Law/Benjamin Franklin/Joseph

Schumpeter/President Roosevelt/ JK Galbraith):

“Credit creates savings/

deposits”

Keynes: Credit creates economic activity

Economic activity generates income

Income generates deposits/savings/tax revenues

With which to repay debt….

Nature of finance/credit

• Nature of credit highly peculiar. Very different from the point of view of

• an individual

and from the point of view of

• the system as a whole.

Nature of finance/credit

• Individuals cannot magic money from nothing. But the fact is the system as a whole can magic money from nothing.

• This money can be used to bring economic activity into existence.

In a monetary economy, the relevant consideration is the availability of finance not of

saving, and there is no necessary constraint on

finance.

(Geoff Tily, Keynes and the financing of public works’ August, 2009.) http://www.heterodoxnews.com/htnf/htn87/Tily%20Keynes.pdf

No constraint on finance

Orthodox mistake no 1: Money understood as a commodity….subject to ‘supply & demand’ ‘marginal utility’ etc…. ‘stock’ ‘velocity’… ‘circulate’

Bank money is not a commodity. There is no limit to the availability of bank

money.

It is not visible/tangible Unlike like oil

Or gold

Or tulips

Governor Bernanke’s ‘magic’

Ben Bernanke, Fed Reserve Governor, interviewed on CBS. 60 Minutes Show 15 March 2009, soon after Fed had made $160 billion available to AIG. Was it tax money?

Bernanke: "It's not tax money. The banks have accounts with the Fed, much the same way that you have an account in a commercial bank.”

Bernanke: “So, to lend to a bank, we simply use the computer to mark up the size of the account that they have with the Fed.”

Bank Money/QE issued by BoE – since Bank founded in 1694.

“Quantitative Easing” “Money Market Operations”

Credit/finance created by central banks: funding provided by the banks

Bank of England (indirectly through markets) financed UK government debt in 2009

• £200 billion QE: mainly ‘gilt’ or asset purchases. *

•UK govt deficit for 2009 = £177.6 billion. *

* Bank of England: Quantitative Easing: Asset Purchases. http://www.bankofengland.co.uk/monetarypolicy/qe/amount.htm

* UK Treasury: Pre-budget Report. Annex B: “The Public Finances”.

One week after Tsunami of March 11th the Bank of Japan made more than €2.6 trillion (30 trillion yen) available for Japanese ‘reconstruction’.

Governor Misaaki Shirakawa of the Bank of Japan

Keynes: Credit creates economic activity

Economic activity generates income

Income generates deposits/savings/tax revenues

With which to repay debt….

Major constraint on credit creation:

Credit creation must equal economic potential of the economy

Too much credit creation – too much money chasing too few assets, goods and services – creates inflation.

We are living through a period of the greatest asset price inflation in history – and orthodox economists do not bat an eyelid!

Too little credit = deflation

Falling prices leads to loss of income, leads to falls in profits, job losses, leads to more loss of income, tax revenues…a downward spiral of deflating economic activity.

Deposits/savings(or vaults of gold) are

needed tocreate economic activity.

Flawed orthodoxy ignores credit, argues that

“ We can only afford what is already in the bank in the form of savings/deposits/gold.”

Orthodoxy:

“What we can create, we can afford.”

JM Keynes

“National Self-Sufficiency” The Yale Review, Vol 22, no4 (June 1933), pp.755-769

Second Risk: Ignoring the multiplier

“Eventually, the debt has to be repaid, either by having higher taxes than would otherwise have been the case or curbing public spending.”

“Budgetary policy tools for economicRecovery.” Iain BeggEuropean Institute, London School of EconomicsLondon United Kingdom

“Markets provide the money states need to finance their debts.”

“Europe at the crossroads. Institutional Choices forSound European Public Finance” Prof. Mark Hallerberg, PhDHertie School of GovernanceBerlin, Germany

Government investment in public works generates income,

pays for itself

Government spending on public works generates:

• employment

•new savings

• tax income

• savings on welfare benefits

Just as work – paid employment – makes things affordable for the individual,

so full employment makes things affordable for government.

“Take care of employment, and the budget will take care of itself.”

John Maynard Keynes.

Keynesian monetary tools for recovery:

• Fix the banks • Orderly re-structuring of debts • Capital control

Keynesian monetary tools for recovery:

•QE – directed to sustainable green economic activity-

Not speculation!

Keynesian monetary tools for recovery:

• Low Interest rates – across the financial architecture: for safe, risky, short & long-term loans. Not just base rates.

Keynesian fiscal tools for recovery:

• Public investment • Employment creation• Multiplier creates income • Tax income pays the debt

its low, low rates of interest – short and long, safe and risky

Based on Keynes’ monetary policies (‘liquidity preference’) for maintaining low rates of interest rates. This implies low mobility of capital and an end to the privatisation of interest rates.

What is the Green New Deal?

It’s about

jobs, more jobs and secure jobs. And it’s about the skills and training to create and sustain them

In a time of recession, with unemployment already rocketing in the US, and growing here, shifting to green energy will produce countless new jobs, and create many more pound-for-pound of investment, than propping up the current system.

What is the Green New Deal?

The case for the Green New Deal

Green New Deal Group

http://www.greennewdealgroup.org/

http://www.debtonation.org

http://www.primeeconomics.org