RECESSION A Green New Deal Joined-up policies to solve the triple crunch of the credit crisis, climate change and high oil prices The first report of the Green New Deal Group Deal or he authors propose that
we should deal with these interlocked crises with no deal? twin strategies. First,
structural transformation of the regulation of national and international financial systems, and major changes to taxation systems"; SEAN THOMPSON and second, "a sustained
programme to invest in and deploy energy conservation and renewable energies, coupled with effective demand management." These strategies are fleshed out by a number of specific policy proposals, which include: a big reduction in the Bank of England interest rate; • tight controls on lending and on the generation of credit; • the forced de-merger of large banking and finance groups; • the divorce of retail banking from both corporate finance and securities dealing; • the reintroduction of government controls on capital flows; strict regulation of derivatives and similar spivvy wheezes: • the long term downsizing of the financial sector in relation the the rest of the economy; • an energy conservation programme (including a energy prices underpinned by an encroaching peak in oil production massive domestic insulation and micro CHP installation scheme and the development of renewable energy generation capacity;
an environmental reconstruction programme, along with the recruitment and training of the hundreds of thousands of workers
significant increases in fossil fuel prices on order to force energy efficiency and to make alternative energy sources more attractive; • the establishment of an Oil Legacy Fund, financed by a windfall tax on the profits of the oil and gas companies. The authors of A Green Nere Deal are right to say that the current crisis undermines the credibility of the whole neoliberal project. And they are correct to point out the need for good oldfashioned direct government spending and job creation, putting new demand into the economy through investing in infrastructure and public services. the scale and urgency of the environmental and resource aspects of the crisis, they are a good deal more far sighted than is the myopic norm among economists.
The New Economics Foundation recently published A Green New Deal, whose authors include Larry Elliot of The Guardian, Anne Pettifor of Advocacy International, and Caroline Lucas of the Green Party. In the pamphlet, they recognise what most other "experts' have signally failed to: that the current global crisis is a 'triple crunch' - a credit fuelled financial crisis, accelerating climate change, and soaring
In their recognition of
7 Their advocacy of a full blooded Keynsian approach in response to it has produced a more radical package of proposals than any currently on the desk of any finance minister or central banker.
However, the proposals have a narrow - if entirely understandable - focus on the immediate desire for economic stability and the urgent need for big reductions in carbon emissions. This is the result of two fatal flaws in A Green New Deal's analysis.
First, the pamphlet's authors fail to recognise the cyclical instability that is an inherent characteristic of capitalism, or the speculative impulse that lies at its heart. The fact is that it is the structural instability and impossible unpredictability of the financial system that is the prime mover of the credit crunch, rather than the sleight of hand of a relatively tiny number of spivs and hucksters.
As the Canadian economist Jim Stanford has said, "Capitalism is nothing if not creative and the financial industry has lured some of humanity's smartest minds to focus on the utterly unproductive task of developing new pieces of financial paper, and new ways of buying and selling them.
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8 Despite the finger pointing at mortgage brokers and credit rate, therefore, the current meltdown is rooted squarely in the innovative but blinding greed that is the raison d'être of private finance!'
It is, of course, true that the current global financial crisis has been triggered by the collapse of the credit fuelled property bubble in the United States. The bubble was the inevitable outcome of the financial deregulation of the late seventies and eighties that led to an enormous expansion of financial markets, an explosion of credit and the development of ever more exotic and arcane speculative vehicles. The globalised economy has become a giant Ponzi scheme.
In reality, this ready access to credit helped disguise the ongoing relative decline of western - particularly US and UK - manufacturing and the the hollowing out of their real economies. What this has led to is both an increase in personal indebtedness -currently £1.4tn in UK - and a dramatic inflation in the value of assets (stocks and Above: expanding hole in the melting polar icecap Below: traffic gridlock in Bangkok shares, houses etc.). As The New Green Deal puts it, this asset inflation 'explains why the rich have got richer within the liberalised financial system and the poor have become poorer and more indebted!
Second, A Green New Deal fails to deal with the issue of inequality that it identifies. Gas and electricity prices have risen by 30% in Britain over the last year, and over the past two years average disposable household income (after housing and all other bills are paid has dropped to £541 per month. Unemployment is rapidly rising and repossessions are currently running at more than a hundred a day.
A central plank of the Green New Deal strategy is that fossil fuel costs should be increased in order to make investment in energy efficiency and renewables more profitable and of course that would bear most heavily on the elderly, the unemployed and the low paid.
The pamphlet's authors' only response to this is to propose that the UK could set up an Oil Legacy Fund, paid for primarily by a windfall tax on oil and gas company profits, and that "Part of these increased revenues would need to be used to raise benefits for the poorest people in our society, who would otherwise be too adversely affected by such price rises during the transition to a low-carbon future." There is no mention of redistribution of wealth, merely a nod towards the amelioration of the plight of the very poorest.
And here we come to the key limitation of Keynesianism, whether green or any other colour: essentially it has always been about trying to stabilise a fundamentally unstable system rather than transform it. It seeks to civilise capitalism rather than challenge it.
A programme of infrastructural renewal much broader and more ambitious than that envisaged by the
RECESSION pamphlet's authors is needed. In order to gain active popular support it will be necessary to make full employment an explicitly central objective of government economic policy, along with measures aimed at reducing income and wealth differentials and safeguarding the homes of families threatened with reposession. In addition, workers affected by major changes in industrial strategy must be confident that their futures will be secured and improved, rather than threatened, by those changes.
So we should argue for the following measures which, taken together with a number of A Green New Deal's key proposals, constitute both a realistic programme for renewal and an assault on the primacy of the market:
The permanent extension of public ownership to all the clearing banks and their conversion into more responsive and democratically controlled institutions • The active development and promotion of alternative vehicles for the provision of credit, including publicly owned and accountable banks, local community banks, credit unions and other mutuals.
Government powers to direct the investment policies of the pension funds, including the requirement to invest a certain percentage of their funds into government bonds each year.
The implementation of an aggressive direct taxation policy aimed at steadily reducing income and wealth differentials. • The regeneration and
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The current economic crisis has led to a remarkable resurgence of interest in Keynesianism. Following Alistair Darling's pre-budget statement, Polly Toynbee wrote in The Guardian that "Keynes and Roosevelt are the world's spirit guides through this crisis". In an earlier article she asserted that "arguments now over Keynes or Hayek will determine the country's fate for years to come". Seumas Milne, writing from a more left-wing perspective, has claimed that it is not Marx who has really been rehabilitated in short RECESSION restructuring of our public transport system, including the return to public ownership of the railways and local and regional bus services. • A major programme of social housing construction and refurbishment by local authorities, housing co-operatives and housing associations in order to respond to the aspirations of the five million families currently on housing waiting lists. • Powers to enable families in mortgage arrears to tranfer the tenure of their homes to social tenancies. • Taking all large scale energy production and distribution into public ownership.
A programme of direct public investment in the conversion of existing engineering and construction component manufacturing to more socially useful production, the development of their productive capacity and a big expansion in relevant research and development.
An absolute guarantee of jobs and retraining with no loss of pay or security for workers having to redeploy from declining to expanding sectors as a result of the major changes in industrial strategy that are required
for example, the contraction of the motor vehicle, armaments and aerospace industries and the run-down and replacement of much of the existing electricity generation capacity. A Green New Deal has already, to some extent, been overtaken by events. The Bank of England interest rate has been slashed and a significant part of the banking system has been effectively nationalised. However, these actions have been taken in order to prop up a financial system at the point of collapse rather than to implement a more sustainable and equitable fiscal strategy.
If we seriously want to gain popular support for the programme of sustainable social and environmental reconstruction that is needed, we should be arguing that the policies we propose will constitute a war on poverty and unemployment right now, rather than just a programme of grants and benefits to ameliorate the worst of effects of peak oil on the poorest.
We must be clear, both to ourselves and to the mass of working people, who stand to gain from such a strategy and whose active support is essential for its successful implementation, that it will be necessary to challenge the domination of both the market and its powerful defenders - whether central bankers, EU Commissioners or the boards of multinational corporations. Many on the left will welcome the challenge posed by Keynesian ideas to the neo-liberal orthodoxies which have dominated the last two decades. However, it is important to recognise the limitations of Keynesianism as an answer to capitalist crises. 1 Keynes' ideas Keynes developed his 'general theory' of the economy in contrast to what he described as "classical' economics. The central tenet of the classical tradition in his view was "Say's Law', named after the eighteenth century economist Jean-Baptiste Say. This stated that since any good produced would generate incomes in the form of wages and profits sufficient to make up its purchase price there could be no generalised crisis of over-production. Individual goods might not be demanded as consumers shifted their preferences to other products; but there could be no overall glut of goods. As a result, Say and those who followed him including David Ricardo, the most influential economist in the years following Adam Smith