Jonathan Harris of the Global Development and Environment Institute has a new post at Triple Crisis, Green Keynesianism: Beyond Standard Growth Paradigms, in which he argues that pro-growth policies need to find a way to deal with environmental/resource constraints. On the one hand, a lot of NC readers will find that argument to be welcome, if a bit overdue, since quite a few members have been arguing that growth-oriented economic policies need to acknowledge environmental constraints.
Having read Harris’ well-intended post, I’m increasingly convinced that environmentalists have it backwards. If you read Harris’ list, you’ll see his pro-environment recommendations are weak tea. For instance, he argues for green energy investments and “large scale building retrofit”. I know from the paper industry, and I suspect it is true for a lot of other industries, that retrofitting old, environmentally unfriendly plant is costly and not very effective, while building new and clean is actually pretty cheap once you’ve figured out how to do it. (One really important exception is water distribution, where municipal systems lose a huge percentage of potable water due to leaks, and patching and selective rebuilds would make a big difference. I hope readers will flag other big exceptions).
But the problem with “building new: is you get the Prius problem (that what looks environmentally friendly really isn’t). For instance, consider the idea of building light rail. How many neighborhoods do you have to rip down? How much does it take to get the materials to the sites? How much material, anyhow? How long does it take to build? How long does it take to get the needed usage level to have an impact? I assume we are talking a 15 year time horizon and we don’t have 15 years to start changing habits in a big way.
Similarly, there is a lot of emphasis on “green technology” which will take decades to be widely implemented (except for technologies already in production and at good efficiency levels, like solar panels).
The only solution that will make a difference in the next decade, particularly as far as climate change is concerned, where the runway is short, is by conservation. But business and most of the public believes that conservation will kill growth, and when the global economy is already weak, that is not perceived to be an acceptable solution. People will eat their seed corn if they are hungry.
So as unfair as it may seem, the only way to get aggressive enough pro-environment measures implemented is to develop an environmental program that is pro growth or at least not inimical to growth. And if you environmentalists turn up your nose at the list below, as I suspect many will, the onus is on you to come up with a better set of proposals. I have to confess I cringed at the “Large-scale building retrofit publicly financed but carried out by private contractors.” Without adequate oversight, that is a prescription for pork. Nay saying is not to stop the search for new growth ideas. Showing how serious conservation efforts can be attractive to businesses and communities might.
By Jonathan Harris, the Director of the Theory and Education Program at the Global Development And Environment Institute. Cross posted from Triple Crisis
In the wake of the global financial crisis, Keynesianism has had something of a revival. In practice, governments have turned to Keynesian policy measures to avert economic collapse. In the theoretical area, mainstream economists have started to give grudging attention to Keynesian perspectives previously dismissed in favor of New Classical theories.
This theoretical and practical shift is taking place at the same time that environmental issues, in particular global climate change, are compelling attention to alternative development paths. Significant potential now exists for “Green Keynesianism” : combining Keynesian fiscal policies with environmental goals.
But there are also tensions between the two perspectives of Keynesianism and ecological economics. Traditional Keynesianism is growth-oriented, while ecological economics stresses limits to growth. Expansionary policies needed to deal with recession may be in conflict with goals of reducing resource and energy use and carbon emissions. In addition, long-term deficit and debt problems pose a threat to implementation of expansionary fiscal policies.
I suggest that these apparent contradictions can be resolved, and that Green Keynesian policies offer a solution to both economic stagnation and global environmental threats.
Policies for Full Employment, Climate Stabilization, and Ecological Balance
What would a Green Keynesian policy mix aimed at a combination of economic and environmental goals look like? There are many options, but here are some possibilities:
• Increased hiring in public sector: teachers, police, transit and park workers, etc.
• Large-scale building retrofit publicly financed but carried out by private contractors
• Increased public R&D expenditures with accompanying higher education investment (like the “Sputnik” push for stronger science education in the 1950s)
• Major energy efficiency and renewables investment, partly public and partly incentivized private investment
• Investment in public transit and infrastructure
• Carbon tax or equivalent (cap & trade with auction)
• Recycle carbon tax revenues for energy efficiency, renewables, progressive rebates
• Infrastructure investment – hi-speed rail, public transit, green buildings
• Efficiency standards for cars, machinery, buildings
• Preferential credit or subsidy for energy efficiency investments
• Financial reform and re-regulation including the equivalent of Glass-Steagall “firewall” between basic banking and risky investments (another Keynesian precedent).
And at the international level:
• A Global Investment Fund for efficiency and renewable energy investment (like the World Bank but with a non-carbon energy focus).
• Integrated cap-and-trade schemes for industrialized economies with carbon credits for developing countries, including agriculture and forestry.
• Efficiency and renewables technology transfer, with waiver of intellectual property and WTO subsidy rules for least developed economies
• Microcredit schemes for local solar, wind, ecological preservation, etc.
This list of policies is by no means comprehensive, but it is meant to suggest the outlines for a new and more optimistic approach to economic policy. Just as the impact of Keynesian analysis helped to break through the seemingly intractable problems of the Great Depression, a revised and “greened” Keynesian vision can help us escape the daunting problems of economic stagnation, debt crisis, and global environmental threats that confront us today.
The needed theoretical and policy reorientation requires a turn away from the narrowed vision that has until recently characterized modern economics. The tools are available, drawing both on the historical tradition of Keynesianism and the modern vision of ecological economics, to guide a new social response that can mobilize the strengths of both human capital and technology to respond to economic, social, and environmental problems. The main difficulty lies not in the practical challenges, large though they are, but in overcoming the restrictive habits of thought that limit the scope of economic theory and policy.