The Climate Change Crisis has reached such dangerous proportions that we all have to alter our mode of living and thinking. We at BRAVE NEW EUROPE too, will in the future (actually we began a few weeks ago) concentrate on this topic and invite you to join us. To be honest, we do not have any choice, so the sooner the better.
This is an extract from a chapter in Economics For the Many (Verso, 2018) edited by Rt. Hon. John McDonnell MP. The chapter was written in August, 2017.
Ann Pettifor is a Director of Policy Research in Macroeconomics (PRIME) and a Council Member of the Prgressive Economy Forum
Cross posted from the Prime Economics
If we are to secure a sustainable, stable and liveable future for the people of Britain, then implementation of the Green New Deal will be vital. Not just for the sake of the ecosystem, but also for the sake of rebuilding a stable, sustainable economy.
The era of procrastination, of half measures, of soothing and baffling expedients, of delays, is coming to its close. In its place, we are entering a period of consequences.
Winston Churchill, 12 November 1936
Introduction: the flawed economic theory and language of endless ‘growth’.
Within nature, plants, animals and humans are seeded, or born. They mature. And then they die. Not so for an economic concept that grips the economic profession: ‘growth’. Behind the concept lies an implicit assumption: that the expansion of economic activity can be and is, limitless; that it will move relentlessly in an upward trajectory. It is a concept that drives capitalism’s globalisation ambitions: the need to continually expand and disrupt new markets, lower labour costs and make capital gains – for the few – from rent-seeking and speculation.
The concept of “growth” was adopted relatively recently by the economics profession. Its adoption served in part to dismantle the Bretton Woods economic order (a system that had led to a ‘golden age’ in economics) in 1971; and to facilitate the globalisation and financialisation of economies.
In an essay: The National Accounts, GDP and the ‘Growthmen’ Geoff Tily, the TUC’s chief economist, explains that the concept evolved as recently as 1961. OECD technocrats were encouraged by economists like Financial Times columnist, Samuel Brittan to promote policies that would turbo-charge the economy. At the time, Britain was in the happy position of providing full employment to her people. Macmillan’s 1957 comment that Britons ‘had never had it so good’ still rang true. The ‘growthmen’ as they called themselves were nevertheless discouraged by these high, sustainable levels of employment and economic activity. It is my view that they were frustrated because profits made in the ‘real’ economy were not as high as the capital gains that could be made through financial speculation. The question was: how to turbo-charge profits? The answer: accelerate ‘growth’.
Samuel Brittan’s The Treasury under the Tories, 1951-1964 reads like a manifesto for the ‘growthmen’ (his label, p. 141). He records that the OEEC became the OECD on 30 September 1961; on 17 November, the OECD agreed a fifty per cent growth target for 1960-70 – a rate of change of a continuous function. This target was to be applied to Britain.
At about the same time, on 12 September 1961 the Council of the OECD adopted their ‘Code for Liberalisation of Capital Movements’, presumably intended to fuel the ambition of rapid and relentless ‘growth’, regardless of the extent of capacity in the labour market. The result? High rates of inflation, often blamed on trades unions. But also, and in the broadest sense, intensified exploitation of the earth’s finite assets in order to achieve ‘growth’ targets. The consequence was ‘globalisation’ – the financialisation of the global economy. This in turn led to rises in global production and consumption – and in toxic greenhouse gas emissions,
The good news
Big business is waking up to the threat posed by climate change to future economic security. Clean energy investment (excluding nuclear and hydro) rose from about $60 billion per annum in 2004 to hit a record of $349 billion in 2015. At the same time, clean energy prices plummeted around the world. And although investment in clean energy fell in 2016, the number of renewable energy installations rose by 9%.
China is now leading the world and the Asian region by expanding investment in clean energy. Thanks largely to Chinese production, solar PV modules costs have fallen – by 99% since 1976. Wind energy costs are down by 50% since 2009. Nuclear energy now costs about $140 per kilowatt hour as opposed to wind energy costs of just $34 per kilowatt hour, according to Bloomberg’s Michael Liebreich. And the costs of maintaining clean energy installations are much lower than those of dirty fuels.  The efficiency of cars has improved substantially over the last eight years, and will improve further as electric cars gain a foothold in the market. A car is no longer the status symbol it once was. If more is done by way of city planning to facilitate walking, biking, carpooling, trains and buses, then reliance on cars will diminish further. The growth of energy efficiency in lighting too has been dramatic. LED lighting uses 90% less energy than traditional incandescents and has the potential to transform lighting systems around the world.
As a result of these developments, the global energy sector is at a tipping point – potentially an “accelerating non-linear transition”.This is occurring as public opinion moves towards a greater understanding of the climate change threat. Despite much disinformation, including from President Trump, a Gallup poll shows that 68% of the American public now believe that climate change is down to human activity. In Britain 64% believe that climate change is mainly the result of human activities.China’s leaders have declared a “war against pollution” in big cities, because pollution poses a grave threat to social and political stability. Two thirds of China’s new energy capacity in 2015 was in renewable energy. In India the cost of solar power is now cheaper than coal. In an extraordinary campaign to rid the country of nuclear power, Germans have saturated rooftops with solar power, while expanding thermal power.
But while Britain will benefit from the move towards alternative and more efficient energy sources, there is one area in which progress has not been made: in space heating. One of the biggest challenges a Labour government will face stems from the poor thermal performance of Britain’s old housing stock.
There are about 27 million households in the UK with a wide range of properties, most dating back to the Victorian era. This has led to a legacy of some of the least thermally efficient housing in Europe. The UK ranked 11thout of fifteen European countries in terms of housing energy performance; and the UK had the highest proportion of households in fuel poverty of all the fifteen countries assessed. And fuel poverty levels are rising, partly because of pressures on household incomes, but also because of rising energy prices.The level of fuel poverty is highest in the private rented sector (21.3 per cent of households) compared to those in owner occupied properties (7.4 per cent). 
Mobilising a ‘Carbon Army’
However, while the state of the housing stock will make it a challenge to meet carbon reduction targets – it is also a great opportunity.To address this challenge will require the devolution of energy, as argued in Labour’s manifesto: Protecting Our Planet. We argue that Labour should go further, and ensure that every oneof Britain’s 27 million households becomes a power station, so that energy efficiency is maximised.
To achieve this goal will not only require sound scientific advances and data, but also appropriate materials and equipment – much of which is available or can be constructed in Britain. Above all, retrofitting and making Britain’s housing stock energy secure will require the recruitment and training of a ‘Carbon Army.’ An army of highly qualified, skilled and unskilled workers to undertake a vast environmental reconstruction programme: because a Just Transitionto a decarbonised economy will be a labour-intensive transition.
The training and recruitment of a high-skilled, well-paid ‘Carbon Army’ must be part of a wider shift from an economy narrowly focussed on financial services, and on low-productivity, low-paid insecure jobs to one that expands productive activity, and is an engine of environmental transformation.
Furthermore, the establishment of such a ‘Carbon Army’ via both public and private investment would in effect, pay for itself,as I argue below. A report by Cambridge Econometrics and Verco concludes that the economic case for making the energy efficiency of the UK housing stock a national infrastructure priority is strong.In addition to making all low-income households highly energy efficient, and reducing the level of fuel poverty, their modelling has established that this energy efficiency programme would deliver:
· £3.20 returned through increased GDP per £1 invested by government
· 0.6% relative GDP improvement by 2030, increasing annual GDP in that year by £13.9bn
· £1.27 in tax revenues per £1 of government investment, through increased economic activity, such that the scheme has paid for itself by 2024, and generates net revenue for government thereafter
· 2.27 : 1 cost benefit ratio (Value for Money), which would classify this as a “High” Value for Money infrastructure programme
· Increased employment by up to 108,000 net jobs per annum over the period 2020-2030, mostly in the service and construction sectors. These jobs would be spread across every region and constituency of the UK.
That is the strong economic case for mobilising a ‘Carbon Army’ to achieve both climate security and poverty reduction.
How can Labour finance the transformation of the economy?
To kick-start investment in the Green New Deal will require the next Labour government, in cooperation with the monetary authorities, the Bank of England, the Treasury and the Debt Management Office (DMO) – to sell valuable assets in the government’s possession. Thanks to the founding of the Bank of England in 1694, and ever since then, British governments have not had to resort to taxation to finance investment and spending. Instead finance has been raised by the sale of public assets backed by Britain’s 31 million taxpayers. These are known as government gilts or bonds. These government assets are in great demand because governments like Britain with sound tax collection systems and strong institutions are regarded as the safest destination for investors. Both individual investors, but also big institutional investors like those that manage pension funds and insurance companies.
The sale of gilts has served as the time-honoured way in which governments have financed wars, infrastructure, spending and recently, private bank bailouts. Given the security threat that climate change threatens, financing the Green New Deal should be undertaken in the same way, and with the same urgency as the financing of a war to defend the nation’s security.
If the finance so raised is used to invest in productive activity that leads to skilled, well-paid employment in both infrastructure and services, then the ‘multiplier’ will kick in. Employees will pay taxes – for all the years of employment. Years of tax-paying employment will mean that returns to the Treasury (via HMRC) will ensure the investment will pay for itself. Once employed, and by spending on housing, food and clothing, employees will increase government tax revenues (e.g. VAT) from firms and other sources. Profitable firms will pay higher corporation tax, and so on. In other words, the investment in full employment will not only generate tax revenues from the employed, but will also ‘multiply’ tax revenues from other sources. These higher tax revenues can then be used to pay down the public debt associated with the gilts or bonds issued to finance the Green New Deal.
Indeed, only full employment can balance the government’s budget. “Look after employment” the great John Maynard Keynes once said “and the budget will look after itself.” 
What will the Green New Deal cost?
We estimate that to implement the Green New Deal could cost at the minimum, about £40 billion a year, for many years. This level of investment would help finance the transformation to sustainable energy sources and transport; to retrofit the housing stock and for flood protection. In 2016/17 public investment was approximately £73bn gross (about 4% GDP). If this was raised by £40bn – to £115bn a year gross (or about 6.0% GDP) this would be comparable to the mid-Thatcher years, 1984-5 when gross investment was 6% of GDP. Raising public investment to this level would place Britain in line with Germany and the US where current levels of public investment are at 6% of GDP.
In other words, governments have invested at this rate before, and can do so again.
Is there no money?
“But….but” says the reader: “I’m afraid there’s no money.” So wrote Liam Byrne MP, in a note for his successor on leaving the Treasury, 6 April 2010. Byrne was doing no more than echoing Mrs Thatcher, who in a speech to Conservative Party Conference in October, 1983 said:
“The state has no source of money, other than the money people earn themselves. If the state wishes to spend more it can only do so by borrowing your savings, or by taxing you more. And it’s no good thinking that someone else will pay. That someone else is you.”
“There is no such thing as public money.
There is only taxpayers’ money.”
Her flawed understanding of the public finances was subsequently echoed by David Cameron on the campaign trail, 6 April, 2015. “We know that there is no such thing as public money – there is only taxpayers’ money”.
It is this flawed economic theory – that all spending is financed from taxation, that the government has no other source of financing, and that like a household, it has, under all circumstances, to ‘balance its books’ between expenditure and tax income. But governments are not like households, and have other sources of finance. The Treasury working closely with the monetary authorities could finance the Green New Deal without having recourse to tax revenues. In fact, tax revenues (from, for example, increased employment) would be a consequence, not a source of government investment.
Mrs Thatcher’s flawed economic ideas are tacitly supported by professional and academic economists, including those at the Treasury, the OBR and the Institute of Fiscal Studies.. It is a flawed theory that has had disastrous consequences, as witnessed by ‘austerity’ in Britain and Europe. It is economic theory that has delivered a severely weakened British economy, while at the same time it has led to a rise in public and private debts.
That has not been the approach since 2010. As a result Britain has high, and still rising levels of public and private debt. And because of‘austerity’ the government’s ‘books’ are not balanced. The country is excessively reliant on one leg of the economy, consumption. Britain’s trade terms are dangerously out of balance with the rest of the world. The UK has one of the lowest levels of private and public investment in the OECD, and has suffered the slowest ongoing economic recovery in history. High levels of low-paid, insecure employment in low productivity work is further weakening the economy.
As a result of these imbalances and of economic weakness, Britain suffered social and political unrest. This was most clearly manifest in the referendum vote for Brexit.
Labour needs a Green New Deal to build a sustainable, stable economy
If we are to secure a sustainable, stable and liveable future for the people of Britain, then implementation of the Green New Deal will be vital. Not just for the sake of the ecosystem, but also for the sake of rebuilding a stable, sustainable economy. A sustainable economy will be one dominated by a “Carbon Army’ of skilled, well-paid workers. Workers that will help substitute labour for carbon, and that through employment will generate income. Income needed by households to be used, for example, to pay down debts and afford homes. Income needed by e.g. wind farmers or other environmentally innovative firms, both for profits, but also for investment. And tax income needed by government and local governments, to reduce public debt and finance public services.
Only implementation of the Green New Deal can ensure a more stable, more sustainable economy. One that will generate the finance and income needed to transform the economy away from fossil fuels.
What we can do, as Keynes once argued – within the limits of our imagination, intelligence, muscle, and within the limits of both the economy and the ecosystem – we can afford.