“If we are to survive earth systems breakdown, then we must begin by transforming the Treasury and by removing the politicians that threaten the futures of today’s younger generations.” Ann Pettifor writes on the British Chancellor’s recent attack on ‘net zero’.
Ann Pettifor is a Director of Policy Research in Macroeconomics (PRIME) and a Council Member of the Prgressive Economy Forum
Cross posted from Progressive Economy Forum
It took a child, Greta Thunberg, to alert much of the adult world to the catastrophic threat posed not just by climate breakdown, but earth systems breakdown. Sadly her voice did not reach one of the politicians responsible for defending the nation’s security: Philip Hammond. Watching the Chancellor attack the Prime Minister for wanting to invest a smidgeon of Britain’s annual income in the future survival of the nation, it’s hard to believe that it is now eighty three years since John Maynard Keynes invented the field of macroeconomics. We have had eighty three years in which to train Treasury economists to think in terms of the aggregate economy, and we still have a Chancellor that views the economy through the wrong end of a telescope – as if it were a household.
From Keynes’s macroeconomic perspective, the public sector finances are not analogous to household finances. Keynes turned Say’s Law on its head (CW XXIX, p. 81):
“For the proposition that supply creates its own demand, I shall substitute the proposition that expenditure creates its own income”
Given spare capacity, public expenditures not only are productive in their own right but also foster additional activity in the private sector, according to the multiplier. Increased employment means increased incomes, which, from the point of view of government, means higher tax revenues and lower welfare (and, later, debt interest) expenditures.
Now one can just imagine how intellectually challenging it would be for #spreadsheetPhil to accept that “expenditure creates its own income”. It does not do that for individuals, or even households, he will argue. Quite so. But the collective sum that is government expenditure, if invested in the creation of a skilled, well-paid ‘green carbon army’ would generate considerable income for government – and would help ensure the survival of life on earth.
£1 trillion pounds invested between now and 2050 would be a paltry share of Britain’s annual income. It would amount to about £33 billion a year, which is roughly 1.5% of current GDP. But that figure has little regard for the aggregate impact of that spend – which, thanks to the multiplier, would generate additional income – not just for the employed, but also for the Treasury.
That is the context in which to discuss the Prime Minister’s suggestion that we have until 2050 to set a net zero target. We should note in passing that net zero does not mean zero emissions. In contrast to a gross zero target, a net zero target allows for some residual emissions as long as these are offset through ‘negative emissions’ – taking CO2 out of the atmosphere through natural (e.g. planting forests) or technological means.
But, as Professor Anderson notes, “unless we’re incredibly lucky with these new negative emissions technologies – which don’t yet exist” we won’t be able to achieve net zero and limit global warming to 1.5C. This makes the situation even more urgent:
“We have a handful of years to make some very rapid and radical changes. We know what we need to do. We know it’s all of our responsibility to engage with this. We have everything at our fingertips to solve this problem. We have chosen to fail so far but we could choose to succeed.”
“We have chosen to fail so far”. That is a damning indictment of the British Treasury. The Climate Change Committee has concluded that the economic case for action to achieve net-zero emissions by 2050 – which, again, may not be enough – is fully justified. But only if the Treasury consistently acts to fulfil the 2050 objective. Instead the Chancellor has chosen to sow uncertainty, as Dimitri Zenghelis argues, and that has undermined the Prime Minister’s timid steps towards a net-zero target by 2050:
“The Chancellor’s comments have, highly regrettably, already undermined this objective and raised the policy risk premium attached to decarbonisation investments… The most crucial characteristic is that these costs are a function of the decisions we make now. The more coordinated our response to managing a zero-carbon transition, the cheaper it will be. The costs will be largely determined by the extent of public support for low-carbon innovation, government working in partnership with business to develop and deploy the required new technologies at the necessary speed and stimulating the consumer demand to pull these technologies through markets at scale.”
So, like one of Dickens’s mean-spirited characters, Philip Hammond’s penny-pinching will not just threaten the climate security of the nation – it will increase the costs of tackling that threat in the future. Like William Nordhaus, the Treasury seems to think that the cost of mitigating climate change is higher than not mitigating. The preference therefore is for the ‘cheaper’ version: climate breakdown.
If we are to survive earth systems breakdown, then we must begin by transforming the Treasury and by removing the politicians that threaten the futures of today’s younger generations. As Greta Thunberg explained in a speech to the Vienna Climate conference earlier this month:
“We must acknowledge that we do not have all the solutions now. We must admit that we do not have the situation under control. And we must admit that we are losing this battle. We must stop playing with words and numbers because we no longer have time for that.”