Stuart Medina – The US Green New Deal and Modern Monetary Theory

During cop25 we are running a series of articles about the Green New Deal, which has nothing to do with Germany’s EU Green Deal.

Stuart Medina looks at the US Green New Deal from a Modern Monetary Theory perspective. The Green New Deal has absolutely nothing to do with the EU “Green Deal” otherwise known as the “German Green Deal”, which is designed to support international corporations – and doing little to stop climate change.

Stuart Medina Miltimore is an economist. He is a founder of the Spanish Association Red MMT and has contributed to the dissemination of Modern Money Theory in Spain by publishing two books, La Moneda del Pueblo and El Leviatán desencadenado. Siete propuestas para el pleno empleo y la estabilidad de precios. Veintiuna razones para salir del euro.

Cross-posted from Stuart’s blog red mmt

Translated by BRAVE NEW EUROPE

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Congresswoman Alexandria Ocasio-Cortez has presented a proposal for a resolution that urges the Federal Government to take on an unprecedented plan to transform the energy and production model by adopting initiatives that would create stable and quality employment. The document is available online (Ocasio-Cortez, 2019).

The long-term goal is to achieve zero net greenhouse gas emissions. This means that it is intended to minimize them as much as possible because, for those activities in which it is not possible to bring them to zero, they will be compensated with initiatives that sequester CO2. For example, it is unlikely that, in the state of development of our current technology, zero-emission aircraft can be developed. A partial solution would divert part of the air traffic to new high-speed trains on some journeys, accepting that the long-distance ones will still have to be made by air. Getting the US to reduce its net emissions to zero is crucial because the country is responsible for 20% share of all global emissions.

In order for it to receive the social support of the majority, the plan must be inclusive. Unlike the conventional environmentalist approach, the energy transition is intended to create jobs for all and not to marginalize the casualties of activities that must be abandoned. Therefore, the GND has to be associated with the generation of millions of well-paid jobs under decent working conditions. The programme is intended to help reduce discrimination on the basis of gender or race. In order to combat unemployment and underemployment of groups traditionally excluded from the labour market, a job guarantee plan complementary to the GND will be created to execute some of the projects for the recovery of degraded environments and the improvement of infrastructures.

The GND envisages a massive investment to modernize degraded U.S. infrastructure with new affordable and accessible public transportation networks including high-speed rail, where the U.S. lags behind other nations.

The energy distribution infrastructure will be expanded and modernised to make it more efficient and based on intelligent and distributed networks to guarantee universal access to economic and reliable energy.

It is also intended to modernize the entire housing stock to ensure that buildings are more efficient in the consumption of water and energy, safe, economical, comfortable and durable.

The GND should promote projects that ensure universal access to clean drinking water, clean air, healthy food, and nature.

In addition, funding will be provided for constructions that can withstand the impact of climate change disasters such as storms or floods.

Investment will be made in existing industries and the development of clean manufacturing will be encouraged to eliminate pollution and greenhouse gas emissions through the expansion of renewable energy generation.

In collaboration with farmers and ranchers, the aim is to eliminate pollution and gas emissions from the sector wherever technology allows, investing in sustainable agricultural and land use practices to improve soil health, while supporting family farms. These projects must contribute to guaranteeing universal access to healthy food.

The use of conventional but proven technologies in the restoration of natural ecosystems will increase soil carbon sequestration, for example through soil conservation and reforestation as well as the afforestation of areas that previously had no tree cover. It also aims to restore and protect threatened ecosystems through projects that facilitate biodiversity and resilience to climate change. Abandoned sites contaminated with hazardous waste will be cleaned up to ensure their economic development and sustainable use.

At the international level, technology transfer will be facilitated between countries, especially to the less developed ones. But there is also a commitment to implement international trade rules, supply standards and border adjustments that guarantee strong protection of labour rights and the environment to stop the transfer of jobs and pollution and encourage domestic manufacturing. These initiatives are in line with ensuring a business environment in which businesses are not exposed to unfair competition and the domination of international monopolies.

It is also intended that the execution should not be done from a mammoth centralized bureaucracy. For this reason, funding will be provided to local administrations so that they can develop their own projects, those that they consider most urgent and useful for their communities. Nor is it intended to expel the private sector from economic activity but to involve it in projects initiated by the State and local corporations, generating new business opportunities and creating a powerful aggregate demand that will attract investment.

How is it financed?

Undoubtedly, the programme is surprisingly ambitious and we recognise that there are almost insurmountable political challenges. But Bernie Sanders’ recently announced candidacy for the U.S. presidency has also signed the GND. Yet it is clear that political resistance will be fierce.

One of the main objections already opposed by conservatism is how to finance it. The investment that the GND would require would be spectacular and, therefore, for a person trained in neoclassical economic thinking, it would be natural to wonder where the money will come from.

From the perspective of Modern Monetary Theory (MMT), to which Alexandria Ocasio-Cortez adheres, this problem is relatively trivial. The brief and simple answer is: in the same way that the USA or the USSR financed their war effort to defeat Hitler. If to make war it seems that resources were never scarce, let’s declare war on climate change.

From MMT we know that the State creates money when it executes its spending policies; also that taxes do not finance the State but serve to force the population to eagerly seek and accept the money issued by the State. Taxes are an obligation to return to the State that which was previously given to the population in exchange for the resources that have been used for public purposes. Therefore, public expenditure necessarily precedes taxes which simply destroy the money created by the State at an earlier stage. The monetary and fiscal system is a well-engineered mechanism for transferring resources to the State. Therefore the answer to the question that worries many people is simple to answer: the money will be created when the State executes the spending policies associated with the GND.

Since the state can always create money out of thin air, it will always be able to channel resources to such public ends as the GND. This does not mean that a government can spend without limits. They exist, and these are the availability of resources that can be used for these purposes. As long as there are idle raw materials, underutilized manufacturing capacity and unemployed people, it will be possible to use them for the purposes decided by the State.

But many will object, wouldn’t that be inflationary, even hyperinflationary? If those idle resources begin to run out then we could expect an inflationary process. But, as long as there are cohorts of unemployed or factories that do not reach the limit of their productive capacity, the GND will not necessarily create bottlenecks. If prices remain stable, the government can continue to mobilize resources to meet the GND’s objectives. Should inflation appear, then the state could choose to curb or adapt its spending policies or raise taxes to force the private sector to give more resources to the state. Choosing one or the other strategy, or a combination of both, will be a result of the democratic process. But, after decades of underutilization of resources and several years of deflation in many advanced nations, this fear seems premature. On the other hand, the State has ample capacity to manage demand and supply in order to avoid the generation of inflationary bottlenecks and conflicts over the distribution of rents.

To illustrate the above: let us suppose that the works of insulation of houses produced an increase in the prices of construction material. In this case the state could choose to slow down the rate of adaptation of the buildings. But it could also encourage the research and development of new insulation materials and technologies; finance the creation of new building material factories; open markets to the import of these products; or raise taxes on private construction to free up resources that could be used for works promoted by the public sector.

On the other hand, an intelligently designed GND is a powerful supply policy that, by increasing the efficiency of production processes and recovering degraded environments, allows for the release of new resources previously wasted, unused or neglected. The GND could increase the availability of energy, water, soil and raw materials for the whole of society by lowering its cost and in a more sustainable way.

Sad Joyless Spain

There are elements of the Ocasio-Cortez plan that recall initiatives that were tested in Spain at the beginning of the century that the US could emulate. The development of high-speed railways (AVE) and renewable energies helped to incubate new technologically advanced industries. When the first line of the Madrid-Seville AVE was built, the railway material manufacturing company Talgo could not win the tender for the rolling stock but the perseverance of the State in developing a leading railway network justified the company’s investment in the technology that allowed it to later participate in the high-speed line project from Madrid to Barcelona. The first contract was awarded to foreign multinationals but, thanks to the continued commitment to the development of the AVE, Talgo was able to commit resources to develop new technology, win supply contracts to new State tenders and become an international competitor in railway technology.

It has been rightly criticised that the Spanish high-speed model benefits a small number of passengers and it is likely that another railway model that opted for a denser network with cheaper prices – instead of luxurious trains for rushing executives willing to pay higher fares – would have resulted in a more equitable service that would have benefited the territory in a balanced way. Despite this justified criticism, Spain is currently competing for the construction of high-speed lines in countries such as Saudi Arabia or the United States. This leap would not have been possible without the State first pointing out a development path to companies.

In general, the transport sector is one of the success stories of the Spanish economy. With 2,231 companies employing 176,332 people, they invoiced almost 70 billion euros in 2014 and represent 12.3% of the country’s gross industrial added value (CDTI, 2017). It is also the leading Spanish export sector and executes almost a third of all R&D investment in the private sector. The State’s impulse to this sector was unfortunately abandoned when the nefarious austerity policies imposed by the European Union from 2011 onwards were inaugurated. The success of this state intervention is indisputable, so one wonders why this type of programme is not continued.

Triste España sin Ventura (Sad, joyless Spain) is an elegy composed in 1497 by the musician Juan del Encina to mourn the death of Prince Juan. This inopportune event would end up leaving the kingdoms of Spain in the hands of a foreign monarch, thus opening a stage of involvement in endless Central European conflicts that would end up bleeding Castile. The death of the Prince is a perfect metaphor that symbolizes a country that seems condemned to repeatedly engage with its geostrategic environment at the wrong time and contrary to its true interests.

Within the restrictions imposed on public spending by the Maastricht Treaty, Spain lacks the fiscal autonomy that would allow it to finance an ambitious Iberian GND. Our previous commitment to a renewable energy industry was aborted as a result of the sovereign debt crisis in the southern European countries.

What if it were financed from the EU? Certainly the European Central Bank could pay for a European GND although I oppose serious drawbacks to granting so much power to an entity without a democratic mandate and with a supposedly independent and, of course, non-transparent decision-making process. It is not the mission of a central bank to become the executor of fiscal policies and to accept it would lead to dictatorship. On the other hand, it is inconceivable that the ideological framework in which the European elites propagate should make such an ambitious proposal, equivalent to a European Marshall Plan, possible. Implementing a GND in Spain would be tantamount to a revolution for which the conservative elites are not prepared. Neither are their European peers yet, and always in love with a fiscal conservatism, that is nought else than the reverse of the impoverishment of the working classes.

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