Sunday, November 02, 2008

Green Keynesian Economics

With the world falling into its first truly global recession, it is fascinating to see how quickly the theories of John Maynard Keynes have regained their political sway. Loyal readers of this web log may know that not only do I have a long standing admiration for the work of Keynes, I have also argued academically that just as his fiscal policy may have proven to be ineffective in one single country (given flexible exchange rates), the same measures may turn out to be surprisingly effective if applied to the aggregated world economy.

In some regards, as with the notion of post-scarcity, Keynes was profoundly prescient. In others, as with the natural environment, he was firmly a man of his time. Instead of pursuing the highly anachronistic task of criticizing Keynes for this shortcoming, I think a more fruitful task would be to develop the rather timely branch of Green Keynesian Economics. Though I am certainly not the first to suggest that we should green the present bailout (and less than a week ago I even came out in “praise of wind turbines”), there is definitely room to elaborate on these ideas as I think that we have not yet fully recognize how well the present economic turmoil lends itself to kick-start the “sustainable transition”.

Unlike traditional green thinking however, I believe that first of all, such a kick-start has to be aimed at restoring overall global demand. Only with the integrity of the economic system secured, providing a “market floor” of sustained global growth, will we have the financial resources necessary to pursue other policies.

Instead of desperately trying to rescue sun-set industries such as car manufacturing we should seize this opportunity to finally bring them down. Uninhibited by the structural opposition of the car industry, massive investments in more sustainable modes of transportation would become politically possible. By retraining car workers to build high-speed trains and buses, the shift could also be made less painful on the individual level.

This far I am not claiming much originality. But what is missing in the standard Keynesian analysis is how an economic recession can be used to shift long-term social priorities, in this case in the direction of sustainability. While Keynes is famously quoted for saying that “in the long run we are all dead”, the same will hopefully not be true for our children. And to ensure them environmental sustainability, it falls upon us to urgently reorientate our society in the direction of scientific discovery. Instead of the public works of the thirties such as roads and dikes, we should now invest in particle accelerators, testbeds for material science and space industries. At the same time, progressive taxation should be used to raise overall educational standards and promote a culture of learning, capable of rapidly increasing the rate of innovation.

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Blogger meditations71 said...

Keynes is indeed enjoying a comeback, but I wonder to what degree the current financial crisis will relegate 'green issues' to lower rungs of policy priorities the world around. My sense is that there will be less focus on the environment, and more on conventional 'pocket book issues' as economies across the world stagnate or enter into recession.

As for the car industry - it may be seen as 'yesterday's business' in many ways, but I think you might underestimate both its importance as an employer and - more importantly - the degree to which people around the world, especially in populous emerging markets, aspire to a car bound life style. I know I like to go for a drive, and although good public transportation is a convenient option to have, I wouldn't give up my two cars. I suspect, moreover, that my preference is not a very unusual one (West or East)...

As for windmills, they have already blighted parts of the coastline of my home county (Halland) and I surely hope I won't see them ruining our beautiful Ulster coastline any time soon!

8:29 pm  
Blogger Rasmus said...

You are certainly correct that the car industry is not the only obstacle to more sustainable modes of transportation. Though I do not own a car myself I am the first to recognize the positive aspects of driving and the sense of freedom it brings.

However, reading your comment and learning about your resistance to wind power made me somewhat confused, especially in relation to your article in Capitalism Nature Socialism (2005, 16:57-76). Because to maintain a car-based lifestyle, and even allow it to be extended to the wider world, would seem to require precisely the kind of faith in progress that you criticize in the article. To make the existence of maybe six billion cars environmental sustainable would probably require things like a fusion-based hydrogen economy, complete material recycling through nano-technology and maybe even mining of lunar ore deposits. But then again, maybe my premises are wrong, the desire to have a car and at the same time resisting wind mills may be more of political act of showing the hopelessness of the current predicament, a kind of apocalyptic melancholy, an acceptance that modernity has failed and that we are now witnessing the “twilight of the scientific age”, leaving us with nothing more to hope for than some great Mad Max style adventures...

Personally, I think that given our limited resources, we will all have to make hard choices in the decades ahead, shifting from immediate consumption to long-term investment if we are to secure, among other things, climate stability. As I have said earlier, in that process, wind turbines and solar power are probably not workable long-term solutions but ways of “winning time”. Besides, I find wind mills rather aesthetically pleasing, showing that we are at least trying to move in the direction of sustainability.

3:04 am  
Blogger meditations71 said...

You got me there, regarding the CNS article, which I think was a way to think about potential 'ways out' of the dilemma that is reliance on growth and aspirations to sustainability in the current 'era of development'.

Maybe you're right on the notion of 'apocalyptic melancholy' (if that is a conceivable combination of sentiments) as well. Although I'd consider it a more general pessimism of the intellect, along Malthusian or Grayian lines. I'm still trying to figure this one out...

We are probably some ways apart on the aesthetics of windmills (the modern kind anyhow) although we share a similar fascination with the 'big issue' questions to do with sustainability, alternatives to a orthodox (whether liberal or socialist) development paradigm and the notion/meaning of progress.

I assume Australia is an interesting place to think about these issues. I'd have thought popular sentiment there is rather more similar to that of other parts of the world characterised by large open spaces and dependence on extractive industries, than would be the case in 'greener' or (forgive me for using this expression) 'postmodern' corners of Europe.

6:37 pm  

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