My Plan B for the New Statesman: Launch a Green New Deal

The New Statesman has included a contribution from yours truly to this week’s edition. The cover of the magazine declares: “Austerity has failed. Inside nine of the world’s top economists tell the Chancellor how to save Britain. This is Plan B.”

Exclusively for my readers, the following is the unedited version.

How to move to Plan B from where we are: an economy buried in debt by the City of London, and macerated by ‘austerity’ policies? An economy that daily generates insecurity and fear.

First we will have to acknowledge that lessons have not been learned. That austerity is, once again, the wrong remedy for the disease of ongoing financial breakdown, excessive private debt and private sector paralysis.

Austerity is like treating a broken spine with the latest ‘caveman diet’. No wonder the financial markets are fearful of the consequences. Austerity won’t fix the broken banking system, but starves the real economy, leads to a collapse in private sector output, rising bankruptcies and job losses. Worse, it’s a ‘diet’ that causes the government deficit to rise, both here and in Greece.

We know from the experience of the 1930s that the only way to restore health to an economy weakened by the breakdown of the private banking system is by using the publicly-owned central bank’s ability to create money – ‘Quantitative Easing’ – as a way of financing an expansionary fiscal strategy.

In other words ‘QE’ must be used as a way of bailing out the economy, not just the banks.

Because when the banking system is broken and the private sector stops spending, the central bank and the public sector must step in. Ramsay McDonald learned that bitter lesson from Roosevelt in 1933, four years after the 1929 ‘credit crunch’, when banking failure, austerity and the delusional denial of economists, policy-makers and politicians led to a catastrophic rise in bankruptcies and unemployment.

An expansionary fiscal strategy today will do what it did then: it will revive the private sector, lead to job creation and return profits and income – with which to repay debts owed to the banks. Profits and income (salaries and wages) will in turn generate tax revenues for government – to pay down public debts.

Such a strategy must aim public spending at activities that will boost the private sector. But above all, they must include public works that prepare Britain for the threats posed to national security by global financial meltdown, the rising cost of energy and extreme weather events.

Britain’s buildings are responsible for 40% of the nation’s toxic emissions. We need, first, a countrywide insulation programme to improve energy efficiency in 24 million leaky household units.

This means refurbishing buildings in a city the size of Nottingham every month. That would involve 50,000 teams working on each building for a two-week period, and would mean keeping that rate up non-stop for the next 250 months.

Second, we need a programme that will transform every building into a power station, to save on energy transmission leakages between power stations and buildings.

Public investment in these two programmes alone represent huge business opportunities in the very places where people live and work. Both programmes will mobilise a ‘carbon army’ of ‘green-collar workers’. There will be high-skilled jobs in energy analysis, design and the production of hi-tech renewable alternatives. There are jobs and profits in large-scale engineering projects, such as combined heat and power and offshore wind. Lower-skilled work will include loft lagging, draught stripping and fitting energy efficient systems in all the UK’s homes, offices and factories.

This Plan B – the genuine Green New Deal – addresses the three key threats to Britain’s national security: financial meltdown and with it rising unemployment and social breakdown; second, energy insecurity; and third, climate insecurity.

To fulfil its duty to the people of Britain, government must put a stop to austerity, and use ‘QE’ to finance an expansionary fiscal strategy.

 

 

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6 comments to My Plan B for the New Statesman: Launch a Green New Deal

  • Er… Is the unedited version supposed to cut off mid way through a sentence?

  • I have reservations about a big rise in demand. I’m happy with the BoE’s claim that much of the current 5% inflation is due to temporary factors and hence that we don’t need a REDUCTION in demand. But to justify a significant rise in demand, you need to show that pretty well ALL of that 5% is due to temporary factors, I think.

  • Georgia Lee

    Thanks for the heads up Jamss – we’ve fixed it now, the full version is up.

  • PeteFry

    You say:
    “We know from the experience of the 1930s that the only way to restore health to an economy weakened by the breakdown of the private banking system is by using the publicly-owned central bank’s ability to create money – ‘Quantitative Easing’ – as a way of financing an expansionary fiscal strategy.”

    I’m not sure we do know this. I’ve always thought that it was World War II that laid the basis for the economic growth of the post-war years. The war destroyed so much of the infrastructure of many countries and reduced their citizens to poverty that the only way was up. Now that we’ve hit several limits to growth I can’t see how more growth can be used to get us out of this mess.

    Don’t get me wrong, I agree with Plan B, but it should be seen as a way to avoid war and destruction as a means to create growth.

  • To which the traditional critique is to quote former UK Prime Minister Jim Callaghan:

    “We used to think that you could spend your way out of a recession and increase employment by cutting taxes and boosting government spending. I tell you in all candour that that option no longer exists, and in so far as it ever did exist, it only worked on each occasion since the war by injecting a bigger dose of inflation into the economy, followed by a higher level of unemployment as the next step.”

    Obviously you disagree – could you link to the post in which you address the point most comprehensively?

  • Ann

    Peter…best to read “The Economic consequences of Mr Osborne” on the PRIME website, which I co-authored with Prof. Chick. http://www.primeeconomics.org/?page_id=51

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