{"id":5671,"date":"2019-06-11T12:44:58","date_gmt":"2019-06-11T12:44:58","guid":{"rendered":"https:\/\/progressiveeconomyforum.com\/development\/?p=5671"},"modified":"2019-06-11T12:55:48","modified_gmt":"2019-06-11T12:55:48","slug":"on-philip-hammond-and-1-trillion","status":"publish","type":"post","link":"https:\/\/progressiveeconomyforum.com\/development\/blog\/on-philip-hammond-and-1-trillion\/","title":{"rendered":"On Philip Hammond and \u00a31 trillion"},"content":{"rendered":"\n

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\u2019s security: Philip Hammond. Watching the Chancellor attack the Prime Minister<\/a> for wanting to invest a smidgeon of Britain\u2019s annual income in the future survival of the nation, it\u2019s 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 \u2013 as if it were a household.<\/p>\n\n\n\n

From Keynes\u2019s macroeconomic perspective, the public sector finances are not analogous to household finances. Keynes turned Say\u2019s Law on its head (CW XXIX, p. 81):<\/p>\n\n\n\n

\u201cFor the proposition that supply creates its own demand, I shall substitute the proposition that expenditure creates its own income\u201d<\/p><\/blockquote>\n\n\n\n

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.<\/p>\n\n\n\n

Now one can just imagine how intellectually challenging it would be for #spreadsheetPhil to accept that \u201cexpenditure creates its own income\u201d. 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 \u2018green carbon army\u2019 would generate considerable income for government \u2013 and would help ensure the survival of life on earth.<\/p>\n\n\n\n

\u00a31 trillion pounds invested between now and 2050 would be a paltry share of Britain\u2019s annual income. It would amount to about \u00a333 billion a year, which is roughly 1.5% of current <\/em>GDP. But that figure has little regard for the aggregate impact of that spend \u2013 which, thanks to the multiplier, would generate additional income \u2013 not just for the employed, but also for the Treasury.<\/p>\n\n\n\n

That is the context in which to discuss the Prime Minister\u2019s 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 \u2018negative emissions<\/a>\u2019 \u2013 taking CO2 out of the atmosphere through natural (e.g. planting forests) or technological means.<\/p>\n\n\n\n

But, as Professor Anderson notes<\/a>, \u201cunless we\u2019re incredibly lucky with these new negative emissions technologies \u2013 which don\u2019t yet exist\u201d we won\u2019t be able to achieve net zero and limit global warming to 1.5C. This makes the situation even more urgent:<\/p>\n\n\n\n

\u201cWe have a handful of years to make some very rapid and radical changes. We know what we need to do. We know it\u2019s 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.\u201d<\/p><\/blockquote>\n\n\n\n

\u201cWe have chosen to fail so far\u201d. 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 \u2013 which, again, may not be enough \u2013 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<\/a>, and that has undermined the Prime Minister\u2019s timid steps towards a net-zero target by 2050:<\/p>\n\n\n\n

\u201cThe Chancellor\u2019s comments have, highly regrettably, already undermined this objective and raised the policy risk premium attached to decarbonisation investments\u2026 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.\u201d<\/p><\/blockquote>\n\n\n\n

So, like one of Dickens\u2019s mean-spirited characters, Philip Hammond\u2019s penny-pinching will not just threaten the climate security of the nation \u2013 it will increase the costs of tackling that threat in the future. Like William Nordhaus<\/a>, the Treasury seems to think that the cost of mitigating climate change is higher than not mitigating. The preference therefore is for the \u2018cheaper\u2019 version: climate breakdown.<\/p>\n\n\n\n

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\u2019s younger generations. As Greta Thunberg explained in a speech<\/a> to the Vienna Climate conference earlier this month:<\/p>\n\n\n\n

\u201cWe 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.\u201d<\/p><\/blockquote>\n\n\n\n

Photo credit: Flickr \/ Roy<\/a><\/em><\/p>\n","protected":false},"excerpt":{"rendered":"

\u201cIf 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\u2019s younger generations.\u201d<\/p>\n","protected":false},"author":11,"featured_media":5673,"comment_status":"closed","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":{"nf_dc_page":"","_monsterinsights_skip_tracking":false,"_monsterinsights_sitenote_active":false,"_monsterinsights_sitenote_note":"","_monsterinsights_sitenote_category":0,"site-sidebar-layout":"default","site-content-layout":"default","ast-site-content-layout":"default","site-content-style":"default","site-sidebar-style":"default","ast-global-header-display":"","ast-banner-title-visibility":"","ast-main-header-display":"","ast-hfb-above-header-display":"","ast-hfb-below-header-display":"","ast-hfb-mobile-header-display":"","site-post-title":"","ast-breadcrumbs-content":"","ast-featured-img":"","footer-sml-layout":"","ast-disable-related-posts":"","theme-transparent-header-meta":"default","adv-header-id-meta":"","stick-header-meta":"","header-above-stick-meta":"","header-main-stick-meta":"","header-below-stick-meta":"","astra-migrate-meta-layouts":"default","ast-page-background-enabled":"default","ast-page-background-meta":{"desktop":{"background-color":"","background-image":"","background-repeat":"repeat","background-position":"center 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