The economic crisis of 2008-09 affords an opportunity to put the economy of the rich countries on a different trajectory as regards material and energy flows. Before 2008, world carbon dioxide emissions were growing by 3 per cent per year, we would have reached 450 ppm in 30 years. Carbon dioxide emissions peaked in 2007. Now is the time for a transition to lower levels of energy and materials use. The crisis might also give an opportunity for a restructuring of social institutions. The objective in rich countries should be to live well without the imperative of economic growth. Moreover, we are on the path for a reduction in world population once it peaks at about 8,500 million, thereby reducing pressure on resources and sinks in the second half of the 21st century. Now is the time in rich countries for socially sustainable economic degrowth.
Frederick Soddy, a Nobel Prize in Chemistry, published Wealth, Virtual Wealth and Debt in 1926. His main point was simple and applies today. It is easy for the financial system to increase the debts (private or public debts), and to mistake this expansion of credit for the creation of real wealth. However, in the industrial system, growth of production and growth of consumption imply growth in the extraction and final destruction of fossil fuels. Energy is dissipated, cannot be recycled. Real wealth would be instead the current flow of energy from the sun. Economic accounting is false because it mistakes depletion of resources and the increase of entropy for wealth creation.
The obligation to pay debts at compound interest could be fulfilled by squeezing the debtors for a while. Other means of paying the debt are either inflation (debasement of the value of money), or economic growth – which is falsely measured because it is based on undervalued exhaustible resources and unvalued pollution. Economic accounting does not properly count environmental damages and the exhaustibility of resources. Returning to “debt-fuelled growth” would not only be financially dangerous for us. It is indeed impossible for the time being, as banks are loaded with “toxic assets” and therefore reluctant to lend. The phrase itself is misleading. Growth is not “fuelled” by debt and by money, it is fuelled by coal, oil and gas. The fossil fuels are not produced by the economy, they were geologically produced a long time ago and they are going to finish.
The economic crisis of 2008-09 has brought John Maynard Keynes back to the main stage. Unemployment is increasing, and the appropriate remedy according to Keynesians is to increase public expenditure, “deficit spending” as it is called. Public spending is seen as good because it will indirectly lead to buying cars, and paying off mortgages and even buying new houses, getting such industries out of the doldrums. Governments are under pressure not only to increase spending for public investments or consumption but to refinance private debts to banks that will not be paid (“toxic assets”), converting to some extent such private debts into public debts. Keynes wanted to get out of the crisis of 1929. He argued that increasing unemployment to depress wages so much that employers would want to hire workers again, was a receipt for disaster. To make this point clear, Keynes famously said that he did not care what happened in the long run once the economy would recover from the crisis. Keynes has come back, reincarnated in Stiglitz and Krugman. But we must ask, is Keynesianism ecologically sustainable?
Those who propose a short-run Green Keynesianism or a Green New Deal have a point. If public investment must grow, as indeed it must to contain the rise in unemployment, it is better to channel it to the welfare of the citizens and to “green” energy production, than into motorways and airports. However, Green Keynesianism should not become a doctrine of continuous economic growth, because growth in a finite planet is by definition unsustainable, unless one thinks we can live by trading air and eating information from the internet. Until now, growth has come with the use of energy from coal, oil and natural gas. In Green Keynesianism it seems desirable to increase public investment in energy conservation, photovoltaic installations, urban public transport, housing rehabilitation, organic agriculture. But it is not reasonable to persevere in the faith of economic growth. A green economy will inevitably be one of a lower scale. And this should not scare us: we can live better with less.
In rich countries a slight economic decline is already taking place and it could easily be socially sustainable. We are not in the 1930s – in Europe we have economies with incomes per capita of over 25 000 euros. Going back ten per cent (with a corresponding decrease in energy and material flows) can be managed if institutions of redistribution are set in place. We are not oblivious to the fact that degrowth might lead to social problems, most importantly unemployment and poverty, that we must face for. But there are policies that can manage a “smooth landing” such as reduction of working hours, institutionalization of a basic income, community allowances to support the unemployed, “peoples pensions” and local or environmental bonds. For these to be funded, serious redistribution must take place including dramatic tax rises for high income brackets, establishment of maximum salaries, fuel (or CO2) windfall taxes (compensating the poor to avoid “fuel poverty”), and taxes on transactions and capital flows. The financial sector that breeds on growth needs to be restructured demerging banks that are too big to fail and segregating financial markets, creating secure and accessible local banking systems. No question, these are tough political changes, but if Green parties shy away from them, who will take them on?
Another objection is raised. Who will pay the mountain of debts, private mortgages and public debt if the economy does not grow? The answer must be that no-one will pay all that mountain of debt.. It is time for debt restructuring. We can not force the economy to grow at the rate of compound interest at which debts accumulate. The financial system must have rules different from today.
The response to the suicidal austerity packages that many countries in Europe adopt is not, therefore, Keynesianism, not even Green Keynesianism. It is socially sustainable economic degrowth, and there is a growing intellectual and grassroots social movement forming that we should pay attention to (www.degrowth.eu). The crisis opens up opportunities for new ideas, new institutions and new social habits and norms. It is time for political parties to take them on.