by From Yanis Varoufakis . . . While the working classes may rise up 10 years from now to claim the share of aggregate income that they deserve, it is arguable that another 10 years of underinvestment in the green transition will push us all to the brink of, if not extinction, irreparable damage to humanity’s prospects. So how do we deal with inflation without jeopardising investment in the green transition? What is the alternative to a class war in the form of a blunt interest-rate policy that squeezes the supply of money across the board either violently (as the advocates of shock and awe propose) or more gently (the steady as she goes suggestion)? A decent alternative policy must have three goals: first, to repress asset prices (such as house and share prices) so as to stop scarce
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from Yanis Varoufakis
. . . While the working classes may rise up 10 years from now to claim the share of aggregate income that they deserve, it is arguable that another 10 years of underinvestment in the green transition will push us all to the brink of, if not extinction, irreparable damage to humanity’s prospects.
So how do we deal with inflation without jeopardising investment in the green transition? What is the alternative to a class war in the form of a blunt interest-rate policy that squeezes the supply of money across the board either violently (as the advocates of shock and awe propose) or more gently (the steady as she goes suggestion)?
A decent alternative policy must have three goals: first, to repress asset prices (such as house and share prices) so as to stop scarce financial resources being wasted in building up paper values. Second, to push down the prices of basic goods while allowing for higher returns to investment in green energy and transport. Third, to deliver massive investment in energy conservation and green energy, transport, agriculture – as well as social housing and care. The following threefold policy agenda can achieve these three goals.
First, raise interest rates substantially. Ultra-low interest rates have failed to boost investment – and, in any case, were never available to those who either needed to borrow money or wanted to borrow to do things society needed. All ultra-low rates did was to boost house prices, share prices, inequality and all those things that divide society.
But, second, this must be done in concert with a massive central bank-supported green public investment drive. Naturally, raising interest rates will not boost investment, even if it is true that next to zero interest rates also did little to help investment. To escape the low-investment quagmire, the central bank should announce a new type of quantitative easing: it should stop financing the financiers and, instead, promise to stand behind (by buying, if needs be) public green bonds that raise funds to the tune of 5% of national income annually – a sum that will be invested directly into the green transition, giving society a fighting chance to do what it must to stabilise the climate.
Third, extend the same public finance model (that is, getting the central bank to stand behind public bonds) to invest in social housing and care.
In short, what I am proposing is a reversal of the toxic policies implemented since 2008. Instead of central banks providing free money and low interest rates to the rich, while the rest languish in the prison of austerity, the central bank ought to make money more expensive for the rich (through significant interest rate rises) while providing cheap money for investing into the things the majority and the lived environment both need and deserve.