Why Shouldn’t the US Federal Government Invest $4-$6 Trillion Per Year on Climate Protection? (Part 1 of 2)

By Michael Hoexter

Part I | Part II

Summary:  Why We Should

Recently New Economic Perspectives posted a three-part provisional US Climate Platform I have put together.  The US Climate Platform outlines why and how the US federal government should invest somewhere in the area of $4 trillion to $6 trillion per year on stabilizing the global climate, in addition to preparing the United States and other nations for the upcoming effects of our 200-year long fossil fuel binge.  The climate expenditures would more than double current federal government spending over a period of ten to twenty years, where “spending” means investment in real, useful resources and people.

In a nutshell, as George W. Bush said in his most lucid moment as President, we are “addicted to oil”, coal and gas, as a civilization and economy.  That fossil fuel addiction puts the survival of our species and at least our civilization in grave jeopardy.  This fossil fuel dependence is not something that we can simply “quit” or put aside from one day to the next; unfortunately the analogy with tobacco and the tobacco industry’s misinformation campaign only goes so far.  Quitting fossil fuels means transforming (rapidly) our energy and transportation infrastructure to enable us to use mostly or entirely renewable energy to power civilization.  Without that transformation, we are consigning present and future generations to a world of, at first, diminished quality of life, resource wars, and possible eventual self-extinction of the human species.  The US cannot rescue humanity alone by itself.  Yet global efforts will be significantly hampered by a US government that is not leading or near the front of the global effort to excise fossil fuel use from our economies as quickly as possible.

So we also know, especially those who understand the Modern Money Theory school of economics, that currency-issuing governments are not constrained in their use of money by finite quantities of money in their accounts or the taxes they collect in any given time period.  The ability of currency-issuing governments to invest at will can be an awesome power that is often captured by special interests that ring political and central bank elites.  The use of fiat-money creation by investment is then primarily used to serve the wealthiest and the financial and economic status quo.  This power is used in the United States, notably to keep the military-industrial complex in its privileged place and to bail out the financial elite when they go too far in their speculative excess, as happened in 2008.  There are technical economic constraints on the investing/spending power of fiat-currency issuing governments, related to the potential for higher levels of inflation or depreciation of the value of one currency versus other currencies, but there is no one-to-one correlation between the danger of very high levels of inflation and increasing government investment.

Ultimately, why one SHOULD spend four to six trillion dollars per year over a period of perhaps 10 to 20 years to stabilize the climate, has to do with the priority of real physical, biological people in a real physical world over various self-imposed financial and budget constraints.  The financial and budget constraints are human inventions and can be restructured by political efforts to place repairing our damaged physical world, biosphere, and societies first at much higher level of priority over the maintenance of an already malfunctioning economic status quo.

But I am quite sure, even people who are sympathetic to what I am trying to achieve will have doubts and certainly there will be many opponents to the US Climate Platform or some version of it.  So I decided to anticipate those responses and list below some of those reasons that people MIGHT put forward why we SHOULDN’T spend 4-6 Trillion dollars per year on stabilizing the climate and saving humanity.

Index of “Why We Shouldn’t”

1. “Inflation! Hyperinflation!!”
2. “Income Inequality & Unemployment Are Cheaper to Solve”
3. “Everybody says Climate Protection Will be Cheap”
4. “We Need to Support Dominant Carbon Pricing Framework & Political Consensus”
5. “Government is Always Inefficient and/or Ineffective”
6. “We are Comfortable Right Now, Thank You”
7. “Advocacy Will Endanger My Stance as a Critic”
8. “Civilization is Not Worth Saving; It’s not Worth the Effort”

1. “We shouldn’t invest $4 to $6 trillion dollars a year, in addition to other federal expenditures, to help save humanity, because it will create too much inflation or run-away hyperinflation.”

If it really were to happen, hyperinflation would be a bad thing among other possible bad things.  Government expenditures (the creation of money and demand) could inject too much demand for real goods and services into the economy in relationship to the economy’s ability to supply goods and services.   Inflation is not a uniform phenomenon:  some goods may become more expensive while others may stay the same price or become less expensive.  Inflation is created by too much demand (willing buyers, including governments, plus means to buy) directed at too little existing supply of goods and services or, alternatively, where suppliers of those services exercise “market power”, i.e. monopoly or cartel-like control of prices.

The demand created by realizing the US Climate Platform would take a number of forms.  Effective climate action is, in essence a massive building project of a particular type, so building materials, depending on which are used and their supply, may become more expensive.  The response to this may be to tax certain non-critical uses of materials like wood products, concrete or steel, to focus demand only on critical-path projects.  Another way to reduce these prices is to create incentives for higher levels of supply of products by offering manufacturers or producers of these products tax breaks or other subsidies to increase the profitability to them of producing more or investing in new production facilities.  Another means, especially with very high profit margins for producers, is to introduce price controls that enable profitable production of the materials without windfall profits, which is in essence analogous to war-profiteering.

The climate stabilization effort as foreseen by the US Climate Platform or other climate mobilization proposals, creating full employment, will also simply put more money in the hands of ordinary people than is currently the case, as the demand for labor will go up and also a floor will be placed on the price of labor by a Job Guarantee and higher minimum wage.   This is an intended effect of the climate mobilization and also corresponds with the goals of most people who are concerned about income inequality and sagging effective demand in our current society.   If this upsurge in demand for basic goods and services creates too high levels of inflation in the basket of goods that people need to survive and enjoy basic pleasures, then there would need to be efforts made to make the supply of those goods and services more abundant.  Some shortages are still foreseeable as there will be unexpected climatic and social events in a climate-destabilized world which may impinge upon efforts to produce more food or housing.

An ascending carbon tax will direct the demand created by the climate mobilization towards lower carbon enjoyments and investments.  This will intentionally make it more profitable to produce, purchase and utilize lower carbon goods and services.  This profitability may temporarily raise their prices until such time as sufficient supply is available.  Price controls are also a possibility though if the mandated price set is too low, it may create a black market for those goods that would further reduce supply in legitimate channels.  The sale of climate bonds, or offering incentives to accept these bonds in partial compensation will also encourage a voluntary postponement of consumption and therefore decrease inflationary pressures.

Higher taxation on high incomes will have a marginal impact on inflation of ordinary goods because of the lower propensity of these individuals to spend their income.  However such taxation may help stabilize the economy overall and will definitely stabilize political life, as those individuals have a propensity to engage in speculative investment with their excess income, as well as buy political influence.

There are many ways to combat too much inflation, though low but non-zero levels of inflation are generally good for the overall economy.  The phantom of inflation or hyperinflation is used by powerful entrenched, rentier interests to distract the public from the use of government to better the common good through various public investments.  Almost the entirety of a contemporary people, the German people, have been conditioned to respond with horror to the prospect of even low levels of inflation, because of an ingenious “implanted memory” of German hyperinflation during the early Weimar Republic having led to Hitler’s rise to power.  As or more decisive in Hitler’s eventual ascension to power was the deflation and economic depression of 1931-32, which is covered over by German political elites close to Germany’s financial sector with the hyperinflation scare story.

However, whatever means are needed to manage pricing and supply of vital goods, the arguments against the proposed policy package to stabilize the climate have laughably little ethical or economic support.  Spending on valuable goods, that cut emissions while providing services or sustain human life are unalloyed goods, in the ethical and economic senses of the word.  This will also increase effective demand by supplying ordinary people with more money while organizing a collective rescue of humanity; all of this is “good for the economy”.

Ultimately, those who scaremonger regarding inflation seem to forget or want their listeners to forget that there are many different “bads” in the world, too much inflation being one “bad” of many.  In the current situation or really any conceivable real-world situation, the extinction or large-scale die-off of the human species trumps along the scale of possible evils, the risking of too much inflation.  There is no contest between the two evils, though inflation scaremongers would like us to forget all else.

2. “We shouldn’t invest $4 to $6 trillion dollars more a year in federal funds to help save humanity, because unemployment, underemployment and income inequality can be eliminated or radically ameliorated with much lower expenditure.”

The Modern Money Theory school, in which I work, supports the idea that higher federal deficits are required to achieve full employment and higher incomes for working people.  I am with that “left-wing” of the MMT school in preferring that those deficits be a product of greater amounts of government spending rather than primarily via reducing various forms of taxation.  However the US Climate Platform combines both types of stimulation of the economy (targeted tax breaks and targeted spending) on types of activity and infrastructure that will bring down carbon emissions, eventually to net-zero or lower.

Generating full employment via government investment, assuming no major shift in how and why work is done, does not require the federal government to play the leading role in the economy that I am recommending with the US Climate Platform.   The US Climate Platform, if enacted in some form, would create essentially a wartime economy in peacetime for a decade and half to two decades.  This will guarantee employment to those who wish it but will also shift employment towards specific jobs that are in manufacturing and construction related to refitting society to become net-zero carbon.  The US Climate Platform, if enacted, goes far beyond simply repairing existing infrastructure, as is typically recommended by those who favor infrastructure spending.  I am proposing via the Platform that we need to retrofit or restructure our infrastructure and settlement patterns to emit no carbon in net, make our civilization safe from climate impacts, and create settlements that by their structure, promote greater health and conviviality.

I would venture, though, that the goals of full employment and social equity, as traditional as they are as political and policy objectives, unfortunately require extraordinary circumstances, at least with current power and wealth disparities, to become effective goals of public policy for government leaders.  The existential threat of climate catastrophe is one such extraordinary circumstance that can change minds and enable political leaders to focus on issues of common concern.  So, in that circumstance, to “merely” propose that we achieve full employment and social equity in themselves rather than full-scale transformation of our physical infrastructure, appears to be no more likely than the ambitious plan I am proposing and perhaps less likely.

Furthermore, if we accept, as we should, the priority of physics, biology, and the mind- and society-independent physical world that it describes, we do not have the choice of ignoring the climate catastrophe because the budgetary figures to meet the challenge appear more daunting than those to just create full employment and greater income equality with our current capital stock and types of production.   Without a biosphere capable of sustaining human life, full employment and income equality without changes in why and how work is done, would not mean much or not mean much for long.  It is also conceivable with more limited  one would create a more equal society that is either as disregarding of the state of the biosphere as our current society or is only slightly more regarding of that state, leading to, in our time-sensitive crisis, insufficient and tardy action to change our emissions and the wastage of the abundance of the earth.  Ultimately, the praiseworthy goal of an equitable society doesn’t “cover” the goal of a society in harmony with the non-human biosphere and geophysical world.

3. “We shouldn’t invest $4 to $6 Trillion per year in federal funds to save humanity because climate economists have claimed that climate action will “cost very little”, “cost 1% of GDP”, or yield a positive net financial benefit, making such level of investment (30-40% of GDP) irrelevant, wasteful or counterproductive.”

There are some well-intentioned people including economists who have tallied the possible costs of climate change and also the costs associated with climate action.  Using these figures, most point out with optimism that climate action is “worth it” from an economic viewpoint.  They mean these interventions to be reassurances to policymakers that to “act on climate” whatever that will mean, will be positive for the economy.

There are some political and economic problems with this approach that, in my view, make it of limited value to actually informing timely and consequential action on climate.  It is of course possible to figure out what might be the likely damages of climate change within a defined and not-too-distant time period and also what might be expenditures related to climate change.  The latest figure for the world calculated by Chris Hope and Kevin Schafer is on the order of 300-400 trillion dollars.  But the usefulness of this becomes questionable when the analysis turns to subtracting costs from the benefits, i.e. a cost benefit analysis, and this then becomes a decision criterion for acting on climate in the first place.  Of course the avoidance of the costs of climate inaction/climate change figure on the benefit side of this equation.

It is exactly on the avoidance of the costs of climate inaction/climate change that this analysis starts to break down when we consider the real physical and biological likely consequence of inaction or inadequate action.  Is it possible to put a monetary figure on the non-existence of the human species or at least the complete destruction of complex societies, as is likely with 6 degrees Celsius increase in global temperatures and 200 ft. sea level rise?  Non-existence has an infinite cost from the point of view of human beings or is an infinite benefit to humans to avoid.  No financial costs, with finance a human invention under human control, should be spared to prevent the non-existence of the human species.

Furthermore, even if we assume that there is a countable non-infinite financial benefit to climate action and this can be balanced against a cost of climate action over a particular period of time, this analysis does not capture the absolutely critical dynamics by which the economic element of climate action will be realized.  Some economic actor, most likely governments, especially those that possess their own currency, will need to initiate the process of spending and “acquiring” or subsidizing the climate stabilizing goods and services.  The governments will be “out” that money, even though those governments that issue their own currency (Most national governments outside the EuroZone) will not “lack” the money after spending it.  These governments will not “care” about the financial gain TO THE GOVERNMENT AS INSTITUTION directly but only indirectly via the effect of that spending on the economy as a whole.  The total net benefit of that spending will accrue to many actors within the economy via both direct and indirect means over a period of months and years.  Some of those benefits will involve lesser risks associated with climate.  The framework of a cost-benefit analysis cannot comprehend what Mariana Mazzucato calls the “mission-driven” nature of macroeconomic finance from the point of view of government, where a real national objective is realized with secondary regard for the amount of money that was created and spent into the economy to achieve that goal.  A cost-benefit analysis is “a-dynamic” as it does not capture the time dimension of the necessary financial transactions that MUST take place.

Ultimately climate action must be measured by real, non-financial benefits, in terms of decreased and eventually zero emissions, achieved with lesser real resource usage and, to currency-issuing governments secondarily, lesser financial means created while maintaining a level of real social welfare, equitably distributed.  One possible real metric is the net cooling or net heating effect of various actions. Currency-issuing government leaders should literally “not care” what the financial return is DIRECTLY TO GOVERNMENT to stanch emissions and create a livable net-zero emissions society.  Government is going to be “out” all of the money and none of the money at the same time, to paraphrase Warren Mosler, with the financial benefits accruing to the private sector, i.e. households and businesses, though every government worker and leader is also a household and part of the private sector in that capacity.  Costs and benefits do not accrue to the same economic actors on the scale of an entire national economy.  While various levels and types of corruption of government leaders, as well as their normal and expectable self-interests, can distort or interfere with these institutional potentials, even high levels of corruption not completely obliterate the role of government institutions, in particular their currency-creating function via spending.

Furthermore, large regional and national governments are the only institutions that can transform the energy and transport infrastructure in a rapid enough manner to both preserve a reasonable economy and reduce emissions to zero in enough time.  Roads must be transformed and money must be spent on retrofitting buildings and energy infrastructure that will utilize zero-carbon sources, mostly renewable energy.  The private sector is limited in its ability to span the physical and social domains required to get this job done and is, compared to currency-issuers, constrained by the need to target a profit or save money.  The “costs” of climate action should thus accrue largely to entities, national governments, that are not counting the benefits TO THEM of their expenditure.

So those analyses that emphasize a cost-benefit analysis misrecognize the physical and economic dimensions of the problem.  Governments must be committed to be “out the money” for as long as it takes to create the real assets that stabilize the climate with financial returns that may or may not “balance out” the costs, but always to different economic actors than those that initiated the expenditure/investment in the first place.   Their investments en masse and in rapid succession, will create the impetus, incurring “costs” all at once, that at the same time are benefits to the private sector and humanity.  Of course governments should care “where the money goes” in the economy but there should be little concern for “balancing” cost and benefit but rather a focus on the “mission” of cutting emissions to zero while maintaining social welfare.  As with the discussion of inflation above, governments should also very much care about maintaining a fairly stable or predictable value of the currency and fair and efficient taxation levels.

If we use the hypothetical of a Martian invasion as an illustration, where the Martians are trying to wipe out humanity, there will be no bean-counting in making the initial decision to build anti-Martian weapons, even though the building of those weapons will have financial costs over which suppliers and the government may dicker.  But initiating and realizing the “mission” would, of course, be supraordinate and prior to the financial cost accounting.  If these hypothetical weapons  that would protect us from the hypothetical Martian attack could be built, we would build them…it would be literally stupid not to.  Similarly with climate change, it would literally stupid not to build the net-zero carbon emitting society if we have the real means to build one, which we do.