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‘Sound finance’ prevents available climate solution with massive jobs potential

Summary:
When the governments in the advanced nations abandoned full employment as an overarching macroeconomic objective, and instead, starting pursuing what I have called full employability, they stopped seeing unemployment as a policy target (to be minimised) and began using it as a policy tool to suppress inflation. As mass unemployment rose, the politics were massaged by the mainstream of my profession who claimed that the level of unemployment that constituted full employment had risen (this was the NAIRU era) and so there was really no problem. Governments adopted the neoliberal line that they ‘didn’t create jobs’ and had to target fiscal surpluses to ensure their position was ‘sustainable’. The costs in lost income and human suffering have been enormous – most people would not have any idea

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When the governments in the advanced nations abandoned full employment as an overarching macroeconomic objective, and instead, starting pursuing what I have called full employability, they stopped seeing unemployment as a policy target (to be minimised) and began using it as a policy tool to suppress inflation. As mass unemployment rose, the politics were massaged by the mainstream of my profession who claimed that the level of unemployment that constituted full employment had risen (this was the NAIRU era) and so there was really no problem. Governments adopted the neoliberal line that they ‘didn’t create jobs’ and had to target fiscal surpluses to ensure their position was ‘sustainable’. The costs in lost income and human suffering have been enormous – most people would not have any idea of the massive scale of these losses that accumulate day after day. Now, it seems, the ‘sound finance’ school is going a step further. We are probably facing an environmental emergency in the coming period (years, decades) but the question commentators keep asking is not what we can do about it but ‘how can we pay for it’? So ‘sound finance’ has already destroyed the lives of millions of people around the world as a result of mass unemployment and poverty, now it is turning its focus on the rest of us. Madness. Paradigm change has to come sooner rather than later.

The mass unemployment problem

I discussed the shift from full employment to full employability in this blog post among others – A new progressive agenda? (September 28, 2010).

We also discussed the shift in policy approach to unemployment under neoliberalism in our 2008 book – Full Employment abandoned.

I also discussed the costs of unemployment in these blog posts (among others):

1. The daily losses from unemployment (January 13, 2010).

2. The costs of unemployment – again (January 13, 2012).

As a reminder, sustained unemployment imposes significant economic, personal and social costs that include:

  • loss of current output;
  • social exclusion and the loss of freedom;
  • skill loss;
  • psychological harm;
  • ill health and reduced life expectancy;
  • loss of motivation;
  • the undermining of human relations and family life;
  • racial and gender inequality; and
  • loss of social values and responsibility.

These costs are enormous and dwarf the measures that various governments have come up with to estimate losses arising from so-called microeconomic inefficiencies (such as transport systems not running on time etc).

When I last did these estimates I found that in the September-quarter 2009, the daily GDP losses that the US economy was enduring, for example, as a result of the decline in economy activity below it previous peak stood at $US10.3 billion per day.

So over one month, they were losing $US310 billion approximately and that was just in lost GDP from the lack of jobs.

If one added in those other costs identified above, then the daily losses would be much more than this.

Even under conservative assumptions, the economic and social costs of sustained high unemployment are extremely high. The inability of unemployed individuals and their families to function in the market economy gives rise to many forms of social dysfunction, in addition to output loss.

The apparent failure of neo-liberal supply side policies to reduce unemployment prior to the crisis is now highlighted during the crisis. There is now an urgent need to address the large pools of unemployment in world economies.

There is never a financial reason why currency-issuing governments should allow mass unemployment to endure in the way they have over the last three decades.

The first response that governments can always introduce, as a base case defense against these losses is a – Job Guarantee.

However, spurious arguments about governments not having sufficient ‘fiscal space’ or ‘fiscal headroom’ or ‘how are they going to pay for it’ and all the rest of the nonsense, has condemned citizens to unnecessarily endure the massive costs of extended periods of unemployment.

Our social concern for their welfare has been diminished because we have bought the ‘sound finance’ narrative that governments are performing well if they run fiscal surpluses irrespective of the situation, and, further, by the relentless divide-and-conquer strategies deployed to make it look as though the unemployed have ‘choices’ but are lazy and desire to be supported by the rest of us.

Neither part of the story is correct.

If unemployment impacted on more of us then the situation would be different for sure. It would be less easy to demonise the victims of the deliberate choice by governments not to net spend at levels that are required to sustain full employment.

When we come to discussions of climate change, however, we are talking about an issue that can impact on all of us, even though it is clear that poorer communities tend to be hit the worst by environmental degradation.

This is especially the case in poorer nations where their real resource bases have been pillaged by richer nations under spurious export-led growth strategies under the aegis of the World Bank and the IMF.

But it still remains that climate change is a global threat that cannot be as easily dismissed as mass unemployment in the neoliberal rhetoric.

The problem is that while climate change denial is rampant an even more insidious problem is that the ‘how are we going to pay for it’ ruse is alive and well in this debate, even among progressives who are demanding immediate action.

Climate action solution – plant some trees

I read an article in the latest edition of the Science journal (published July 5, 2019) – The global tree restoration potential – which was a research report written by Jean-Francois Bastin, Yelena Finegold, Claude Garcia, Danilo Mollicone, Marcelo Rezende, Devin Routh, Constantin M. Zohner, and Thomas W. Crowther, all of whom are associated with various environmental, biological, agricultural and forestry research institutions across Europe.

The article requires library access but the summary points are clear enough.

The authors note at the outset that:

Photosynthetic carbon capture by trees is likely to be among our most effective strategies to limit the rise of CO2 concentrations across the globe.

Accordingly – “The restoration of trees remains among the most effective strategies for climate change mitigation.”

The authors note that the current estimates in this regard suggest that “an increase of 1 billion ha of forest will be necessary to limit global warming to 1.5°C by 2050”.

The research question then is:

… whether these restoration goals are achievable because we do not know how much tree cover might be possible under current or future climate conditions or where these trees could exist.

They then “build models using direct measurements of tree cover (independent of satellite-derived models) from protected areas, where vegetation cover has been relatively unaffected by human activity.”

And then they “interpolate these “natural tree cover” estimates across the globe to generate a predictive understanding of the potential tree cover in the absence of human activity.”

They used “78,774 direct photo-interpretation measurements …. of tree cover across all protected regions of the world.”

They found that “about two-thirds of terrestial land, 8.7 billion ha, could support forest” which is “3.2 billion ha more than the current forested area”.

Around “1.4 billion ha of this potential forest is located in croplands (>99%) and urban areas (<1%)" which means that approximately:

… 1.7 to 1.8 billion ha of potential forest land (defined as >10% tree cover) exists in areas that were previously degraded, dominated by sparse vegetation, grasslands, and degraded bare soils.

Some further modifications in the technique then produced a final estimate of “0.9 billion hectares are found outside cropland and urban regions … and may represent regions for potential restoration”.

In other words, they essentially subtracted existing forest and existing agricultural and urban areas to derive a final estimate.

It turns out that:

More than 50% of the tree restoration potential can be found in only six countries (in million hectares: Russia, +151; United States, +103; Canada, +78.4; Australia, +58; Brazil, +49.7; and China, +40.2) … stressing the important responsibility of some of the world’s leading economies.

The problem is that only 10 per cent of the 48 countries that signed up for the Bonn Challenge to “bring 150 million hectares of deforested and degraded land into restoration by 2020 and 350 million hectares by 2030” have plans in place to actually achieve their targets.

The authors find that “over 43% of the countries have committed to restore an area that is less than 50% of the area available for restoration.”

So a lot of work to be done, but prior national commitments have to be stronger.

If you go to the Bonn Challenge Home Page you can see a map of the commitments currently in place.

My own country Australia, led by a government of climate change deniers, has made zero commitments.

In the UK, only Scotland has made a modest commitment.

None of the Western European nations have made a commitment. The EU is not leading the charge here.

The authors concluded that the restoration project would be “overwhelmingly more powerful than all of the other climate change solutions proposed.”

That last quote came from a UK Guardian article (July 4, 2019) – from its environmental editor – Tree planting ‘has mind-blowing potential’ to tackle climate crisis – which considered the Science report.

The Guardian interviewed the authors and made the point that the most powerful solution to climate change does not require any new technologies – “It is available now”.

Just plant trees!

The Science report is silent on how such a restoration project would be made operational.

The Guardian article introduces this topic in this way:

The study, published in the journal Science, determines the potential for tree planting but does not address how a global tree planting programme would be paid for and delivered.

They ask the authors for suggestions and we learn that “we could restore 1tn trees for $300bn”.

One author proposed that “$300bn would be within reach of a coalition of billionaire philanthropists and the public”.

Once again we have a disconnect in the public debate between climate action discussions and the capacities of the governments in modern monetary systems.

No-one asked the US government ‘how will we pay for it’ when it introduced the – Troubled Asset Relief Program – in October 2008, which was designed to “purchase toxic assets and equity from financial institutions to strengthen its financial sector”.

How much was immediately authorised under the TARP?

Answer: $US700 billion. The actual amount ended up less than that but the point is obvious.

Here we have a solution:

1. That is available now.

2. Is considered the most effective response that can be made to combat the climate issue.

3. Involves a small investment in relative terms to accomplish.

And the ‘environmental editor’ of the Guardian hasn’t thought to suggest that fiat currency-issuing governments have all the capacity they need to immediately authorise the required expenditures.

After all, we are only talking about saving the planet here.

The reason the debate gets locked down like this – when it comes to financial implications – is the same reason we have tolerated elevated levels of unemployment and the massive wastage that has accompanied the joblessness – the public debate has become locked down by neoliberal notions of public finance – so-called ‘sound finance’.

It is why climate change activists have to learn Modern Monetary Theory (MMT) to overcome this economic ignorance.

The perfect match – tree planting and job creation

Clearly tree planting is not rocket science and the skills necessary to undertake these reafforestation projects would be within the reach of most workers.

A progressive editor or commentator should never be questioning how we can pay for a tree planting project. They should be lobbying at every chance governments to end their ‘sound finance’ mindsets.

This particular climate solution would also help create thousands of low-skill (but highly valued) jobs especially in nations that have high levels of unemployment or hidden unemployment in the informal economy.

It is clear that the private sector or the ‘market’ system is not going to undertake such a project.

And the jobs are perfect for a Job Guarantee program.

A total win-win.

All we need is the political will and some education.

Conclusion

The neoliberals continually drown the populace in a swathe of austerity myths:

  • The government has run out of money.
  • Deficits will drive up interest rates.
  • Deficits will cause hyperinflation.
  • Deficits will rack up unsustainable debts on our grandchildren.
  • Bond markets will punish governments who run continuous deficits.
  • Deficits undermine growth because the private sector thwarts their intent by increasing saving to pay for higher implied taxes in the future.
  • Direct job creation creates unreal jobs that are worthless.
  • A Job Guarantee would undermine the capacity of private employers to attract labour and drive down productivity.
  • ETC, the list goes on.

None of them have any credence.

We are continually being drawn towards conclusions that unemployment is not really a problem because people choose to remain jobless. The culprit is singled as the income support system which subsidises those choices. Or depending on the day of the week, the other culprit is excessive real wages. Or then, on another day, it might be hiring and firing protections. ETC.

We are told that if the labour market was deregulated and the income support system abandoned then we would quickly eliminate unemployment. Put people on the margin of starvation and they will work out of desperation.

We see that approach in the poorest nations where families scavenge through rubbish and sewerage heaps for the barest scraps of food. That is what desperation and a lack of jobs ends up leading to.

Hopefully, the climate urgency will help groups in society that might otherwise not seek to understand macroeconomics to seek out such an understanding.

Modern Monetary Theory (MMT) provides an empowering framework for designing effective responses that can link the needs for more work with available and effective solutions for those interested in climate action.

Now is the time.

A superior, empowering understanding is available.

An effective climate solution (trees) is available.

That is enough for today!

(c) Copyright 2019 William Mitchell. All Rights Reserved.

Bill Mitchell
Bill Mitchell is a Professor in Economics and Director of the Centre of Full Employment and Equity (CofFEE), at the University of Newcastle, NSW, Australia. He is also a professional musician and plays guitar with the Melbourne Reggae-Dub band – Pressure Drop. The band was popular around the live music scene in Melbourne in the late 1970s and early 1980s. The band reformed in late 2010.

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