By Jerome E. Roos, Breakthrough Fellow.
This is a guest post from the Breakthrough Generation blog. Breakthrough Generation is the young leaders' initiative of the Breakthrough Institute, a public policy think tank. Founded in 2007, Breakthrough Generation has fostered the development of young thought leaders capable of fully grappling with the scale and complexity of today's greatest challenges and advancing large-scale solutions over the near and long term. To read more writings from this year's 2010 Breakthrough Fellows, head to http://breakthroughgen.org
Europe has lost its mind. Just two years after the financial crisis pushed the global economy to the brink of collapse, we appear to have forgotten all historical lessons about the importance of stimulating aggregate demand in the face of an economic slowdown. All over the continent, deficit hawks have built their nests in the ivory towers of government, trapping the world's largest economy back into the shackles of the neoliberal straitjacket.
If we are to truly deal with the two overwhelming crises of our time - climate change and economic meltdown - we need to realize where these crises overlap and where their solutions could reinforce one another. History teaches us that the world did not emerge from the Great Depression until it mobilized for World War II and built the War Economy. Today, we need mobilization on a similar scale to build a Green Economy and avert the worst consequences of climate change. In the process, we can create millions of jobs and forestall a global depression.
As the Greek debt crisis has recently illustrated, global speculators still hold just as much sway over currency and bond markets as investment bankers until recently held over financial markets. The musical chairs of global capital nearly forced the Eurozone to its knees earlier this year, triggering a backlash of primordial fear among European populations that economic apocalypse was imminent.
Ironically, nationalists, conservatives and free-market fundamentalists - that's right, the folks responsible for causing the crisis in the first place! - were amply rewarded by utterly confused electorates for their misleadingly simple solution to our economic ills: deficit reduction at a pace faster than advocated by even the most hardcore hawks in the U.S.
While it seemed to some that Thatcher's soul had died with the collapse of Lehman Brothers back in 2008, her macro-economic ghost has apparently come back to haunt our continent with a vengeance in 2010. "Balance the budget!" appears to be the most intellectually profound phrase coming out of the watering mouths of self-proclaimed economists like art-history student David Cameron of the UK, history student Mark Rutte of the Netherlands, and physics student Angela Merkel of Germany.
Now that our world is gradually coming undone at the seams, such executive incompetence is no longer just a source of amusement; it has become a threat to our collective well-being. Is this really the most creative solution we can come up with to solve the crises we are facing? With global temperatures rising higher every year and unemployment reaching levels not seen since the 1930s, is this really the mantra that will save global capitalism from itself?
Leading economists like Columbia's Nobel Laureate Joe Stiglitz, Princeton's Nobel Laureate Paul Krugman, and Harvard's Dani Rodrik strongly disagree. These experts argue that we need growth before we can balance our budgets, and in order to revive growth, we need to first stimulate aggregate demand by making serious public investments in infrastructure and industry.
In an op-ed piece warning us of the oncoming Third Depression, Krugman argues that:
... this [coming] depression will be primarily a failure of policy. Around the world -- most recently at last weekend's deeply discouraging G-20 meeting -- governments are obsessing about inflation when the real threat is deflation, preaching the need for belt-tightening when the real problem is inadequate spending.In my home country of the Netherlands, we seem to have grown more terrified of short-term debt than long-term inundation as a result of climate change. But Joseph Stiglitz already pointed out several months ago that the conservative narrative on the problem of short-term debt is utterly misleading:
Faster growth and returns on public investment yield higher tax revenues, and a 5 to 6% return is more than enough to offset temporary increases in the national debt. A social cost-benefit analysis (taking into account impacts other than on the budget) makes such expenditures, even when debt-financed, even more attractive.Dani Rodrik agrees, arguing that:
... Europe needs a short-term growth strategy to supplement its financial-support package and its plans for fiscal consolidation.Such a short-term growth strategy should revolve around a visionary project for public investment in green infrastructure, like the replacement of our aging micro-grids with a much more efficient continental super-grid, the wholesale retrofitting of public buildings, the creation of a standardized plug-in recharging infrastructure, and more public-private collaborations on massive solar voltaic and wind projects. Such short-term public investments have the potential to create millions of jobs and kick-start the transformation to the Green Economy before the longer-term investments in R&D of breakthrough technologies kick in.
It is time for Europe's hopelessly childish leaders to stop being bossed around by global speculators and start building the economy that will lead our continent into a new era. To actually get there, we first have to stop worrying about the imaginary climate for investors and start mobilizing to protect the physical climate for our people. This way we might just kill two birds with one stone.
Wednesday, July 07, 2010
By Jerome E. Roos, Breakthrough Fellow.