Can we kickstart economic stagnation with investments in clean energy?
Dean Baker writes: As the world prepares for another round of climate negotiations in Paris starting Nov. 30, it is worth repeating a few simple points.
It is becoming increasingly obvious that the world is already paying a substantial price for global warming. Sure, extreme weather events will never come with a stamp that says “caused by global warming.” But we know that global warming will change weather patterns in ways that are not entirely predictable. That means that we will see unusual weather events where global warming was likely a factor, but we can never know for certain.
One of the leading candidates in this respect is the extreme drought that afflicted Syria in the last decade, destroying much of its agriculture and leading to a mass migration to its cities. This migration was likely a factor in the unrest that led the country’s civil war starting in 2011. Syria’s conflict in turn has led to hundreds of thousands of deaths, the displacement of millions, and of course the rise of the Islamic State in Iraq and the Levant (ISIL).
It is likely that we will see, or are already seeing, other weather disruptions with comparable human consequences. Unfortunately, there has been much attention to low-lying and relatively sparsely populated islands as the main victims of global warming. In fact, there will almost certainly be hundreds of times more victims in relatively densely populated areas facing droughts or countries such as Bangladesh, which could be hit by devastating floods.
The time has long since passed for arguing about whether global warming is happening or whether the consequences will be serious. The question is what we are prepared to do about it. Here also, we have seen reality largely turned on its head.
Most countries are still suffering from the fallout of the Great Recession. They are struggling to contain budget deficits even as their economies remain well below full employment. This creates a situation where the leaders planning to meet in Paris are looking to address climate change on the cheap.
This logic is 100 percent backwards. The economic problem that the United States, most of Europe, Japan and even China now face is secular stagnation. This is a prolonged period of inadequate demand. The constraint on further output in all of these places is not the limit of the economy’s ability to produce goods and services, but rather of the demand for goods and services.
This is a problem for which measures to confront climate change present an obvious solution. We know that reducing greenhouse gases (GHG) to acceptable levels is a massive undertaking. It will take an enormous amount of capital and labor to make our homes and businesses more energy efficient, and to convert them to clean sources of energy as quickly as possible. The same applies to our transportation network: We have to promote mass transit and make all of our transportation vehicles cleaner.
This can be done, though it costs money. But the story that is missed is that secular stagnation means we have the money. The resources are the unemployed and underemployed workers who could be employed in this massive undertaking. In terms of money, contrary to the whining of the deficit hawks, there are no practical limits to how much the United States, Europe and Japan can borrow right now. We hit limits on our ability to borrow when the economy is near full employment, not when there are still large numbers of unemployed workers.
It’s not necessary to take my word on this issue; the financial markets are saying the same thing. Long-term interest rates in the United States remain at extraordinarily low levels. The major European countries face long-term interest rates of less than 1.0 percent. And that debt-ridden basket case Japan has to pay a tiny 0.3 percent interest rate on its long-term debt. These markets are telling us that we can borrow hundreds of billions more each year to address global warming or other major needs.
There is one other point that is worth noting in this context. We should want to reduce GHG emissions at the lowest possible cost. Since it doesn’t matter for the environment whether the GHG comes from the U.S. or India, it would make sense to reduce emissions in the places where we get the greatest reductions per dollar.
That would mean having the U.S. and other wealthy countries pay developing countries to reduce their GHG emissions. We should be paying for India and other developing countries to build out a modern electric grid that is based on clean energy. That would be enormously beneficial to these countries, since they desperately need more energy, but it would also be beneficial to the wealthy countries, since we could avoid an enormous amount of coal usage. And paying India to develop clean energy should even help create jobs in the U.S., although the route is a bit circuitous.
Anyhow, this would be an obvious case where we could do something that would be very good for people in the developing world and for the U.S. economy today, and hugely important for all of our children and grandchildren in the years to come. Unfortunately, when we have a Congress controlled by people who doubt evolution or question whether global warming is happening because they are not scientists, we may not make much progress along.