Author Archives: John Medway

Climate change – how bad can it get?

“A bullet fired through the head can have an adverse effect on brain function”. This is the sort of language in which the risks from climate change are sometimes discussed.  In other circles the language of catastrophe is preferred, with the possibility of human extinction sometimes thrown in.

Those of us who are concerned about global warming and other environmental threats have various motivations. For some, the injustice of what rich-world carbon emissions have inflicted on other countries is paramount. For some, a deep love of the natural world and a perception of environmental vandalism comes top. I feel both those things strongly but, most of all, I feel that human civilisation at its best is glorious and remarkable but fragile. We seem in danger of throwing it away by our lack of concern for the biosphere that supports it. I fear a possible future in which much of the world is rendered uninhabitable, civilisation has broken down and most of human life is nasty, brutish and short. That’s what I call catastrophe.

The received wisdom, at least until recently, seems to have been that it’s counter-productive to talk about global warming in apocalyptic terms. That may be right but it risks our under-estimating the damage that climate change could cause. From the evidence I have encountered, I simply can’t rule out the possibility of a global catastrophe resulting from climate change.  That possibility is amplified by the fragility of some of our political systems and hence of our civilisation.

Looking at regimes governing some of the most populous countries in the world, not to mention politics in the USA and the UK, I can’t feel confident that catastrophe will be avoided.

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Is GDP almost everything?

In 1968, Bobby Kennedy made a much-celebrated speech in which he denigrated Gross National Product (GNP, now usually replaced by Gross Domestic Product, GDP) as a measure of America’s well-being. He said:

… counts air pollution and cigarette advertising, and ambulances to clear our highways of carnage. It counts special locks for our doors and the jails for the people who break them … Yet does not allow for the health of our children, the quality of their education or the joy of their play. It does not include the beauty of our poetry or the strength of our marriages, the intelligence of our public debate or the integrity of our public officials … it measures everything in short, except that which makes life worthwhile …

Financial Times columnist Janan Ganesh voices his disdain for this view in a recent article:

Yes – GDP is almost everything: The recession should kill off the romantic idea that growth is a mixed blessing.

He says, rightly, that wealthy countries tend to do better on indicators such as homicide rates than poor countries. Yes, poor countries do badly on a range of social indicators. But Kennedy was talking only about America. The richer we are, the less an increase in wealth boosts our well-being.

Ganesh also says:

The looming recession will be painful. But it will also drive a certain kind of post-materialist humbug from polite discourse. Growth will be harder to dismiss as a bean counter’s tawdry obsession when there is so little of the stuff to go round.

Yes, growth will be missed if it’s replaced by recession – growth is good for the feel-good factor and not everyone is post-materialist.

Recession would hit poor people in the rich world hard but we don’t need growth to eliminate most rich-world poverty. We just need to be fairer and more generous to people whose earning power is low.

Ganesh doesn’t mention the costs of growth – such as the demise of the stable physical climate in which our civilisations have evolved. We seem to be getting into a zone where we lose our ability to limit global warming and where our physical environment deteriorates eventually to where the present human population can no longer be supported. The change may be so rapid that, for one or more generations, perhaps in most of the world, human life will be nasty, brutish and short. Whatever the scale of the resulting fall in GDP, the decline in human well-being would be catastrophic.

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We’re not going bust – but how will we manage our money in future?

In earlier days of Covid, I argued that we should spend whatever was needed to tackle the pandemic and not worry too much about the national debt. It seemed a no-brainer then but, as we move into post-pandemic or endemic times, things don’t look so straightforward. 

To outsiders, including me, money and banking can look horribly arcane and complex. Still, it has a big influence on our lives. Active democrats need at least some understanding of it. I’ve tried to expand my own understanding and here, in summary, is how I see things:

In the UK we are in charge of our own currency, which is not pegged to any other currency or to gold or silver. We can borrow in our own currency. This means that we can’t involuntarily go bankrupt –  we can create money to settle our debts. A sovereign state is not like a household. 

We have to be careful. If we put too much money into circulation, by spending too much more than we raise in taxes, inflation can run wild and it can be difficult and painful to get it back under control. Too little money can mean unemployment, empty buildings and idle machinery. Things are particularly tricky at the moment because we have inflation driven by the world price of energy and by bottlenecks in supply chains from Covid and Brexit.

The size of the national debt doesn’t always matter much – it depends partly on who is financing it and at what rates of interest. At the moment, nearly 40% of the UK national debt is owed to the Bank of England, which the government owns, and there seems scant evidence that the debt is itself a problem. However, the debt is often used by right-wing Tories as an excuse for the austerity they love.

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No, Sir Edward, we are not going bankrupt!

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“We are going bankrupt as a nation — there will not be the money to pay for the NHS or pensions.” This was the impassioned cry from Sir Edward Leigh (Con, Gainsborough) in Tuesday’s Commons debate on public health restrictions. He referred in particular to the closing of pubs at 10pm and more generally to what he saw as a need to let businesses “get on and do business”.

Fortunately he was wrong. We won’t go bankrupt as a nation. This is because we create our own money. He no doubt thinks that business activity is always needed, through taxation, to pay for public services such as the NHS. This is not the case. The state is at liberty to create whatever money is needed to pay for public services. Taxation is needed to remove money from circulation to prevent inflation, not to pay for public services.

Inflation occurs when the economy is working at full capacity and the money in circulation creates effective demand beyond what the real economy can meet. The pandemic reduces both supply and effective demand. The supply of hospitality services is reduced by measures to prevent the spread of the virus. Effective demand for hospitality services, and for other services and goods, is reduced by the loss of income suffered by many businesses and employees whose work is affected by the COVID restrictions.

Most money circulating in the economy is normally created by private banks when they make loans. Money is destroyed when loans are repaid or written off, such as through bankruptcies, and when taxes are paid. Investment in several areas of the economy – such as hospitality, the arts and aviation – is likely to be depressed at the moment, which means that private money creation will be below normal.  It is not at all clear that the money being put into circulation through business support schemes, additional social security payments and health expenditure needs to be balanced by increased taxation. In any case, increased business activity could create its own need for taxation by stimulating an increase in the money created by private banks.

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