Monday, 16 June 2014

Positive Money’s strange ideas on the environment.

I’m all in favour of substantial increases in the price of diesel and petrol. Plus I favour subsidies for windfarms, and the like.
Unfortunately “the environment” is a currently fashionable cause celebre No.1, which means that proponents of every movement from monetary reform to feminism to opposition to fox hunting try to claim their movement brings untold environmental benefits. Normally the connections between those movements and matters environmental are tenuous in the extreme. And certainly that’s the case with the alleged connections between monetary reform and environmental matters as set out by Positive Money here. I’ve put quotes from the PM site in green below.
Their first argument is: “One direct link between the current monetary system and the environment is the effect that recessions have on environmental regulation and investing in the long term. In a recession it is common to hear the argument that costs to businesses are too high due to regulations which are represented as onerous, and that the relaxation of these regulations would allow businesses to hire, resulting in reduced unemployment and increased output.”
They then say “Although the validity of this argument is debatable…” Yes quite. Enough said.

 “Debt repayments: since loans have to be repaid in instalments on fixed dates people are incentivised to pursue activities that provide quick returns.”
As regards “quick returns”, businesses aim to maximise return on capital ANYWAY! That’s part of the profit motive. And even the public sector aims to keep capital investments productively employed, and quite right.
Next: “People pay off debt by producing more goods and services. Higher levels of debt incentivise higher levels of growth.”
That’s a bit like saying “people pay for food by producing more goods and services, ergo food should be banned.”
The reality is that people and firms incur debt where they think it makes sense to do so: i.e. where they can enjoy a given level of output or income by incurring MORE DEBT. Thus the freedom to borrow and lend (via banks for not) ought to produce a given amount of GDP for less work or a lower total consumption of resources than would otherwise be the case. I.e. the freedom to borrow and lend is basically desirable and if anything results in LESS resource consumption (including energy) not MORE resource consumption.
However, the private banking system IS SUBSIDISED under current arrangements (e.g. the TBTF subsidy). Thus the total amount of debt or lending is presumably above optimum, and that in turn will lead to more capital intensive forms of production than are optimum. But that additional or more expensive capital equipment will in some cases come in the form of more ENERGY EFFICIENT types of equipment than would otherwise be the case. Thus it  is not obvious on the face of it that bank subsidies lead to more energy consumption.

Loan repayments.
PM’s next argument is:
“Loan repayments: when loans are repaid money is destroyed and the money supply shrinks. This generally results in a self reinforcing recession. To avoid this, new loans need to made simultaneously, increasing a need for growth as above.”
Well first, loans in the aggregate just AREN’T repaid. That is, commercial bank created money expands almost every year, with the possible exception of a couple of years during the recent recession.
Second, if there was a recession and for some reason increased borrowing and lending was forbidden, there’d STILL BE a desire by all and sundry to get out of the recession: i.e. there’d still be “increase growth”. It’s just that the increased growth would come in forms that did not involve more borrowing (e.g. going for more labour intensive forms of production).

PM’s third argument.
This is that, “Indebtedness in society is liable to increase economic activity, as individuals struggle to pay off the interest on their debt. In other words, debt drives growth.”
Well that’s just a repetition of points contained in the FIRST TWO arguments above.

As I suggested above, while I support measures to cut environmental damage, the unfortunate truth is that half of the “environmentally concerned” folk in the country are a long way from being 100% clued up as the connections between environmental matters and other matters.

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