Having squandered the last
crisis, we cannot make the same mistakes again. A Green New Deal is the only
reasonable response
Mon 14 Oct 2019 06.00 EDT
American carnage and Brexit
collapse, detention camps and environmental breakdown – the daily barrage of
bad news makes it easy to forget that these are disparate symptoms of the same
disease unleashed by the 2008 financial crisis.
Back then, activists in Europe and the US
pushed for a holistic cure: a Green New Deal to deliver necessary investments
in people and planet. But establishment economists waved them off, preferring a
shot-in-the-arm of easy money. Now, all the grave symptoms of recession have
returned – and the old drugs don’t work any more, antibiotics to which the
disease has already adapted.
But now is not the time for
I-told-you-so. Never before has so much idle cash accumulated as in the past
decade – and never before has circulating capital failed so miserably to invest
in human health and habitat. We are long overdue for a Green New Deal.
Back in 2008, commentators
were quick to announce the death of financialized capitalism. Alan Greenspan,
former chairman of the Federal Reserve, was trotted out in front of Congress to
apologise for his faith in self-regulating financial markets. Activists
occupied town squares from Oakland to Madrid. And even the CEO of Goldman Sachs
admitted he had a “reason
to regret”. It seemed like radical change was around the corner.
It wasn’t. Far from
collapsing, banks like Goldman Sachs turned around to record profits, hand out
record bonuses, and rehash the risky practices that produced the Great
Recession.
Mortgage debt – the proximate
cause of the Wall Street collapse – is now at levels higher than in the
pre-crisis period. The stock of BBB-rated bonds in Europe and the United States
has quadrupled since 2008. Public debt has ballooned. And collateralised loan
obligations, or CLOs, have surged to $3tn, “reminiscent of the steep rise in
collateralized debt obligations that amplified the sub-prime crisis”, according
to the Bank of International Settlements.
How did this happen? How did
the financiers succeed in snatching such riches out of the jaws of their
bankruptcy? How did the most severe economic downturn in a century result in a
broad preservation of a broken status quo?
By a combination of carrots,
sticks and tricks.
The first two ingredients are
well known. The banks, of course, got their carrots. Governments in the US and
the EU bailed out their bankrupt private lenders, shifting the mass of their
debt on to the public balance sheets.
The public would then get the
stick. Instead of punishing the irresponsible architects of the crash, our
governments punished the pensioners, the poor and anyone who rose up to
challenge the regressive cuts they imposed.
Less well known are the tricks
deployed by governments and their central banks to stabilize the financial
system and stave off the growing demand for fiscal stimulus.
Among many – swaps, exchanges,
special vehicles purposes – quantitative easing was the most impressive, and
the most poisonous.
To understand how it worked,
recall that banks hate one thing more than bank robbers: assets on their books
that they cannot lend with interest. After the 2008 collapse, with investment
dead in the water, the central banks had pushed interest rates to near, or
sometimes below, zero – hoping to kickstart investment. But this drove bankers
up the wall, since they could not charge interest to lend their assets.
To help them along, the
central banks bought trillions of these assets from the banks, using freshly
minted cash. One knew that things got silly when the Bank of
England bought IOUs issued by McDonald’s.
On the surface, the tricks
worked. The influx of central bank money ended the recession, shrank
unemployment, even revived the United States’ gargantuan trade deficit to its
pre-2008 levels. Business-as-usual regained its dominance, and banks were
declared safe again.
Under the surface, however,
the crisis was deepening. The easy-lending environment created by quantitive
easing and rate cuts – far from raising wages and sparking new startups –
encouraged corporations to buy back their own shares, deliver more money to
their wealthy shareholders, and load up on debts in the process. In 2018,
buybacks soared to a record-high $806bn, a 55% increase from the year before.
According to a recent study by the Bank of England, the overall effect of
quantitive easing was to increase the wealth of the bottom 10% in the UK by
roughly £3,000, and that of the top 10% by £350,000.
Meanwhile, investment in the
real economy has plummeted. In the US, public investment dropped to 1.4% of
GDP, its lowest level in 75 years. In the eurozone, net public investment has
remained near zero for nearly a decade, with infrastructure investment in
southern European countries over 30% lower than it was pre-crisis. And with the
state on the sideline, the planet warmed, the environment collapsed, and
species after species moved toward extinction.
Now, we are heading back into
recession – but the old tricks don’t work any more. Rates have been cut,
liquidity has been pumped, and the economy remains at a stall. Central banks
are simply “pushing on a string”, as the former Fed governor Marriner Eccles
once said.
If 2008 saw the original
development of the Green New Deal proposal, then, 2019 is the time to deploy
it: a moment when the architects of the old strategy, pockets empty, no longer
seem able to defend it. “There was unanimity,” said Mario Draghi, retiring
president of the ECB, “that fiscal policy should become the main instrument.”
But fool me twice, shame on
me. Having squandered the last crisis, we cannot fall again for Draghi’s
promise of a mild Keynesian stimulus in the face of human extinction. Instead,
we must mobilize behind the Green New Deal as the only reasonable response to
the coming recession.
It is tempting to think of the
present moment as a crossroads: we either get our Green New Deal, or we descend
into eco-fascism. But the fallout from the last recession suggests that – if we
do not articulate a shared demand – we might just as easily get a slightly
reconfigured version of the status quo: a little more green around the edges,
sure, but with roughly the same distribution of power and resources. Such a
plan is already under way in Europe, where the European commission now calls
for a “green deal” with none of the transformative content of the Green New
Deal agenda.
With the climate strikers
marching on their front feet – and the old guard caught retreating on its heels
– we have a clear opportunity to achieve a true systems change. But it will
require us to make clear to our governments: it is a Green New Deal or bust.
