Wed Sep 4th, 2019 at 01:31:20 AM EST
Austerity-obsessed Europe could combat climate change without raising taxes Lars Syll Real World Economic Review
Just to be clear, the European countries have been far better global citizens in this area than the United States. Their per-person emissions are roughly half as much as the United States. Furthermore, many European countries have already taken aggressive measures to promote clean energy and encourage conservation.
But in the battle to slow global warming, simply doing better than the United States is not good enough. The European Union can and must do more to reduce its greenhouse gas emissions.
This is where the continent's mindless push for austerity comes into the picture. European governments, led by Germany, have become obsessed with keeping deficits low and balancing budgets. Most have small deficits or even budget surpluses.
This means that there are underutilized resources in the Eurozone that can be tapped without producing additional inflation. The result of additional government spending on a Green New Deal would simply be a higher growth rate for the GNPs of constituent member states, perhaps even positive interest rates and a healthier environment.
There are certainly circumstances under which budget deficits can be too high, but these clearly do not apply to the countries in the European Union at present. Inflation has been persistently low and has been falling in recent months. The inflation rate for the eurozone countries has averaged just 1.0 percent over the last 12 months.
The story is even more dramatic if we look at interest rates. The classic problem of a large budget deficit is that it leads to high interest rates that crowd out investment. Not only are interest rates extraordinarily low across Europe, in many countries, investors have to pay governments to lend them money.
This is the context in which the concern for low budget deficits in these countries is utterly mindless. The financial markets are effectively begging these governments to borrow more money, but they refuse to do so.
The need to address global warming makes this refusal especially painful. The fact that interest rates and inflation are so low indicates that these governments are needlessly sacrificing growth and jobs. That story is bad enough, but the picture is much worse when we consider the pressing need to address global warming.
What are the alternatives?
These governments could either pay directly to install solar and wind power, or provide large subsidies to businesses and homeowners. They could be subsidizing the switch to electric cars and making mass transit cheap or free, while they vastly ramp up capacity. They could also be providing large subsidies to countries in the global South to take the same measures, and to also save the rainforest in the Amazon.
The best part of this story is that they don't need to raise taxes to pay for this spending. There is considerable slack in these economies, which means that they can devote several hundred billion dollars annually to slow global warming without requiring additional taxes from their populations. It is possible that a really ambitious program, which might be needed, will require additional tax revenue, but for now, these countries are needlessly leaving money on the table while the planet burns.
It is common in policy circles to ridicule U.K. Prime Minister Boris Johnson for his seemingly mindless pursuit of Brexit. While Johnson surely deserves much ridicule, the proponents of austerity deserve a much larger dose. Keeping people out of work by failing to take more aggressive steps to address global warming is far more clownish than anything that Boris Johnson is doing with Brexit.
In essence, when there is slack in an economy the government has policy room to spend for social purposes (or tax cuts for the rich.) If this spending is on projects that will increase productivity, they will more than pay for themselves over time. Lower cost of energy and transportation are obvious targets.