By Thornton Parker
The way a problem is seen may determine how or even if it gets solved. Global warming (GW) and climate change (CC) are going to scramble many ideas about how developed economies work. At root, GW and CC must be seen as money problems, and modern money (MM) is the key to solving them.
Energy companies spend money to find, extract, and market fossil fuels. Other companies use money to create products and services that consume fossil fuel energy. Money enables every step from ground to atmosphere and is the common ingredient of all aspects of the global warming problem.
Climate change results from global warming, and it too must be seen as a money problem. Large regions of the country (and the world) face losses from rising sea levels, record storms, floods, fires, and draughts. They will have to adapt, protect, abandon, or Nature will choose for them. Whatever they do or don’t do will involve money.
But every proposal to reduce human contributions to GW or deal with CC has to overcome the same question—how can you pay for it? The correct answer must be that money is not a scarce resource; it is an enabling, leadership tool to be created as it is needed. The strongest argument for modern money is that despite what most people believe, it is vital for survival.
Ironically, the basics of MM aren’t so modern. Since the United States began, the government has created dollars by paying them into the economy before it could tax any back out, and banks created dollars by lending before people could save and deposit them back. Government payments and bank loans were the horses—taxes and savings were the cart. The economy could not have started with no dollars and now have trillions of them any other way.
But just as there climate change deniers, there are promoters of the myth that money is a scarce resource that limits what can be done about GW and CC. Some are both deniers and myth promoters who profit from fossil fuels and controlling money.
Advocates of MMT have tended to debate other economists by showing why popular ideas about money are wrong. I think a better case is that despite what most economists say, if we don’t want to surrender to GW and CC, unprecedented expenditures will be required, and they can only be made if the necessary dollars are created.
GW and CC will require big changes in business and economic ideas. Many still see natural resources and the environment as free gifts for humans to use as they wish. That view must fade as GW and CC are recognized as the real diving factors.
Environmentalists have made that point for decades but the general public has had little sense of urgency. With sea levels and temperature changes being measured with increasing accuracy, the Wall Street federal debt clock should be replaced by flood gages and population shifts. Money will change from being seen as a scarce resource to being a tool that humans create and use.
Measurements show the planet is warming and sea levels are rising at increasing rates, so the most critical resource is time. There is no substitute and whatever is wasted can never be recovered. But economists and businesses use the time value of money or discounting to show how the value of today’s investments decrease over time. Tax laws reinforce this view. This may make sense for individual companies but not for the whole country because, except for foreign transactions, interest payments and receipts net out to zero. If all companies make similar decisions that way, the country can make the wrong decisions because of a flawed analysis technique.
Companies depreciate fixed assets over time on the assumption that they will wear out or become obsolete. But the opposite can be true; some well-chosen assets are going to increase in value. This has always been true, hence speculations and long term investments. But GW and CC may push the pace and magnitude of increases to new levels. Land is assumed to be fixed, so it is not depreciated. But CC will cause some land to decrease and some to increase in utility and value.
The future of the country can be affected by whether new money is used to preserve democracy or increase wealth concentration. The use of desirable and endangered land is a good example. The most valuable real estate in Miami has been on low ground near the Atlantic. But the city is on porous rock so retaining walls won’t work because water can leak under them. Higher ground, back from the ocean, has been less valuable and that is where poorer people have lived. Now, speculators are buying up that land and displacing the inhabitants. The net effect will be to leave a few rich people much richer and many poor people much poorer. Do we want that pattern to be repeated all across the country?
The debate between proponents of free markets and industrial policy is another area where choices will have enduring effects. Books have been written on this, but I will make one point. The recoveries of Germany and Japan after World War II and more recently the growth of the Chinese economy show how well industrial policy can work. When western economists told the Japanese that they were doomed to subsistence existence after the war, their reaction was, “If that is what your economics says, we must invent another one.”. So they did.
GW and CC are going to force major changes in energy, manufacturing, transportation, agricultural, construction, public utility, insurance, and other major industries. All of them will be forced to develop new technologies, invest in new plants, train or retrain employees, and absorb losses by writing off past investments. Even more extensive than mobilizing the US economy for World War II, the changes will have to be made concurrently and continue for decades. Economic analysis that are predicated on industries returning to equilibrium will not serve for what is coming.
Vast amounts of modern money will be required and some of it will be wasted. Everybody knew that the tools of war would be destroyed or scrapped when the war was over. Mobilizing for GW and CC will be somewhat similar as again, the need will be to save time, not money.
There are other areas of economic thought that won’t be suitable for dealing with GW and CC. Military planners have often been accused of preparing to fight the last war again. That is what main-stream economists are doing. I submit that the best way to sell the idea of sovereign modern money is to go beyond operational details, for which there are alternatives, and show why creating enough money is fundamental to coping with changes that we cannot avoid.
The scarce money myth must be exposed. One critical weakness is that it is silent on how money is created. It does not explain how this country went from zero dollars to having trillions of them without runaway inflation. It must be shown to be a tool of conservatives who want to maintain the status quo because it benefits them.
Another weakness is that the myth offers no hope for dealing with GW and CC adequately. For example, the sequential steps that would result from a proposed carbon tax could not come close to working within the limits of time or absorbing the inevitable losses of sunk costs.
The scarce money myth is to the knowledge of sovereign modern money as a geocentric model of the universe was to the heliocentric model of the solar system. The first was a dead end. The second led to historic progress including the space program. Promoters of the myth should be challenged to show why it is not another dead end.