Brian Davey (Nottingham, Strategy for Losers): Green New Deals are clearly the new big idea. Governments need to spend to avert the worse kind of slump and it makes sense for their expenditure to focus on renewables and energy efficiency. At the same time the finance system needs greater regulation.
This is instantaneously the new conventional wisdom. The beginnings of an alliance created by the New Economics Foundation (NEF) for a Green New Deal appears to be pushing at an open door. The United Nations Environment Programme are calling, apparently, for something similar.
But are these ideas radical enough for the problems that we face? The NEF alliance has created a draft programme about the banking crisis, peak oil and climate change that is effectively relating the finance and money system to the limits to growth. However it leaves out that key idea and its implications for the banking and finance system.
The significance of peak oil and climate change is that the economy can no longer grow - or grow non destructively - because the energy system cannot sustain growth any more. One half of the demand for energy in the economy is the result of the growth process - it is used to build infrastructure, buildings and machinery. But it is increasingly costly to get hold of fresh carbon energy. Even with new technologies of extraction the energy cost for acquiring oil and gas is rising. Oil and gas can be replaced with coal but coal is more climate toxic and even if pumping coal derived CO2 underground can be made to work effectively at low cost...if.... nevertheless "carbon capture and storage" is still 15 years and more away from generalisation. The emissions of a coal renaissance in the meantime will be disastrous for the climate system. Climate scientists warn we may already be in the early stages of a self reinforcing avalanche to disastrously higher temperatures.
This has implications in the finance and banking sector too. If the energy system cannot sustain more non destructive growth then we need a different kind of money and finance sector. 97 per cent of the money in circulation are bank deposits which were created by the banks when they lent money. Only 3 per cent is notes and coin. Lending money into circulation, with the expectation that it will be repaid with interest, pre-supposes that there is extra output that the banking sector can share when they get those interest payments. If, on the other hand, the economy shrinks, then some repayment and interest payments will not be possible and the banks will lose more money. They will become "de-capitalised" again. Depositors will get scared and we will be in the throws of another banking crisis - with yet more taxpayers money shovelled into a black hole in order to prevent the collapse of the finance system.
None of the Green New Deals address this fundamental problem. The NEF New Deal suggest that there *might* need to be a global jubilee of debt cancellation, an extraordinary amnesty for debtors. However, during energy descent, an economy with a debt based money system would face the need to do this again and again....
....Or it would happen again and again if the banks could be induced to lend and companies to borrow. However, in energy descent that appears to be rather unlikely using current lending models. The risks and challenges of a transition to the different economic structure needed at this time are so great that conventional debt finance is not going to be very useful anyway. There will be no "return to normal".
Because of climate change and peak oil risks in the real economy are going to be much higher. Thus capital providers will need to spread risks. But they will also want to have a deep knowledge of what they are investing in and with whom they are investing. That means a personal and deep knowledge between capital providers and capital users in real relationships. They will also want to feel they can rely on state backing. That is nothing like the global securitisation and innovation trash that we have seen over the last decades.
What we need instead are financial institutions with some responsibility to local communities and real relationships where investors share risks with project developers by funding though taking equity stakes. That means sharing in gains but sharing in any losses too. This is the alternative to a debt relationship which attempts to foist all the risks on borrowers while lenders kid themselves that the risks are low because there have insurance against credit default in derivatives markets.
In all of that there will be a place for financial intermediation between savers and people involved in productive capital investment. But the financial system cannot and will not be anything like the existing banking or shadow banking system. The creation of money is too important to be left in the hands of bankers. They have amply demonstrated that they cannot be trusted to create the money on which we all depend. The current crisis was created on the back of an asset price speculative bubble and had virtually nothing to do with productive investment at all.
In conclusion. let's go back to first principles. We are all dependent on money for transactions as a collective arrangement that is the core to exchange relations within society. As such the money system can be described as a social and cultural commons - no one person or institution invented it or created it. It has been the result of a historical process in which all of society participates. Yet this commons, which should be managed as such, in the interests of all, has been privatised and run in the interests of private corporations. The people who run the banks know that because they are running a commons as their private fiefdom they have the rest of us, as taxpayers, over a barrel. They have to be rescued because otherwise all our arrangements for meeting our most basic needs will collapse.
There is thus a structural fault in the system - a commons is not being managed as a commons, it is being managed privately. The real solution, the one that gets to the root of the problem, is the one that makes the process of money creation a matter for an accountable public body to fulfill in the interests of everyone in society equally. That means forbidding to the banks or any private individual or institution the right to create money. A public body should do this, creating only so much money at the economy needs, and then either giving this money into circulation to everyone equally or making the available money to other accountable public bodies like elected governments to spend into circulation.
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