Tag Archives: Green New Deal Group

Rebuild the local economy: prioritise labour-intensive sectors, difficult to automate, impossible to relocate abroad

Colin Hines, convenor of the UK Green New Deal Group, comments on the Guardian’s recent editorial on productivity and robots which ‘repeated the cliché that automation does cost jobs, but more are created’.

He says that the problem with this is that the new jobs are frequently in different places from where they are lost and require very different skills, hence exacerbating the problems for the “left behind”.

Also unmentioned was that just as automation is starting to really bite, the world faces a strong possibility of another serious credit-induced economic downturn, from China to the UK and a perfect storm of domestic unemployment soaring and export markets falling, as happened after the 2008 economic slump.

The answer to these problems has to be a shift of emphasis to rebuilding the local economy by prioritising labour-intensive sectors that are difficult to automate and impossible to relocate abroad.

Two sectors are key:

  • face-to-face caring from medicine, education and elderly care
  • carbon-reducing national infrastructural renewal.

This should range from making the UK’s 30m buildings energy efficient, constructing new low-carbon dwellings and rebuilding local public transport links.

Funding could come from fairer taxes, local authority bonds in which all could invest, green ISAs and a massive new green infrastructure QE programme.

This approach should become central to all political parties, set out in their next election manifestos because “jobs in absolutely every constituency” is the crucial vote-winning mantra.

 

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Green quantitative easing – good sense

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Richard Murphy and Colin Hines published the Green QE report, which is summarised below.

In March 2009 the Bank of England began a programme of quantitative easing in the UK – in effect, the Bank of England granted the Treasury an overdraft but to keep the European Union happy had to do so by buying Government gilts issued by the Treasury from UK commercial banks, pension funds and other financial institutions.

There were three reasons for doing this:

  1. To keep interest rates low;
  2. To provide banks with the money they needed to lend to business and others to keep the economy going.
  3. To make sure there was enough money in the economy to prevent deflation happening

No one was sure whether quantitative easing would work, and as we note, no one is sure for certain whether it has worked.

We do however suggest in this report that several things did happen:

  • The banks profited enormously from the programme, which is why they bounced back into profit so soon after the crash– and bankers’ bonuses never went away;
  • The entire government deficit in 2009/10 of £155 billion was basically paid for by the quantitative easing programme. If you wanted to know how the government met its costs, now you do; There was a shortage of gilts available for investment purposes as a result of the Bank of England buying so many in the market. Large quantities of funds were invested instead in other financial assets including the stock market and commodities such as food stuffs and metals.
  • The USA also undertook quantitative easing at the same time as the UK, which meant that despite near recessionary conditions commodity prices for coffee and basic metals such as copper have risen enormously. This has impacted on inflation, which has stayed above the Bank of England target rate;
  • Deflation has been avoided, although the relative role of quantitative easing in this versus the previous government’s reflation policies is unclear;
  • Interest rates have remained low.

However, one thing has not happened, and that is that the funds made available have not resulted in new bank lending. In fact bank lending has declined almost steadily since the quantitative easing programme began.

there is an urgent need for action to stimulate the economy by investing in the new jobs, infrastructure, products and services we need in this country and there is no sign that this will happen without government intervention.

For that reason we propose a new round of quantitative easing –or Green QE2 as we call it.

Green QE2 would do three things. First it would deliver the Green New Deal – the innovative programme for investment in the new economy the UK needs as outlined by the Green New Deal group in its reports for the New Economics Foundation. This would require three actions:

  1. The government would need to invest directly in new infrastructure for the UK.
  2. The government needs to invest in the UK economy, in conjunction with the private sector, working through a new National Investment Bank;
  3. The government must liberate local authorities to partner with the private sector to green their local economies for the benefit of their own communities, and it can do this by providing a capital fund for them to use in the form of equity that bears the residual risks in such projects.

A second round of quantitative easing should involve direct expenditure on new infrastructure projects in the UK.

For example there is a desperate need for new energy efficient social housing in this country, for adequate investment in railways, not to mention a reinstatement of the schools rebuilding programme. Undertaking these activities would give the economy and immediate shot in the arm as well as providing infrastructure of lasting use which would more than repay any debt incurred in the course of its creation.

This is the result of the ‘Keynesian multiplier’ effect. This is the phenomenon that occurs when government borrowing to fund investment takes place during a time of unemployment.

That borrowing directly funds employment.

That new employment does four things.

First it reduces the obligation to pay benefits.

Second, it means that the person in that new employment pays tax.

Third, it means their employer pays tax on profits they make.

And finally the person in employment can then save, which means that they help fund the government borrowing which has created their own employment.

As Martin Wolf, the eminent Financial Times columnist has said in this FT video: “Borrowing is no sin, provided we use the funds to ensure that we bequeath a better infrastructure to the future”.

This is what we believe the programme we recommend would do and this is precisely why it is appropriate to do it now when the cost of government borrowing is so low, a point Wolf and Skidelsky also make.

Borrowing now to spend into the economy is the basis for the first stage of Green QE2 – and of the Green New Deal.

Read the whole report here: http://openaccess.city.ac.uk/16569/1/GreenQuEasing.pdf

 

 

 

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New generation QE could stimulate the economy, boost employment and tackle climate change

The Times reports that Howard Archer, chief economist at IHS Global Insight, predicts that quantitative easing, which has been on hold since 2012, will be revived in August, with an extension of the Funding for Lending Scheme, which provides cheap finance for major lenders in an attempt to get credit flowing.

QE – as currently administered – sees the Bank pumping money into the financial system by buying bonds from financial institutions. Adam Marshall, acting director general of the British Chambers of Commerce, said the employers’ group would support more QE in principle “given the exceptional circumstances of the Brexit vote”. However, he called for QE to be overhauled and “aimed at injecting money into corporates and small and medium-sized companies”.

Others would advocate more widely beneficial applications; a new-generation quantitative easing programme could stimulate the economy, boost employment and tackle climate change instead of – as before – simply adding more cash to bank balance sheets and inflating asset prices.

The latest policy proposal is Green Infrastructure Quantitative Easing (GIQE). Last year, economist Richard Murphy addressed the Convention of Scottish Local Authorities to present this in detail as a programme that would buy bonds issued by the Green Investment Bank to fund making every building in the UK energy efficient, and, where feasible, fitted with solar panels, which would reduce energy bills and in the process tackle fuel poverty and cut greenhouse gas emissions. In addition, it would fund sustainable energy projects and enable local authorities to pay for new houses, NHS trusts to build new hospitals and education authorities to build schools.

gnd coverThis concept of directing quantitative easing to fund the greening of the UK’s infrastructure was first included in the 2013 report ‘A National Plan for the UK’, issued by the Green New Deal Group, convened by Colin Hines.

The new economics foundation also published a substantial 2013 report ‘Strategic quantitative easing’, apparently targeted at the banking world, with an extensive analysis of the current monetary system and applications of quantitative easing and a reference to its role in increasing exports in addition to the Green Deal and housebuilding references.

MP Caroline Lucas persuasively summarised the proposal in the New Statesman:

“GIQE could contribute to strengthening the UK economy via a carefully costed, nationwide programme to train and employ a ‘carbon army’. This army would be at the frontline of the fight against cold homes by making all of the UK’s 30 million buildings energy efficient, and, where feasible, fitted with solar panels. This would, in the first instance, dramatically reduce energy bills and fuel poverty, whilst also cutting greenhouse gas emission and cutting current dependence on imported energy.

“Secondly, a GIQE programme could also help tackle the housing crisis by financing the construction of new affordable housing that’s highly energy efficient and built predominantly on brownfield sites.

“Thirdly, GIQE could help finance improved regional public transport networks to help revitalise local and regional economies. That’s more and better buses, trains and coaches, helping people to get around their communities and stay connected . . .

“It’s time that both the Government and the Opposition, rather than continuing to hand money over to the banks as they have done since the financial crisis, will seriously consider this plan to build a resilient economy, protect our shared environment and create thousands of new well paid jobs.”