Tuesday, October 11, 2011

Any third round of quantitative easing money should by-pass the banks and go straight to businesses and people to restore employment and growth

then we have to deal with our energy and waste crises

The Bank of England’s Monetary Policy Committee have said there may be a third round of Quantitative Easing, after the first two failing to provide any benefit except increasing the banks’ reserves (1).

They failed because the banks are not passing the money on in loans at an interest rate that businesses can afford, partly because they’re afraid of not having big enough reserves to meet another crisis; and partly because their top managers have decided they can get off with that because politicians aren’t willing to risk any bank going under in case it sets off others like a string of dominoes and they take the rest of the economy with them.

Quantitative easing has been much derided because it’s a euphemism for printing money, but printing money is not always a bad idea – it depends on the circumstances and who the money is going to.

Printing money when inflation is low, deflation is a serious risk and the economy is on the edge of another recession and banks are refusing to loan is not unreasonable. Since banks across Europe are private creditors of the Greek government, which may be forced to default on it’s debts unless it’s creditors forgive the majority of them (with either option involving losses for the banks), quantitative easing is also seen as a way of ‘recapitalising’ the banks (i.e boosting their reserves) to avoid runs on them in the event of a default.

However if we’re going to print more money it should go in loans directly from the government to small and medium sized businesses at reasonable interest rates to boost employment; and in payments to the unemployed, the disabled and people on low and middle incomes. That way it can keep viable existing businesses going, start new ones and increase demand in the economy, rather than just padding out banks’ reserves. It would also involve a modest redistribution of some of the wealth spent on bank bail-outs back to the majority.

This could restore growth and employment levels in the short term, but we also need to re-regulate the banks, undoing decades of de-regulation from the 1980s on, or else another financial crisis could happen at any time.

That could restore at least some of the economic stability of the early post-1945 period. However we also face problems now that we didn’t face then.

Avoiding an Energy Crisis

There is the coming crisis of energy as remaining oil reserves becoming increasingly costly in money and energy to extract, along with increasing demand from China and Asia. To meet this we need increased taxes on oil and energy use to reduce waste of energy. We also need government subsidies and tax breaks for research and development of new energy sources.

Basically, long before oil reserves run out, we will hit ‘Peak Energy’ running short of energy due to the increasing energy costs of extracting oil. In the 1930s when we were extracting mostly the easiest to get at and easiest to refine oil reserves there was a return of 100 barrels of oil for every barrel of oil used to extract it (in fuel for vehicles, drilling, setting up pipelines, oil tankers etc). Today that has fallen to about 11 to 18 barrels for every 1 barrel used. (For more on ‘Peak Energy’ and ‘Net Energy’ see Mandy Meikle’s blog post here and Chris Martenson’s here, as well as this one).

That’s before you even take into account the climate change and other pollution caused.

If you think petrol prices are already high you’re right. However we can’t afford to reduce them if we want to make alternatives to oil based transport and electricity economically viable to develop soon enough to avoid a Peak Energy crisis – and if we don’t do that we’re going to be looking at rationing electricity and being unable to get anywhere by car, train or bus at all except at insane prices at best - and societal collapse into some kind of former Yugoslavia or Mad Max Beyond Thunderdome at worst. Either will make expensive petrol look like a picnic.

Having said that, far more of the taxes on petrol should be going to improving public transport and reducing thecost of using it. It’s no use telling people to use public transport more while making it more and more unaffordable and over-crowded and without more railway stations opened and more trains running.

The Rubbish and pollution Crises

On top of this there is a waste management crisis as we run out of space for landfill of rubbish (which in any case can pollute groundwater and release methane and other gases harmful to people living nearby). Government responses so far have focused on either shipping waste to developing countries which don't have the same regulations, causing illnesses and deaths there, or else incinerators as the cheapest option in the short term and a quick fix, ignoring the waste of energy and resources (especially oil based plastics)  involved and the toxic emissions. These emmisions are likely to increase the incidence of cancers, especially among children and may pollute farmland and so food and water supplies.

Instead we should have a recycling tax on all companies in Scotland or the UK, with companies producing the least waste and the most easily recyclable products and packaging paying a lower rate – plus an import tax on foreign imports that don’t meet the same standards. Recyclable or re-useable products can then be given back to firms for re-use at no further charge, their recycling and delivery funded by the tax.

Taxing the businesses that produce products and packaging which can't be cheaply and safely recycled is the only way to impose a financial cost linked to the cost in terms of peoples' health, lives and environment which will force the worst companies to change their behaviour and allow the better ones, who were already making an effort, to avoid being put out of business by firms who only look at their own costs and profit

We have to act to prevent all the crises - we can't pick and choose which to deal with as if the others don't matter

To get a political climate in which we can deal with the energy and waste crises we first have to avert a second longer and deeper recession in which hunger, poverty and mass unemployment would lead to lots of suffering themselves and could lead to 1930s style politics with the extreme right and/or extreme left gaining support. People who are left scared about whether they can feed themselves and their children and avoid losing their homes will ignore everything else to get those and will be vulnerable to propaganda.

Providing them with some security in the short term has to be the number one priority, but as soon as that’s done we have to start dealing with the energy and waste crises before they lead to disasters just as bad.

(1) = Guardian.co.uk 09 Oct 2011 ‘Third round of quantitative easing possible, says MPC member’,http://www.guardian.co.uk/business/2011/oct/09/third-round-quanititative-easing-possible

No comments: