It will end badly if we rely on the speculators and gamblers for a climate change solution

I am now in a very hot and humid Kyoto having left Australia yesterday in weather that was in some places 20 or more degrees Celsius above the norm for early Spring. The heat here and back home at this time of year is rather scary given what it portends. I also do not have much time today given I have been contending with various ‘moving in’ requirements. But I read an article on the plane last night which I think marks a divide between what ‘green’ progressives think and what I think is needed. I was talking to a friend the other day who remarked he was enduring what he termed ‘ecological anxiety’. In the week that followed, bushfires across Australia have started burning some months earlier than has been the typical pattern over a long period. There are massive ‘weather’ events now all around the globe and it is becoming increasingly difficult for the sceptics to dismiss these conjunctions as random or ‘we just haven’t had data long enough’ type ruses. Some ‘green progressives believe the solution lies in governments inducing the financial speculators to shift funds into ‘green’ investments so that profitability can be safeguarded. They also believe that governments will get more money to invest this way (through providing inflation-indexed sovereign bonds). Talk about a vision for increased corporate welfare. My starting point is that we should do everything possible to keep the speculators out of our policy moves to decarbonise. It will end badly if we rely on the gamblers for the solution.

In the UK Guardian article (September 20, 2023) – What green finance needs to speed the global transition to a net zero economy – we find an argument that is based on two premises:

1. Governments are unable to fund the transition to a net zreo economy.

2. So private sector funding is required and thus conditions must be created conducive to such funding.

Of course, I reject both premises.

The authors are attached to an investment fund and of course will spruik for increased private involvement assisted by lucrative policy inducements from government.

Any new way to structure up some on-going corporate welfare is always attractive to these blood suckers.

The authors want “instruments” created that:

…. will enable the private sector and private investors to channel more capital toward climate resilience and sustainable development.

Why?

Because:

While the public sector has an important role to play in this respect, scalable solutions require significant commitments of private sector resources. With the climate crisis already wreaking havoc on poor and rich countries alike, unlocking this largely untapped pool of capital has become an urgent priority.

There is the first erroneous premise.

The public sector has all the financial capacity that will be necessary to provide “scalable solutions” to the climate crisis.

The reason they are dragging their heels is because we (the voters) are too ignorant to insist and instead have bought the lie that our governments do not have enough money and will tax us into oblivion if they were to get it off us.

And then we read:

Yet as matters stand, many investors associate climate-centric investments with “social impact” and reduced profitability … The solution is to create climate investments that are profitable, liquid and accessible to all.

I have made this point before but it bears endless repetition.

To relieve my friend’s ‘ecological anxiety’ is not about getting an EV or putting solar cells on our houses.

The solution lies at the very heart of the viability of capitalism.

I am working on these ideas at present for my next book and next week I will write in more depth about the topic.

But I cannot see a way forward for the globe where we rely on the continuation of private profit seeking to solve the global issues confronting our very existences.

These UK Guardian authors seem to think that government should just help the private sector create ‘market solution’ that minimise dislocation from climate change but pump money into assets that they claim are going to reduce the carbon footprint.

So they want “retail-friendly, liquid, easily accessible instruments such as exchange-traded funds (ETFs)”, which are just more of the same.

They want climate supporting financial assets that are “profitable, long-term, climate-aligned” and would include:

1. “climate-resilient real estate and infrastructure – meaning assets in weather-proof, stable geographies that have low climate exposure” – in other words doing nothing to promote net zero but which increase speculation in land and housing and promote “greenfield developments” – meaning plunder more land for hectares of roof and concrete.

2. “green commodities” – more mining, more land lost – “we urgently need to boost production and lower the cost of securing these commodities”.

So if you are in the degrowth camp you will see that this approach is just more of the same.

3. “a sensible climate-aligned portfolio should include assets that provide a hedge against inflation and geoeconomic risks, such as short-term and inflation-indexed sovereign bonds and gold” – more corporate welfare.

They want governments to sell more debt and index it to inflation so that the public take the risk and the investor takes none given the debt will have zero credit risk (as long as the government of issue has its own currency).

And finally:

Again, there is an added bonus: greater investments in inflation-proof sovereign assets will allow governments to do more to finance the green transition.

So they want more corporate welfare but think that the funds that the private investors are transferring to governments in return for the risk-free indexed bonds will give the governments more money to spend.

The lack of understanding here is phenomenal.

Think about the causation.

1. Government issues its own currency.

2. It spends more than it taxes back (that is, runs a deficit) which then allows the non-government sector as a whole to accumulate the currency as saving.

3. The non-government sector might alter their financial portfolios and buy some bonds rather than hold the funds in bank accounts, for example.

The funds to buy the bonds came from government!

4. The bond sales swap reserve balances (cash) for bits of paper (bonds), which in operational terms just means numbers are swapped in the banking sector and on the government side the central bank would just reduce the reserve balances and increase the ‘government debt’ account balances with no material impact on the capacity of said government to spend more than they tax back or less.

Inducing the financial markets to shift funds into attractive (for profits) assets created by governments may help private investors increase their profits but it does nothing for governments in terms of providing them with additional funds to enhance their spending.

My rule of thumb is this:

1. If the financial markets are interested in something it is better for the rest of us to keep them at bay.

2. Do not allow ‘private profitability’ to be the guiding hand for moving our economies away from carbon usage towards net zero.

3. Actively seek to reduce production not shift it.

But most of all ‘keep the financial markets out’.

Conclusion

That is all I have time for today.

A longer related piece coming up next week after I have read a few more things.

That is enough for today!

(c) Copyright 2023 William Mitchell. All Rights Reserved.