Covid-19 and a Green New Deal?
Julia Tom, founder Green New Deal NL
I will be writing and posting about the current Covid-19 pandemic, climate change, and possible parallels in responses to both these global crises.
Can we learn from this current crisis? Can our response to Covid-19 help us build resilience - in our economies, in our governing structures, in our community ties, in our daily decision-making - that can also help us in our future fight against the climate crisis?
April 26, 2020 (with update May 5, 2020) Who's afraid of government debt?
"The idea of debt-free money rests on a misunderstanding. Wherever there are savings and loans, there are claims and thus debts. Even when the amount of money in totality stays constant, there can be changes ongoing in internal debt positions."
"Het idee van ‘schuldenvrij geld’ berust op een misverstand. Waar wordt gespaard en geleend, ontstaan onderlinge vorderingen en dus schulden. Zelfs als de geldhoeveelheid in zijn totaliteit constant is, kunnen er voortdurend veranderingen in onderlinge schuldposities optreden"
"The absolute ban on monetary financing must be reconsidered."
"Het absolute verbod op monetaire financiering moet worden heroverwogen."
Wim Boonstra, RaboResearch Economisch Onderzoek (Economic Research)
"According to [Adair] Turner [former head of the Financial Services Authority], the most important questions with regards to monetary financing is 'whether it is possible to construct a set of rules and responsibilities that protect against a dangerous misuse of monetary financing, but that make the use of it in appropriate amounts and at appropriate times possible.'"
"Volgens [Adair] Turner [voormalige hoofd Financial Services Authority] is de belangrijkste vraag met betrekking tot monetaire financiering ‘of het mogelijk is om een set regels en verantwoordelijkheden te construeren die beschermt tegen gevaarlijk misbruik van monetaire financiering, maar het gebruik ervan in passende hoeveelheden en in passende omstandigheden nog steeds mogelijk maakt.’"
Thomas Bollen and Jeroen Martijn van der Linden, Follow the Money
Discussions of government debt often quickly escalate into heated terms that reveal a fundamental divide in people's views on money. The two sides of the divide fall into their camps around a very fundamental question: is the sum of money available to governments fixed, or is there room for growth?
If we take a step back, we can see that this question has an even more fundamental questions at its roots: namely, where does government money come from? According to the fixed-sum view, government money is a reflection of assets - be they physical (cash in the wallet) or financial (money in the bank account) - that hard-working populations have built up over lifetimes and generations. In this view, governments should serve essentially as office managers, taking people's hard-earned money and managing it such that it is not depleted in the future. Government debts are signs of poor management, and threaten to drain the assets that people have worked so hard to build.
This view on government and government finances is deeply rooted in the popular imagination. It seems like solid, common sense - how can there be any alternate view?
The fact is that the large majority of economists agree that this is NOT how government money works. One can liken the gap between everyday perceptions and the world of expertise to the one that opened up when Einstein declared gravity to be relative. But while Einstein's theories have no influence on our everyday choices, understandings of finance feel personal. And unlike Einstein's theory of relativity, theories around money can and do form the basis for people's votes in our democratic systems. Put up to vote, people invariably chose for the economic version of Newtonian theory: Yes to money as a solid, fixed entity to be preserved; No to government debt!
The 'Einsteinian' view of money ruling the world of expertise starts with a very different image to the 'Newtonian' one: rather than money starting off as a fixed sum, or pot of gold, money is understood to come into the world as debt. Whether it be through home mortgages, loans for farming equipment, credit for a new line of clothing, or government-issued bonds - each time new debt is taken on by a person, a business or a government, money is created on the other end. It is through this creation of debt that money comes into circulation into the economy. And whenever this money is paid back to the government - usually in the form of taxes - this line of credit, this amount of money, is destroyed.
In this world, governments can be more likened to start-up business owners than to office managers. The creation of money is start-up capital for the whole economy, flowing into equipment, people, activities, organizational structures. The sum of money is never static - it changes each time someone opens up a bank account or pays a tax bill. Money is a dynamic, relationship-dependent system, not a pot with a fixed number of coins. The stability of the system is determined by a matrix of elements, including such indefinables as confidence in the currency/economy, and dynamic clusters extending into the future, such as employment rates, business creation, tax base, productivity, health, education levels, not to mention difficult to quantify factors like the quality-of-life or the desirability of living and working in a given location.
"But how about the government debt opening up to handle the Covid-19 crisis?" I hear people cry in despair. "Doesn't it mean anything? Don't we have to close the debt as soon as possible?"
It depends, is the answer. The Dutch government could decide to balance its accounts immediately by cutting services and increasing taxes. But on a broader accounting level, the key question regarding debt is not "how to eradicate it?", but "how much does it cost to hold it?" The costs of debt come in the form of interest rates, and these are calculated according to the risk that the debt will not be paid back. Private individuals, being individual carriers of debt with an (unfortunately) 100% mortality rate, form what is considered to be high-risk group, and thus interest rates are high for private individuals to hold debt. Household debt is thus expensive and undesirable, with high interest payment costs causing debt to compound and spiral out of control. Corporations form a middle-risk category, and one sees corporations sometimes even chosing to hold debt - if the interest rates are low enough - to reduce their declared profit margins and thus their tax expenses. Governments like the Netherlands are at the lowest end of the risk spectrum, with a healthy, productive, well-educated population, low levels of corruption, and functioning tax system all guaranteeing that the government will continue to collect tax income and pay back debts in the foreseeable future.
Currently, the Dutch government is raising the current extra Covid-19 rescue money through bonds, or long-term promissory notes. The interest rates on these government bonds is currently negative: the Dutch government is actually being paid for the money that it is raising in its Covid-19 rescue packages. I will repeat: the Dutch government is presently being paid money to carry debt. Such a debt load is the opposite of risky - it is actually smart business practice. And the costs will remain low as long as the Dutch government continues to demonstrate an ability to pay back its debt in the future. Future repayment of debt depends upon the strength of the future tax base; and for these purposes, it could be key to transition the working, tax-paying population now to jobs that will survive future shocks and add value in a zero carbon economy.
"Then what are the risks to government debt? If there were no risks, couldn't every government just hold infinite debt, printing money to fund every possible whim and desire?"
The primary economic concern with government debt is the risk of inflation, with a very particular historical shadow hanging over the EU: 1920's Weimar Germany, where hyperinflation was so dramatic that people were paying for groceries with literal wheelbarrows full of money. The largest bank note ever created was printed then, with the 100 trillion Mark note. This calamitous period of hyperinflation still looms like an ever-present threat over the European Union. But modern facts speak to a different threat: namely, over the past decades, the EU has had problems with its inflation rates staying under the target of 2%. Current EU structures and rules are set up with guardrails to prevent hyperinflation, most notably being the stipulations against the European Central Bank (ECB) turning on its printing press to fund the economies of any EU countries (monetary financing), and an EU-wide cap on each country's debt to 60% of its GDP.
The EU is unique in the world's major economies in imposing these restrictions on government debt and monetary financing. While each major industrial country has rules to keep the functioning of central banks separate from politics, the US, the UK and Japan (the number 1, 6 and 3 GDP's in the world) all have central banks that can print money to fund their governments, and have maintained public debt rates for years of above 60% of GDP. Japan's public debt has consistently stayed above 200% of its GDP this past decade. Each of these economies - Japan's in particular - have struggled to meet inflation targets in recent years, and have turned on printing presses to try to counter this problem. The EU has no similar means to release these brakes when confronted with deflation as a threat, rather than inflation.
EU economists are currently discussing numerous routes for raising the money in the Covid-19 crisis. And as governments search for enough money, an open secret has now comes to light: namely, that the ECB has actually been printing money since the 2008 crisis, not offering this money directly to individual countries or citizens, but buying countries' bonds, or sovereign bonds, as well as corporate bonds. Known as "quantitative easing" (QE), the deployment of this mechanism has already cracked the iron-grip of the no monetary financing ideology previously held within the European Union. In this crisis, the ECB has gone further down this route by creating a Pandemic Emergency Purchasing Programme (PEPP), which dedicates €750 billion to the further purchasing of sovereign and corporate bonds to inject money into governments and corporations.
The question now is whether the strictures against monetary financing will loosen enough for the ECB - like the US Treasury, the Bank of England and the Bank of Japan - to print money to directly finance countries and citizens? The ECB has indicated a readiness to do "everything that is necessary" to keep countries afloat during this Covid-19 crisis. Will this readiness entail a rewriting of the rules once and for all?
It remains to be seen whether the European Union's banking structures, set up to ward off the ghosts of the past, can adapt quickly enough to respond to the present crises. It requires its leaders to buck the old securities of a balanced budget sheet, and to teach its own citizens the complexities of the monetary system. And it requires for leaders to think proactively, not defensively, about how and where to invest to make for the most productive, future shock-proof economy and society. Education, research, health care, transformation of the energy infrastructure, creation of a circular agriculture, improving nature and ecosystems - these are all expensive. But as all money is debt, the real question is: what kind of debt will be offering the most payback in the future?
*update May 5, 2020 - the German High Court has just issued a ruling on the original ECB sovereign bond purchasing program (not the PEPP), declaring it unconstitutional. It has ordered the German Bundesbank to leave the ECB within the next three months, unless the ECB is able to either restructure its program or to explain it as "proportional". It is surprising that the German High Court has ruled now on this case, as the German High Court had previously issued a ruling that the ECB's program was not in conflict with the ban on monetary financing, and sent the case on for further ruling to the European Court of Justice in Luxembourg, which in 2018 also ruled in favor of the ECB program. It is now a question how this ruling will effect the ECB and the German Bundesbank. Will they ignore the German High Court ruling, choosing instead to follow the 2018 European Court of Justice decision? Or will the ECB try to find a way to either restructure its program, or to explain this program as falling within the criterium of "proportionality"?
The ruling could be devastating to both the ECB's original and newly-announced programs of sovereign bond purchasing. We will be following the fallout from this ruling in the days and weeks to come. The question does immediately arise whether other methods of financing government debt, distinct from ECB bond buying, will be able to rise up to fill the present, urgent need. The European Commission has just recently agreed to consider a stimulus package of loans and direct grants to countries amounting to €2 trillion: it will be interesting to note how this package takes shape. Other economists have floated the idea of central banks like the Nederlandsche Bank issuing one-time 100-year bonds at zero interest. The ECB bond buying program was already under attack for keeping interest rates artificially low, opening the door to investors to buy up assets, causing exploding real estate prices across major cities at the expense of growth in pension funds and personal savings accounts. In a best-case scenario, this ruling could lead the EU and its governments to confront the inconsistencies in the current system head on, creating solutions to directly finance governments and societies where the need is pressing and the long-term goals salient to everyone.
Read (Dutch): Hoe werkt geldschepping?
Read (Dutch): Economen vragen naar een radicale crisismedicijn: de geldpers
Read: The ECB must finance Covid-19 deficits
Read: The perils of more debt: Europe must find the "Ways and Means"
Read: Everything you've been told about government debt is wrong
Read (Dutch): Is het erg dat Nederland miljarden staatsschuld heeft?
Read: Weimar, The Truth about History's Most Infamous Hyperinflation Horror Story
Read (Dutch): Duits Constitutioneel Hof: ECB-opkopen is illegaal
Read: Coronavirus: EU moves towards trillion-euro recovery stimulus package
Read (Dutch): Hoe kan de overheid de economie het beste steunen in deze crisis?
Read: German court ruling ties ECB's hands - now and in the future
Read: Proportionality - a German approach
April 21, 2020
How to close the Green investment gap - from the European Green Deal to a new Green Marshall Plan
It must thus be outlined that even if the [European] Commission succeeds in mobilising €1 trillion of investments over ten years, this would just represent a third of the additional investment needs associated with the European Green Deal.
Grégory Claeys and Simone Tagliapietra, Breugel
A virtuous cycle may be created where economic progress reduces political
tensions, broadening support for further growth enhancing economic reforms as
well as making possible the finalization of the banking union and other common
shock absorbers in the eurozone...Together with the higher inflation, this will alleviate
the debt burden and so create much needed fiscal space.
Rens van Tilburg and Aleksander Simić, Sustainable Finance Lab
The European Commission has recently announced ambitious plans to mobilize €1 trillion of investments towards its goal of slashing greenhouse gas (GHG) emissions by 50-55 percent across the EU by 2030. It is generally acknowledged that this price tag, while a dizzying figure in and of itself ("One Trillion Euros!"), is unfortunately still not enough to reach the stated emissions reductions goals. By contrast, the Green New Deal plan recently proposed by US Senator (then-presidential candidate) Bernie Sanders, calling for emission reductions of 71 percent by 2030, has a price tag of $16,3 trillion, or €15,02 trillion. Broken down annually, the €1 trillion figure spread over 10 years (2021-2030) becomes €100 billion. And further divided up between the now-27 member states, the €100 billion averages out to €3,7 billion a year per country. To put this figure in perspective, KLM-Air France recently rejected a bailout proposal of €6 billion by the Dutch and French governments, ultimately seeking €10 billion to stay afloat through the Covid-19 crisis.
Here is a short list of the infrastructure challenges needed to be tackled to reach the EU target of 50-55 percent GHG reductions by 2030:
- Transformation of each EU country's energy supply from fossil fuels to renewables
- Refurbishing each country's energy network to accommodate renewables, including adapting electricity grids to manage energy storage, flexible capacity and demand response
- Retrofitting each country's inventory of public and commercial buildings, as well as residential housing - hooking up to renewable energy, insulating buildings, transferring in energy-efficient appliances
- Upgrading transportation and transportation networks to low-carbon options across industries - shipping, trucking and aviation - as well across public sectors and amongst private households
- Reshaping agriculture around sustainability and long-term soil health
- Rebuilding ecosystems for natural carbon capture potential
The European Commission's Green Deal sets out excellent targets, and has started the ball rolling on gathering the financial resources to make the necessary changes. But to reach its ambitious goals, more financial firepower is needed beyond a per country average of less-than-half-an-airline bailout.
But where can the sums of money be found to make the changes needed?
In my previous blog, I looked back at the original New Deal, and in particular, at the role that FDR's public bank, the Reconstruction Finance Corporation, played in financing the scope, scale and speed of the New Deal's transformative programs. Within the European Union, there are two layers of public banks already present: National Promotion Banks (NPB), and European-level banks, headed by the European Central Bank (ECB).
I will start by looking at the ECB. In the wake of the 2008 financial crisis, the ECB already displayed a willingness to extend its measures far beyond its normal scope, dropping its interest rates below zero and sustaining a years-long regimen of intensive bond-purchasing from countries across the EU.
The Covid-19 crisis has triggered a new flood of purchasing by the ECB in the form of the €750 billion Pandemic Emergency Purchase Program, with government and corporation assets (otherwise known as debt) now as the target.This lifeline is extended to governments and corporations with the understanding that these together serve as pillars of national economies, crucial to keeping small and medium businesses, private households, and public projects afloat. But with all areas of the economy currently ground to a halt, it is a question whether this aid will "trickle down" to these more vulnerable businesses, groups and individuals in time to avoid widespread defaulting. There is also a new risk facing economies in this crisis, as evinced by the plummeting of US crude oil prices below zero today. Severe deflation - prices getting locked into a cycle of falling - can happen when economies lose production and purchasing power at the same time. Businesses and citizens lose the ability to buy the literal grease in the economy's wheels.
There are increasing calls for the ECB to take a step further towards active intervention in this crisis. As the largest European public bank capable of printing money, it could expand its scope beyond purchasing sovereign/corporate bonds and debt to 'going direct' in helping citizens and targeted businesses. Proposals abound for the forms that this direct aid could take: from financing businesses and public projects with bond purchases or long-term, low (negative) interest rates, to depositing 'helicopter money' directly into the accounts of citizens, with some calling for a one-time sum of €1000 similar to the U.S. $1200 stimulus check.
Each country's own network of National Promotional Banks could be crucial for serving as vehicles for channeling and targeting the money to the local businesses and citizens in need. The Netherlands has three NPBs: InvestNL - devoted to financing sustainability start-ups; Bank Nederlandse Gemeenten - financing (semi-)public organizations, and Nederlandse Waterschapsbank - founded after the North Sea floods of 1953 for the purpose of handling Dutch water boards and public sector projects. None of these banks is capable of printing money, but they could serve as national gatekeepers and incubators for transforming the Dutch sustainability infrastructure, should financing be provided by the ECB.
There is precedent for an outside institution financing a national promotional bank for a nation's recovery and pursuit of long-term societal goals. Post-WWII, the Marshall Plan provided funding to set up the German KfW, or Kreditanstalt für Wiederaufbau ("Reconstruction Credit Corporation"). Modeled on the Reconstruction Finance Corporation, money went into urgent reconstruction projects, with projects deemed too risky for private capital singled out for funding. Among the projects deemed too risky by private investors and taken up by the KfW: infrastructure for energy, water, electricity and transportation. As FDR had seen, quick development of crucial public projects was possible with a public financial institution willing to fund this risk. The KfW has been credited with laying the groundwork for the German Wirtschaftswunder ("Economic Miracle") of the 1950s. And the miracle continues to this day: the initial Marshall Plan investments into the KfW - having been made through a bank and thus being repayable to a bank - were all returned plus some, and the Marshall Plan starting capital is still in circulation to this day. The KfW now spends nearly €30 billion a year on climate and sustainability projects both at home and internationally, and on the domestic front has provided much funding to the Energiewende ("Energy Transition") program that has seen German household use of renewable energy rise to 42% in 2019.
Can the Marshall Plan funding of the KfW post-WWII serve as a model for the ECB funding European National Promotional Banks post-Covid-19? Could this funding be channeled into developing a new, sustainable infrastructure across Europe, heralding the dawn of a Green European Wirtschaftswunder in upcoming years and decades?
Read: A trillion reasons to scrutinise the Green Deal Investment Plan
Read: The New Unconventional
Read: Bernie Sanders' Green New Deal, explained
Read: Positive Money Europe - Corona Crisis: The ECB has a new Bazooka, but still no Magic Bullets
Read: Zo kan Europa ons door de crisis helpen
Read: Wouter Bos over Invest-NL: voor minder dan 5 miljoen hoef je hier niet aan te kloppen
Read: Bank Nederlandse Gemeenten
Read: Nederlandse Waterschapbank
Read: A German Economic Miracle for Europe and the Entire World
Read: KfW's significant contribution to the energy transition
April 14, 2020
Public banks and funding a Green New Deal
Low-carbon infrastructure needs constructing, local jobs protecting, fossil fuels need to remain in the ground, the planet needs cooling, and social equity needs action. Yet there is no hope of this type of green and just transition without financial institutions that can be democratically commanded to function in the public interest.
Thomas Marois and Ali Riza Güngen, The Next System Project
Was het vijftig jaar geleden bijvoorbeeld nog normaal dat geld zowel bij commerciële als publieke instellingen gestald kon worden, tegenwoordig is een publiek alternatief niet meer voorhanden...Dat veranderde landschap brengt problemen met zich mee voor de vier ‘kernwaardes’ waaraan een financieel stelsel zou moeten voldoen: dienstbaarheid, stabiliteit, rechtvaardigheid en legitimiteit.
While it was normal fifty years ago that money could be held in both commercial and public institutions, these days the public alternative is no longer available...This changed landscape brings problems with regards to the four 'core values' that a financial body should be fulfilling: service, stability, justice and legitimacy.
Egbert Kalse, NRC
Is it possible, through direct public financing, to harness public investments at the speed and scale needed to meet the current economic crisis, and to do so in a way that is fiscally responsible over the long run? Looking back to the model provided by the Reconstruction Finance Corporation under the U.S. President Franklin Delano Roosevelt in the 1930s, one can see precedent for when the public sector - under the stewardship of public banks - simultaneously rebuilt an economy, offered large-scale relief, and laid the groundwork across all sectors of society for future preparedness.
The speed and scale of the original New Deal's transformation of the physical, social and economic landscape is mind-boggling. Journalist Kevin Baker from the American Prospect compiles the following list of the public infrastructure built in 10 years under the New Deal:
"...nearly 5,900 school buildings, 325 new firehouses, 400 post offices and nearly 400 airports; 212 dams and canals, 894 sewage plants, 29,000 units of public housing, 78,000 new bridges, 381,000 miles of power lines, the quarter-million miles of road—the list goes on and on. And there was the physical environment restored: the 2.3 billion trees planted, the billion fish restocked into waterways, the 2,400 plant and tree nurseries established, the thousands of square miles of soil reclaimed."
Key to the original New Deal's success was the funding and authority transferred to a newly-created public bank, the Reconstruction Finance Corporation (RFC). First established by FDR's predecessor, Herbert Hoover, in response to the onset of worldwide economic depression, its first year-and-a-half under President Hoover were less than a success: severe underutilization of the RFC's capacity to fund public projects and employment led to sinking purchasing power and a further economic spiral downwards. The arrival of Franklin Delano Roosevelt in the White House brought a much bolder use of the RFC. It started with a recapitalization of banks across the country, using the strongest New York banks as guarantors to restabilize smaller, weaker banks, from Michigan to Mississippi. It quickly went on to offer emergency funding to striking schoolteachers and to small businesses seeking to rebuild after natural disasters. Here is a list of some of the programs that the New Deal's Reconstruction Finance Corporation eventually funded:
- Agricultural Adjustment Administration - a farm subsidy program designed to boost agricultural prices by reducing surpluses, with the government buying livestock for slaughter and paying farmers subsidies not to plant on part of their land
- Works Progress Administration - employing millions of job-seekers to carry out public works projects, including the construction of public buildings and roads
- Home Owners Loan Corporation - purchased mortgage loans from homeowners having problems making the payments "through no fault of their own".
- Federal Housing Administration - setting standards for construction, and underwriting and insuring loans for home building
- Rural Electrification Administration - building and offering cheap electrical power throughout the countryside
- Electric Home and Farm Authority - allowing farmers to buy more than one million electrical appliances on credit
- Civilian Conservation Corps - provided jobs in conservation and development of natural resources
A public banking structure can be useful not only in implementing large-scale, complex solutions relatively quickly; it can also be adapted as well to be responsive to currents and offerings at the local level. If set up in a hub-and-spoke system, with a single national public bank and a multiplicity of banks at the regional or city level, local public banks can ensure that the goals and execution of projects stay close to local citizens and businesses. Projects in Amsterdam can be structured, planned and executed very differently from projects in Venlo or in Groningen.
Over the past decades, public-private ventures have dominated the landscape of Dutch and European public infrastructure projects, with governments extending loans to private businesses to create and manage projects aimed at public goals, then serving as guarantor of last resort. Economists have noted that these public-private ventures have fallen dramatically short on scaling up infrastructure projects to the degree needed to meet the climate crisis. They have also made the argument that this route can prove significantly more expensive than direct public financing, with the government bearing all risks without sharing in any potential profits.
The most commonly-asked question surrounding new, large-scale public projects is, in simple terms, 'Where will all the money come from?' Worries are of public expenditures expanding deficit sheets, causing inflation to spiral out of control and long-term interest rates to soar. Looking at public banks and their historical performance, the record shows public banks typically operating within the parameters of fiscal responsibility. The RFC recouped all of its $10.5 billion in Depression-era project expenses, even making a $500 million profit after accounting for operating expenses and initial borrowing costs. More recently, in 2014, the Bank of North Dakota, one of the oldest public banks still in operation to this day, was found to be more profitable than Goldman Sachs, and was given a higher credit rating than J.P. Morgan Chase. The promise of public banks is of financial institutions dedicated to the broad public interest, with the clout and capacity to give real shape to their purpose. Precedent tells us this dream may not only possible, but may be financially wise as well.
Read: A US green investment bank for all: Democratized finance for a just transition
Read (Dutch): WRR advies: overheid moet een publieke bank oprichten
Read: How to finance a Global Green New Deal
Read: The Role of Public Capital
Read: This is how to pay for a Green New Deal
Read (Dutch): Hoe financieren we de klimaattransitie?
April 13, 2020
Time for a Universal Basic Income?
De onderzoekers wilden antwoord op drie vragen. 1: Gaan mensen veel minder werken als ze een basisinkomen krijgen? 2: Wordt het programma daardoor onbetaalbaar? 3: En zou het dan ook politiek onhaalbaar zijn? Het werd twee keer nee en één keer ja.
The researchers looked for an answer to three questions. 1: Do people work less if they get a basic income? 2: Does the program become too costly due to people working less? 3: Is it politically unacceptable? They got two no's and one yes.
Rutger Bregman, Correspondent - on results from Universal Basic Income experiments in the US in the 1960s
The Covid-19 crisis has brought to the foreground calls for measures that once were considered extreme or impossible. The steps taken currently taken by the Netherlands to respond to the crisis - guaranteeing 90% of workers' salaries for three months, extending unemployment benefits to freelancers without questions asked - would just two months ago have been unimaginable. Beyond the immediate crisis, the question now hanging in the air is what steps are needed to deal with what is looking to be an economic crisis of a dimension unseen since the Great Depression of the 1930's. The problem this time does not lie with a single source, like in the credit crisis of 2008. It is not just monetary supply that has crashed; it is the capacity for businesses to produce and for consumers to buy as well. In pure economic terms: supply and demand have both flatlined. Where does one start injecting money to get any wheels of the economy turning again?
The idea of a universal basic income has been around for a long time. In the 1970, Richard Nixon, a US president whose name typically conjures up little rejoicing in progressive circles, drafted and sent a bill for a universal basic income twice to the US legislature to pass. The bill passed easily in Congress, but stranded in the Senate due to fighting over the details, not the substance. How different could history have looked afterwards had a universal basic income passed in the United States in 1970? It is a 'what-if' scenario for future generations of historians, economists and sociologists to puzzle over.
The coronavirus crisis is now making history in real-time. Currently, it is entering the phase where leaders are having to consider and draft longer-term measures for the impending economic crisis. Spain, with its newly-elected progressive government, has just announced its intention to be the first European government to implement a universal basic income, with the hope that it can stem the worst suffering amongst households. A universal basic income has also found popularity amongst efficiency hawks, who see the need, now in particular, to cut through the hours and paperwork that typically go into running and administering benefits programs.
Stemming the worst household suffering; reducing government administrative burden; stimulating demand by putting money back in the hands of consumers - there are compelling reasons to consider a universal basic income at this moment in history. It may be that now, 50 years after Richard Nixon's initial push, its time has finally come.
Read (Dutch): Is de tijd voor een gegarandeerde basisinkomen nu gekomen?
Read (Dutch): Economisch situatie vraagt om basisinkomen
Read: Spain plans Universal Basic Income to fix coronavirus economic crisis
Read: Can Universal Basic Income fix the coronavirus crisis?
April 5, 2020
Jobs, retraining, and a sustainable recovery
With the vast majority of the working population currently forced to stay at home to contain the spread of Covid-19, large segments of the economy have been closed down. The Dutch government has been generous in putting together a broad safety net for the next few months, paying employers to keep their employees on the payroll despite a lack of revenue stream, and offering freelancers and contract workers access to a minimum income.
It still remains to be seen how the economy will have changed once the present crisis has lifted. Will the same companies still be around? How much will the shift to an online economy have become more permanent? How much will people's rediscovery of household skills and crafts persist into the future, changing consumption patterns? Will the networks of reliance upon local markets and suppliers continue and expand, consumers and countries proving "once scared twice shy" in returning to reliance upon international suppliers for essential goods and services?
With broad populations of workers forced to stay at home, and uncertainty about the industry and jobs that will await once this crisis has lifted, now could be a crucial moment for broad swaths of the population to be retrained. Employees from vulnerable sectors could getting matched to and prepared for jobs in sectors that could ultimately drive the future recovery. Fossil fuel workers and construction workers could receive training in building insulation and renewable energy infrastructure. Farmworkers could learn of possibilities to transition to circular agriculture. Numerous white-collar workers could become trained in government crisis work, be it in helping citizens fill out forms to claim compensation, to keeping track of the incoming data stream to link care to need, to simply calling regularly with sick, vulnerable and elderly populations to check on needs and maintain to fight 'the plague of loneliness', which King Willem Alexander recently so eloquently described.
For the short term, the focus would need to be on training the workers immediately needed in health care, IT and government administration. For the mid- to long term, the development of capacity and skills in essential fields, from the production of health equipment and medicines, to the sustainable meeting of food and energy needs, could make for a more resilient and self-sustaining future economy.
Future workers and innovators in these fields still need to be trained. Investments in education and research in these critical fields could ensure that we have the necessary people in place - trained, funded and ready - to find answers to critical challenges as they arise, both now and in the future.
As part of the recovery package, retraining could be offered for free for sectors deemed crucial or promising to a resilient future economy. Ideally, the government would start now to build this critical services work force. Some workers could already be plugged into work in crisis areas; and others would be readied to immediately start working after the lifting of measures. As such, the Netherlands could prepare now for a recovery that is sustainable, and a workforce equipped with the needed skills for the future.
March 30, 2020
Will Europe stand together this time?
"If the European Central Bank does not jump to the aid of peripheral countries weakened by the pandemic, the Eurozone could collapse"
Thomas Ferguson and Edward J. Kane, Institute for New Economic Thinking
"We are Europeans. We have one currency. It's not Italy's fault that Lombardy was one of central flames of the crisis. It could have been Groningen. Help for Italy is help for ourselves"
"We zijn Europeanen. We hebben één munt. Het is niet de fout van Italië dat Lombardije een van de crisishaarden is. Het had Groningen kunnen zijn. Help voor Italië is ook help aan onszelf"
Thomas Wieser, former director-general Austrian ministry of finance
In the recent article by Thomas Ferguson and Edward J. Kane, the economists sketch out three economic 'doom loops' that could potentially trap countries in a downward economic spiral. The economists look specifically at the relationship between the so-called 'peripheral', financially weaker Southern European countries, and the European Central Bank (ECB), examining how the structure and decisions taken by the ECB during this crisis could potentially trigger downward economic spirals in these 'peripheral' countries.
Doom Loop #1: Rising Interest Rates
- Crisis leads financially weaker countries to need to borrow more
- Cost of borrowing increases
- Credit ratings go down
- Countries get locked into spiralling costs of borrowing more money to make higher interest payments
Doom Loop #2: Private credit agencies set ratings
Private credit agencies determine the credit rating of Eurozone countries, allowing for private business sentiment to accelerate the downward spiral. At this crucial moment in the credit cycle, all public institutions with an interest in Eurozone stability have been taken out of the equation. Nobody is at the wheel to apply the brakes in the case a lowered rating would cause the cost of lending to spiral out of control, or for bonds to be dumped en masse.
Doom Loop #3: ECB declines to extend financing to peripheral countries
The ECB could decide to decline extending financing to the central banks of countries with weaker economic fundamentals. Lacking access to liquid capital, the following negative loop could be triggered:
- The country's central bank can no longer support the country's private banks, which go insolvent
- Private bank insolvency wipes out savings and banking capacity for private citizens and businesses
- Lack of financial capacity leaves a government unable to support its citizens and businesses during the crisis, meaning widespread bankruptcy, unemployment, homelessness - and in this current crisis, illness and death due to lack of capacity to pay for a country's health services
- Lack of financial capacity leaves a government unable to rebuild public services, post-crisis
- A weakened, indebted population is unable to rebuild businesses and employment, leaving tax coffers depleted. Without inflowing tax revenue, the country stays in debt and the credit rating weak, maintaining disincentives for the ECB to extend credit to these countries for the ongoing future.
The key issue at stake is whether all European countries will have access to the necessary financial capital to buffer their economy through this crisis. With access to financial capital, one sees what is possible. Dutch and German governments lead the pack here, each country outdoing the other in turning away from neoliberal, market-driven fiscal policies to offer their citizens generous programs of unemployment benefits, business loans, cash injections, and debt forgiveness, insuring that households and businesses stay above water over the duration of this crisis and beyond. Spain and Italy have been impacted by the Covid-19 crisis more than any other European country; but their respective economic starting points are much worse than that of their Northern neighbors, leaving them doubly disadvantaged in keeping their countries' economies afloat.
There is an unfortunate precedent for doom loops spiralling out of control, drawing neighboring countries in to the wake. The much-cited example is Germany in 1931, when a debt-saddled Germany post-WWI, forced to continue debt payments despite its own economic crisis, saw its national banks defaulting, with massive runs on its banks the result. The international world crossed its arms, unwilling to join together to write-off German debt or to extend capital to stem the crisis. Germany retreated from international agreements; the German public lost faith in its democratic structures' ability to protect their livelihoods and businesses; and the door was left wide open to anti-democratic, isolationist/nationalistic solutions - with resounding consequences for the rest of the world.
European governments are currently debating whether financial capital should be extended to Italy, and if so, under what terms. Numerous possible mechanisms are being debated. The ECB could purchase sovereign (single country) bonds, injecting capital directly into the Italian public bond market. The recently-created European Stability Mechanism (ESM), a EU agency designed to provide loans to Eurozone countries in need, seems also a logical starting point. Some leading economists are calling for the creation of a European Covid Credit Line (ECCL) within the ESM that could be extended to all affected European nations proportionate to the severity of their public health and economic challenges. Others are calling for the creation of so-called Eurobonds, either within or separate from the ESM. All of these proposed solutions involve the sharing of risk across the Eurozone, and a long rate of repayment to allow affected economies and citizens time to recover.
There are also European voices - led from within the Netherlands - calling for a withholding of credit to Italy and other impacted 'peripheral' countries. A recent article in nos.nl, the public media's own press, quoted a series of Dutch experts, including the president of the Nederlandsche Bank, Klaas Knot, arguing the dangers of extending credit to Southern European countries. "The limits should not be increased," Knot states decisively. Other experts add their voices: "If they are helped now, they'll never feel the need to reform", and "if we use these measures now, the bar will be lower for these measures to be applied to every little twinge." With these statements, these Dutch voices are arguing for European governments to fold their arms again, no matter the consequences for the affected countries. Their seeming message is fiscal austerity regardless of the human price, with outcomes that are, unfortunately, frighteningly predictable.
Read: Coronavirus means Zero Hour for the European Union
Read also: The Corona Test for the Eurozone
Read also: 1931, by Tobias Straumann - how things fell apart
Read also (Dutch): Dit is hét moment voor Europese solidariteit
Read also: Stabilisation in the crisis: ESM versus Eurobonds
Read also (Dutch): Grenzeloos schuld opkopen: wat maakt het uit?
March 27, 2020
Taking care of the environment during times of human crisis?
"Many people, including us, have other things to do now. The Urgenda ruling is not off the table, but there are other priorities now."
"Veel mensen, ook wij, hebben nu andere dingen te doen. Het vonnis van Urgenda is niet van tafel, maar er zijn nu andere prioriteiten."
Eric Wiebes, Dutch Minister of Economic Affairs and Climate Policy
The challenge is to keep the eyes trained on two realities at the same time: fighting the acute crisis and the ecological crisis.
De uitdaging is twee realiteiten tegelijk voor ogen te houden: de bestrijding van de acute crisis en die van de ecologische crisis.
Ben van Raaij, Volkskrant
On April 1st, 2020, the Dutch government was scheduled to roll out its plan for achieving a dramatic 4-5% reduction in its CO2 production compared to 1990 levels by the end of the year. This quick, massive reduction in CO2 output was expected to be attained through further closures of coal plants, following the example of the closure of the Hemweg coal plant in Amsterdam at the end of 2019.
This roll-out of this plan has now been postponed for obvious reasons. In this time of acute human crisis, it is important that all attention goes to the salvaging of our society's health and the capacity of its people to be able to support and protect themselves, their businesses and their families. We wish the Netherlands, its leaders and its citizens as smooth a course forward as possible in these difficult times.
This moment of crisis - where all business-as-usual has had to stop, and few plans are able to go forward as imagined - does also open up a window of time to reflect. We have the chance now to think outside of the box of immediate problem-solving, considering longer-term strategies and impacts. The end-of-2020 CO2 reduction deadline was planned for in extreme haste, set by the Dutch Supreme Court in its Urgenda ruling at the end of 2019. Now with the delay in the government plan's rollout, it is possible to take a step back and consider what an eventual larger strategy might look like for helping the Netherlands built resilience and readiness for the next shock, into a future well beyond the end of this year. This coronavirus crisis could be considered a dress rehearsal for the eventual crisis of climate change - and as such it could be providing us with an opportunity to think and test out plans to get ourselves truly ready.
Read (Dutch): Het kabinet stelt nieuwe klimaatplannen uit
Read also (Dutch): Staat moet uitstoot broeikasgassen verminderen met 25% vóór eind 2020
Read also: Landmark decision by Dutch Supreme Court
Read also (Dutch): De coronacrisis als generale repetitie voor de klimaatcrisis die komt
March 26, 2020
Is government debt dangerous?
"The taboo of [government] debt is gone. Debt is not such a problem: it's all fine as long as you can pay your bills and creditors aren't standing at the door. It's anyhow not about spending money and consumption, but about investing - and investing pays itself back."
"Het taboe op schuld lijkt weg. Schuld is niet zo erg: zolang je de rekening kunt betalen en schuldeisers niet aan de deur staan is het eigenlijk prima. Het gaat immers niet om geld uitgeven en consumeren, maar om investeren en dat verdient zich terug."
André Meinema, NOS - August 22, 2019
"The wealth that we create is larger than the amount we need to pay back."
"Rijkdom die we creëren is groter dan de bedragen die we moeten terugbetalen."
Olivier Blanchard, former head of IMF
The past year has seen a dramatic shift in the Dutch perspective on government debt. A general consensus among experts and government officials has crystallized that the austerity policies post-2008 financial crisis went too far. Cuts in the public sector saw the Netherlands falling behind in various global indexes of quality-of-life that belied the health of its financial balance sheets and the increasing cost-of-living across the country.
With interest rates for public loans hovering at or below zero, more voices started to call out for an end to government surpluses, pointing out the fact that public surpluses under these conditions were - counterintuitively - bleeding money. The Dutch government - with a center-right coalition led by the pro-business VVD - decided at the end of 2019 to tack away from austerity and re-embrace government debt, creating an investment fund to lend tens of billions of euros to projects promoting the 'sustainable' growth of the Dutch economy over the next 20 to 30 years. The so-called "Wopke-Wiebes Fund" ("Wopke-Wiebes-fonds"), named after the current and previous finance ministers, was planned to be rolled out on April 1st, 2020. It can be assumed that this roll-out has now been postponed due to the coronavirus crisis.
In its response to the coronavirus crisis, the Dutch government is pushing the boundaries of government debt out to and beyond what was envisaged by the Wopke-Wiebes Fund. The government debt created under the Wopke-Wiebes Fund was set to fall within the limits of 60% of GDP set by the EU Stability and Growth Pact (SGP). Current government spending to prop up businesses and employees wages hit by the coronavirus crisis is already set to entail tens of billions of euros. Coupled with a near-certainty that GDP for 2020 will shrink, the 60% debt ceiling will certainly be surpassed.
What are the potential consequences of government debt expanding beyond the 60% GDP limit? Southern European countries - specifically, Greece and Italy - are often named as the examples to avoid, with governments that spent money beyond far beyond their ability to generate revenue, causing entire countries to go into default once the tap of lending stopped flowing.
A number of economists argue that the Netherlands - and other Northern European countries - have layers of financial security that will prevent them from ever falling into a similar state of default. In these countries, tax collection is secure and well-regulated; government corruption is limited; the general population is well-educated and healthy, providing for a sizeable working population to keep the engines of economic productivity (and tax revenue generation) running. The key, so goes the argument, is to promote the health and security of the generators of tax revenue: meaning, the health and productivity of the general population, as well as of the governing structures supporting tax collection. As long as money is being invested into these fundamentals of revenue generation, increased government debt does not increase the risk of government default. Taxes will continue to be collected; businesses and citizens will have the confidence and resources to innovate and invest in promising new sectors, generating new sources of tax revenue for the future.
The argument goes that the austerity policies of the past 10 years have created the opposite scenario: 'healthy' balance sheets - zero to negative public debt - have been attained at the expense of the fundamentals and structures of 'healthy' productivity. The stripping away of the public sector has created an increasingly insecure middle-class. The younger generation no longer enters the job market with confidence in its ability to build any future security, and as such, is less equipped to make choices and build businesses that will prove the solid economic drivers of the future. Confidence in the public sphere and structures has plummeted, leading to the returned appeal of the fascist philosophies of far-right populism, with their false promises of lost securities regained.
Could the extension of government debt be continued past the coronavirus crisis to invest in a Dutch populace newly-confident in its own governing structures, and equipped to innovate for the future? Can positive protections be built-in - through education, income protections, directed investments - to create a society that is not only ready to handle future shocks, but will be creating the solutions? Can a buffer of positive readiness - with a healthy, confident population, trained and supported in the needed skills and jobs for a sustainable future - sustain economic productivity through the largest future shock of all: namely, that of climate change?
The British economist, Ann Pettifor, was one of the few economists who predicted the 2008 financial crisis in the years preceding the crisis. When the 2008 crisis hit, she gathered a group of leading British economists together to draft up a plan for what she called a "Green New Deal": a comprehensive government plan which would use extended public debt to invest in sustainable projects and sectors, locking in productivity and tax revenue for the long-term future, climate shocks included. This was the path-not-taken in the last economic crisis. Is the world ready to give "Plan B" a try this time around?
Read (Dutch): Schuld is geen probleem meer: overheid wil miljarden in de economie pompen
Read also (Dutch): Staatsschuld kost niet, staatsschuld rendeert juist
Read also (Dutch): Bezorgd om de hoge staatsschuld. Niet nodig, zeggen economen...
Read also (Dutch): Wiebes: 'Er ist geen reden om de staatsschuld naar nul te brengen'
Read also (Dutch): Kabinet richt investeringsfonds op met tientallen miljarden voor sterkere economie
Read also: Everything You've Been Told About Government Debt Is Wrong
Read also (Dutch): Deze keer hebben we een Plan B
Read also: The beauty of a Green New Deal is that it would pay for itself
Read also: What Keynes could teach us about government debt today
March 25, 2020
$2 trillion stimulus package for the US - what is in it?
1) $500 billion loan to businesses - including $50 billion to airlines. With the following strings attached:
- new position created in the Treasury Department: inspector general to oversee funds
- congressional oversight committee will examine use of funds
- no funds can go to the president, vice-president, members of Congress, heads of executive branch, or to any of their family members
- NOT attached to this bill: any requirement for airlines to pay emissions or fuel taxes, or to lower the CO2 output of their fleet over time
2) Increase in unemployment benefits by $600/week for four months, including now freelancers, gig workers, or employees with reduced hours and paychecks
3) $150 billion for coronavirus health care - $100 billion to hospitals, $1 billion to Indian Health Service, and the rest to increase medical equipment
4) $150 billion to state and local governments - including $8 billion to tribal governments
5) One-time check to all adults earning up to $75,000 - $1,200 check to adults, with an extra $500 for each child
6) $367 billion loans to small businesses
Read: The Senate has struck a $2 billion dollar deal on the coronavirus stimulus. Here's what in it.
March 24, 2020
Avoiding the mistakes of the 2008 crisis
Banks and the financial sector
"At the peak of the  crisis, everything could be discussed, measures like multilateral bank oversight, strict regulation of capital transfers, another system of payments ... And less than six months later, when the serious crisis was over and the banks had received such support that they felt they could manage on their own, the old arrogance came back and the spectacular agenda disappeared from the table."
"Tijdens het hoogtepunt van de crisis, kon opeens alles besproken worden, maatregelen als multilateraal bankentoezicht, strengere regulering op kapitaalverkeer, andere beloningssystemen...En nog geen zes maanden later, toen de heftigste crisis voorbij was en banken zo gesteund waren dat ze dachten dat ze het zelf wel afkonden, kwam de oude arrogantie al weer terug in het systeem en verdween die spectaculaire agenda van tafel."
Wouter Bos, Dutch minister of finance during the 2008 crisis, Volksrant
In the crisis of 2008, banks became the primary recipients of government support. Those considered "too-big-to-fail" were saved from bankruptcy on the premise that their financial services were the cornerstone to supporting all economic activities.
In the years following, much critique has been expressed at the nature and consequences of these bank bailouts. New regulations did not prevent the continuation of Wild West speculation in non-transparent, risky financial products, with activities simply moved from banks to private equity and hedge funds. Newly earned corporate profits, created on the back of the bailed-out banks, went into stock buybacks that benefitted only shareholders, rather than into company innovation, new jobs, or shared profits with employees. Sectors reliant upon public funding - education, health care, culture, journalism, nature - never saw a return of funding lost in the crisis years.
The European Central Bank (ECB) and the United States Federal Reserve are both currently employing a combination of old and new strategies to address the economic shocks from the coronavirus crisis. Christine Lagarde, head of the ECB, recently announced a massive bond-buying program of 870 billion euros. The US Federal Reserve has started to inject a planned $1.5 trillion into the US economy, where government bond-buying will be supplemented by the unprecedented purchase of debt directly from large corporations, and establishment of a lending program for small- to medium-size businesses.
Observers and experts are increasingly pushing for these investments to be steered specifically towards projects that will further the energy transition. Investments could promote a number of key areas to an energy transition, including: boosting energy efficiency, converting more transport to electric sources, deploying more renewable energy, and implementing land use change reforms to support more nature and encourage circular agricultural production.
There are further, more dramatic solutions also being proposed. In West-Germany in 1953, the widespread cancelling of debt paved the way for the German Wirtschaftswunder of the decades that followed. Is the time ripe again for large-scale consumer and business debt forgiveness? Could this offer a global economic reset, allowing for a rethinking of global financial structures to bend to and serve the common public good, with its final expression in the preservation of our common planet?
Read (Dutch): We maken dezelfde fouten als in de kredietcrisis
Read also: Governments urged to attach green strings to coronavirus recovery plans
Read also: Whatever it Takes: How the Fed Aims to Rescue the Economy
Read also (Dutch): Coronakansen
March 23, 2020
Rediscovery of Values
Public media and journalism
"De Britse publieke omroep zet zo veel mogelijk middelen in om de bevolking van dienst te zijn"
Melle Garschagen, NRC
"The BBC will be using all of its resources - channels, stations and output - to help keep the nation informed, educated and entertained."
Tony Hall, Director-General BBC
In this era of fake news, the dangers of misinformation during this crisis have become even more clear. Public media stations have stepped into the breach, proving the value again of having an organization and professionals with the explicit job of informing the public well.
Read: BBC sets out plan to inform, educate and entertain during unprecedented times
Read also: In coronatijden wil de BBC baken van informatie, onderwijs en vermaak zijn (Dutch)
Read also: NPO komt met online muziekfestival en programma's over steun in coronatijden (Dutch)
"The language of music is common to all generations and nations. It is understood by everybody, since it is understood with the heart."
"The pandemic and the social isolation creates shared goals — staying healthy and sane during these times — and hence we have a stronger sense of connection with the people around us and are much more willing to give help and cooperation. Even if it is simply in the form of a song on the balcony."
Andreas Kappes, psychology lecturer City University of London
Under lockdown conditions, people around the world are rediscovering the joys of listening to, or even better, making music for each other. From Italians breaking into song on their balconies from Naples to Venice to Siena, to professional musicians around the world live streaming concerts from their living rooms, music clearly is offering people in isolation a much-needed sense of community and connection.
Watch: Italians making music under Coronavirus quarantine
Read: Quarantined Italians are singing their hearts out. It's beautiful.
Read also: Culture in the time of corona
And: Klassiek in quarantine (Dutch)
And: Muziek in de buurtapp: 'Kijk ook naar vrolijke momenten' (Dutch)
"Hundreds of people have signed up to websites, Facebook groups and other projects offering to pick up groceries, walk dogs and look after children"
Read: #Coronahulp - Covid-19 may be creating a more caring community
"Het coronavirus herinnert ons eraan hoezeer ons leven verweven is met dat van anderen"
Haroon Sheikh, Trouw
Read: Samen tegen het virus: Kunnen wij westerlingen nog wel offers brengen voor het collectief? (Dutch)
"Even small doses of the outdoors, like being in our backyard or a neighborhood park, can help...access to greenspaces even in our urban environments can have a tremendous impact on mental wellbeing."
College of the Environment, University of Washington
Read: The Great (Neighborhood) Outdoors: staying connected with nature during Coronavirus
Read also: Staying Safely Connected to Nature During the Coronavirus Pandemic
The shadow side of a love of nature in times of social distancing:
"Bezoekers van parken, markten en stranden bewaren lang niet altijd de geadviseerde anderhalve meter afstand van elkaar."
Chris Klomp, AD
Read: Nederlanders trekken er ondanks corona massaal uit en houden lang niet altijd afstand (Dutch)
March 22, 2020
Psychology of Preparation
"Because we are bad as individuals at thinking about tomorrow...it's all the more important to have leaders enact policies that enable us to protect ourselves against future risk"
Somini Sengupta, New York Times
Coronavirus is "climate change on warp speed" according to Gernot Wagner, climate economist at NYU.
Early, aggressive intervention can prevent the worst outcomes; delaying action can lead to loss of control over the outcomes. But behavioral psychologists and economists know that people are also wired to think about the here and now at the cost of future planning, no matter how dire the possible future may be.
Thinking only according to the here and now is a psychological predilection that has perpetually plagued the fight against climate change. Will politicians, after this coronavirus crisis has passed, be persuaded to step up and implement measures that are early and aggressive enough against climate change, "flatten the curve" of global warming? Will our leaders manage this time to protect society from its own inability to foresee and plan for the imminent, destructive future?
Read: Climate change has lessons for fighting the Coronavirus
Read also (Dutch):
"Iedereen die kan rekenen ziet het aankomen"
Dit keer hadden we het te laat door dat het serieus was
Rosanne Hertzberger, NRC
March 21, 2020
How can governments prepare differently for a future crisis?
"By assuming that governments have to wait until the occurrence of a huge systemic shock before they resolve to take action, insufficient preparations are made along the way."
Mariana Mazzucato, Guardian
In her incisive article, Mariana Mazzucato outlines three areas in which governments can better prepare for future shocks, be it due to future epidemics or climate change:
1) Invest in/create institutions to help prevent and negotiate crises
2) Promote and coordinate widespread research and development
3) Make sure citizens and the economy benefit in public-private partnerships. For the current crisis, this would have meant ensuring that medical supplies would be safeguarded, and that business profits were reinvested in research and innovation, not in shareholders.
4) Bailouts with strings: place conditions on any bailouts, requiring bailed-out sectors to adapt and transform to meet the long-term public interest goals.
Read: The Covid-19 crisis is a chance to do capitalism differently
Bailout with strings, Part 2:
"When Obama saved General Motors and Fiat Chrysler in 2009 the prize was them agreeing to the most ambitious CO2 standards ever - and it was a deal that served carmakers very well"
William Todts, Transport & Environment
William Todts explains that to avoid a full-blown depression, a recovery plan needs to provide relief to distressed households and business, protect jobs, and creates new, healthy businesses. He argues that new jobs and businesses created should be grounded in the clean energy transition, rather than allow a return to fossil-dependent business models that will again suffer shocks in the upcoming energy transition.
Industry bailouts should come with the condition that the bailed-out industries adopt clean energy goals. The aviation industry is a clear candidate for such treatment: in such a scenario, airlines would receive bailout support only on the condition that they implement new taxes and clean fuel standards.
March 20, 2020
Nature and Covid-19
"We disrupt ecosystems, and we shake viruses loose from their natural hosts. When that happens, they need a new host. Often, we are it."
David Quammen, NY Times
Dvid Quammen places Covid-19 as the latest in a string of recent outbreaks - from SARS, to MERS, to most recently, Ebola - where a virus makes the jump from wildlife to humans. The increasing human activity in previously undisturbed ecosystems has set loose what the author describes as a "pinball machine with 11 levels of chance", with wildlife viruses interacting in unknown ways once they get transferred to humans. The question he leaves for readers is whether we will take steps to avoid a future that - continued along the current path - means more frequent new viral outbreaks.
Read: We Made the Coronavirus Epidemic
"Nature just hit the reset button"
Anagha Srikanth, The Hill
Italy has been in lockdown for less than two weeks, but it has proven long enough for nature to start reclaiming turf. Dolphins in the canals of Venice - who would have thought it possible? What else can we expect to see over the upcoming days of lockdown in the formerly-busiest economic centers of the world?
Please send pictures of nature hitting the reset button in your local community to email@example.com. We will look to include them in future posts.
Read: As Italy quarantines over coronavirus, swans appear in Venice canals, dolphins swim up playfully
March 19, 2020
Present Government Responses
"Can we carry this awareness beyond the present emergency?"
Lorenzo Marsilli, Al Jazeera
Lorenzo Marsilli notes from lockdown in Italy that even a weak coalition Italian government has managed to act with decisiveness to respond to Covid-19. Nation-wide restrictions, shifting of resources and production, reinvestment in public services, solidarity across a historically polarized nation - it all turns out to be possible
Read: The Coronavirus epidemic can empower us to demand change
Read also (Dutch): Overheidssteun in tijden van Corona
Marike Stellinga, NRC
Marike Stellinga outlines 3 types of interventions that governments can adopt in times of crisis:
1) Quantitative easing/printing money: central banks inject liquidity and financial support through massive buyback of loans
2) Governments build a safety net for workers who fall outside of traditional salaried employment, such as freelance and project workers
3) Governments offer generous support to affected businesses
Which of these measures are being taken now by either the Dutch government or by the EU?
1) The European Central Bank (ECB) just announced it will be taking these measures in a 750 billion Euro buyback of government debt and private securities, in its "Pandemic Emergency Purchase Program"
2) For the 1,2 million freelancers in the Netherlands, the Dutch government has relaxed rules on receiving subsidy payments for the next 3 months
3) The Dutch government has agreed to compensate businesses reducing hours for its employees for up to 90% of the costs of its employees' salaries
Read: European Central Bank throws 750 billion euros at the economy to fight the coronavirus crisis
Read also (Dutch): 750 miljard van ECB moet nieuwe eurocrisis voorkomen
Read also (Dutch): Door coronacrisis getroffen zelfstandiger krijgt makkelijker bijstaand
And last (Dutch): Tientallen miljarden om ondernemers, werknemers en zzp'ers door coronacrisis te helpen