Dreaming of an ECB President who can save the planet

Christine Lagarde, former French Finance Minister and head of the International Monetary Fund (IMF), is set to become the first female President of the European Central Bank, bringing to mind the recurring dream of a central banker who cared about the planet, and could lead institutions such as the World Bank, IMF, and the United Nations in addressing the major ecological-economic-climate problems of the world (here’s a link to similarly unfulfilled high hopes for Janet Yellen when she became Chair of the U.S. Federal Reserve in 2013).  Lagarde will have immense power to lead the transformation of the world’s economic system to one that supports the 99% and keeps the world below the 1.5 degree climate threshold.  Will she use that power for good?  Or just continue the status quo (for European central bankers, this means occasionally saying polite things about climate change as a serious problem (perhaps the occasional photo op with Greta or Bono), and then continuing business as usual, propping up the big banks and ignoring the fundamental ecological-economic problems that central bankers have a unique ability to address, but somehow never do)?

Let’s quickly review the problems and then jump to how Ms. Lagarde can become part of the solutions.

The fallacy of infinite economic growth

The ECB has been at the front lines of the debate between Austerity and Stimulus.  Greece has been the unwilling (victim?) recipient of those policies (see Varoufakis).  But within the context of a potentially already too big economy (at the aggregate level), the focus should be on the inequality as shown by Piketty and others.

Choosing the 1% or the 99%

The U.S. Federal Reserve recently started injecting hundreds of billions of dollars into the bond markets, in the middle of the night, sometimes over $100 billion in a single day. This is known as “growing the balance sheet.”  The way it is currently done, it helps the big banks and their wealthy shareholders.  Big bank employees get large bonuses.  Asset prices are inflated.  Meanwhile, average households do not benefit from this “free money.”

QE to the Big Banks or QE for the People

Quantitative easing, or QE, injects money into the financial system, but contrary to economists’ assertions, it does not “trickle down” to the 99%.  “QE for the People” is a proposal to inject the money directly to households, as a “financial system dividend.”  This could be done in order to “stabilize the markets,” or to show that the financial system is a Commons we all share, with the reasoning that if there is prosperity from a thriving productivity, then we should all benefit from that.

Although the yellow vest movement is not in the headlines as much these days, addressing their concerns is still very important, and doing so will take momentum away from the fascist right-wing populists.  Simply put, QE for the People can help save Western democracy.

The linkage between economic growth (as currently measured) and greenhouse gas emissions

Lagarde understands that climate change is a real problem.  She may even recognize the role that central bankers could play in helping fight it.  But knowing is not doing.  Will she actually do any of these things?

  • Financing a Green New Deal.
  • Requiring companies to disclose their climate impacts.
  • Requiring markets, investors, and credit rating agencies to include climate risks in their valuations.
  • Favoring private sector bank divestment from fossil fuel projects.

What else could central bankers do to address the climate crisis?  They could support the public banking movement, which just got a boost from a law signed into law in California, allowing cities, counties, and states to form a public bank that could invest public employees pension funds into socially positive projects such as affordable infill housing and renewable energy projects (as opposed to fossil fuel projects, environmentally destructive pipelines, and bank CEO’s bonuses).

Central bankers could also be a driving force in the formation of a Global Climate Trust.  Such a Trust would follow the climate science, and set a cap on total greenhouse gas emissions (linked to fossil fuel extraction).  This could be a basis of a new type of economy that decouples economic growth from fossil fuel use and carbon emissions.  Under a cap, upstream fossil fuel producers would have to buy permits equal to their production.  The key would be to distribute the permit value to the people, which would prevent people from bearing the full cost of regulation, since the companies would try to pass the costs along anyway.  If the permits were given to the people directly, this would be a Cap & Share or CarbonShare system.  People could sell their permits to the companies, possibly through intermediaries.  The resulting money would be like a basic income for people.  Another option is the Cap & Dividend approach, as envisioned in proposed legislation introduced in the US House and Senate “The Healthy Climate and Family Security Act of 2019” by Senator Chris Van Hollen (D-MD) and Rep. Don Beyer (D-VA).  Under Cap & Dividend, the government sells the permits to the companies, and then returns the funds to people as a climate dividend.  Dividends are featured in the climate plans of several Democratic Presidential candidates.

Conversely, under FEASTA’s CapGlobalCarbon proposal, We, The People can form it in civil society. Using the model that the International Red Cross followed, regular citizens form the institution, and then countries and organizations can join.  Or, perhaps it is more accurate to say, outraged citizens form the institution, and pressure countries, until they join, kicking and screaming.

The young people are striking for the climate are doing just fine, and do not need unsolicited advice from 43-year old white male middle-class bloggers, even if they have read a ton of books on the subject of climate change and economics.  But I just can’t resist, so whether they want it or not, here’s my advice:

  • Start getting specific with your demands
  • Start making your demands to specific people

When Greta gets back to Europe, approaching Christine Lagarde with the items listed above would be a great start.

(Special thanks to the group Positive Money https://positivemoney.org/ for their tireless work on these issues, and for building a movement for green monetary reform in Europe)

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