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Economic Theories & Debt Driven Realities

Economic Theories & Debt Driven Realities

One of the most highly debated topics over the past few months has been the rise of Modern Monetary Theory (MMT). The economic theory has been around for quite some time but was shoved into prominence recently by Congressional Representative Alexandria Ocasio-Cortez’s “New Green Deal” which is heavily dependent on massive levels of Government funding.

There is much debate on both sides of the argument but, as is the case with all economic theories, supporters tend to latch onto the ideas they like, ignore the parts they don’t, and aggressively attack those who disagree with them. However, what we should all want is a robust set of fiscal and monetary policies which drive long-term economic prosperity for all.

Here is the problem with all economic theories – they sound great in theory, but in practice, it has been a vastly different outcome. For example, when it comes to deficits, John Maynard Keynes contended that:

“A general glut would occur when aggregate demand for goods was insufficient, leading to an economic downturn resulting in losses of potential output due to unnecessarily high unemployment, which results from the defensive (or reactive) decisions of the producers.”

In other words, when there is a lack of demand from consumers due to high unemployment, then the contraction in demand would force producers to take defensive actions to reduce output. Such a confluence of actions would lead to a recession.

In such a situation, Keynesian economics states that government policies could be used to increase aggregate demand, thus increasing economic activity and reducing unemployment and deflation. Investment by government injects income, which results in more spending in the general economy, which in turn stimulates more production and investment involving still more income and spending and so forth.The initial stimulation starts a cascade of events, whose total increase in economic activity is a multiple of the original investment.

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What Kind of a Green Deal? The implications of material and monetary flows.

What Kind of a Green Deal? The implications of material and monetary flows.

What Kind of a Green Deal? The implications of material and monetary flows1.

Contents

Introduction: the resurgence of New Green Deals. 

Green Deals, Growth and Material Flows 

Paying for a Green Deal: monetary flows. 

Introduction: the resurgence of New Green Deals.

With increasing momentum, the idea of a New Green Deal (or Green New Deal) has entered the mainstream of progressive political debate. While a group of British economists and campaigners promoted the idea more than ten years ago2, it didn’t take off then. Now, however, the seriousness of, and public attention to, the climate emergency has helped to revive the idea: an ambitious transformative programme is needed to decarbonise the global economy, not least in the rich countries. Almost simultaneously, a similar set of policy proposals have emerged in several places, including in the USA, with the (New) Green New Deal3 proposed by leftists in the Democratic Party (the “Justice Democrats”4) and adopted by some of the prospective presidential candidates, in the UK, with the Labour Party’s Green Transformation paper5, in Spain, with the PSOE’s Transformación Ecológica6, and in the programme of Yannis Varoufakis’s pan-EU party DIEM 25. These all share the idea of investing in the rapid decarbonisation of the economy, creating “green jobs” in sectors such as renewable energy and housing retrofit, and offering a Just Transition for workers in those industrial sectors (predominantly fossil fuels) that will have to be closed down and replaced.

However, these policy frameworks all have shortcomings: none is, as yet, sufficiently detailed, each leaves significant gaps in the areas that have to be addressed, and all are promoted by parties that have yet to gain power or (in the Spanish case, with a challenging general election imminent) regain it.

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