Enlightened Economics

Economics for an Enlightened Age

• Should we print money to fund green investments?

Posted by Ron Robins on January 13, 2015

“GQE [Green Quantitative Easing] builds on the logic of QE, but fundamentally changes its objectives. In a GQE programme, new money is created – literally out of thin air – and used to buy bonds, but in this case they would be bonds issued by [UK] government-owned Green Investment Bank, local authorities, housing associations and other similar organisations, such as drainage boards.”
— Why we should print money to fund green investments, by Richard Murphy, January 12, 2015, Finance, Guardian Sustainable Business, U.K.

Commentary: Ron Robins
What a provocative idea! It sounds wonderful in theory. But would it work in practice? So far, the effects of QE in the U.K. and the U.S.A. have been to save the financial system from an immediate collapse (though probably putting it off for a while) while spurring modest growth–if you can believe the weird changes in their statistical methodologies and seasonal adjustments. Furthermore, it’s probably only because of the massive debt in the system that has stopped it from galloping into an inflationary frenzy.

No numbers are mentioned in this article but I believe adding this GQE to the already existent QE could create a real danger of galloping inflation. For starters, most of the services and products required for such a massive increase in green development would be strained and could very easily develop significant inflationary pressures, impacting many other sectors of the economy.

Also, if GQE were to happen there would be many other groups (the National Health Service for one) demanding the same QE programme. So where would it stop? I can understand the feelings behind this move. We would all like to see a greener and sustainable world. But I believe the risks of the process getting out-of-control are too great. It could lead to another Weimar (German hyperinflation of the 1920s) experience. The German leaders of that period also believed they could control the inflationary process!

Additionally, also not considered in this article are the knock-on effects on exchange rates and interest rates. Effects, many known and unknown would rampage through the economy. In short, it’s a fascinating idea worthy of discussion. But, I for one, believe the risks are too great to adopt such a scheme on a large-scale.

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