Nobel Laureate Joseph Stiglitz counters those who suggest that we should put off dealing with climate change issues due to our escalating global economic problems by suggesting that climate change may actually be our biggest and most urgent economic problem. In his latest essay, The Post-Crisis Crises, he also warns that the suppression of consumer demand due to excess concentration of wealth is a much bigger problem than budget deficits are, and that the austerity cuts proposed by misguided deficit hawks will make our economic problems worse not better.
Stiglitz starts by noting that rising global temperatures will require substantial reductions in carbon emissions which will require investments that will stimulate our economy:
Some suggest that, given the economic slowdown, we should put global warming on the backburner. On the contrary, retrofitting the global economy for climate change would help to restore aggregate demand and growth.
Stiglitz thinks some of the causes of the Great Depression were challenges that arose from moving from a rural, agrarian economy to an urban, manufacturing based economy, that we did not have an adequate government to help deal with. Now that we need to move from a manufacturing based economy to one more based in services, we would be wise to learn this lesson and more strategically, and proactively develop a plan for creating and developing new and small firms which will be better at helping us adapt our way forward to a future economy where we will need new ideas and different economic structure than we have now.
Stiglitz sees government playing a vital role in this transition.
Moreover, making the transition requires investments in human capital that individuals often cannot afford. Among the services that people want are health and education, two sectors in which government naturally plays an important role (owing to inherent market imperfections in these sectors and concerns about equity).
Finally, there is a worldwide crisis in inequality. The problem is not only that the top income groups are getting a larger share of the economic pie, but also that those in the middle are not sharing in economic growth, while in many countries poverty is increasing. In the US, equality of opportunity has been exposed as a myth.
Stiglitz warns that "(a)n economic and political system that does not deliver for most citizens is one that is not sustainable in the long run." And, free markets, on their own, can not solve any of these problems.
Although, Stiglitz does not come out and say it, my inference is that he is suggesting we risk another global depression if we do not overcome the resistance to having innovations in governments lead the way across these next major economic and environmental transitions.
The market will not, on its own, solve any of these problems. Global warming is a quintessential “public goods” problem. To make the structural transitions that the world needs, we need governments to take a more active role – at a time when demands for cutbacks are increasing in Europe and the US.
As we struggle with today’s crises, we should be asking whether we are responding in ways that exacerbate our long-term problems. The path marked out by the deficit hawks and austerity advocates both weakens the economy today and undermines future prospects. The irony is that, with insufficient aggregate demand the major source of global weakness today, there is an alternative: invest in our future, in ways that help us to address simultaneously the problems of global warming, global inequality and poverty, and the necessity of structural change.
As troubling and urgent as many of our economic and environmental problems are, they also present us with opportunities to be running our economy at much higher levels of employment to cope with and overcome these problems. Instead of shutting our economies down, with these austerity bombs that idle up to, or more than 15% of the population who could be working, we should be investing in converting our economies to sustainable and clean energy production such as solar, wind, and other renewables that do not emit carbon.
And, we should be more aggressively using our tax policy to address the over concentration of wealth, and budget inadequacy by raising taxes on the most wealthly, and closing corporate loopholes not cutting essential social programs such as Medicare and Medicaid which are already underfunded.
Even Rush Limbaugh was ranting yesterday, that while taxes were raised the "income wealthy," those who are "asset wealthy" were untouched. Although, it wasn't Limbaugh's intention, he argued well that dividends, capital gains, and estate taxes need to be reexamined so they can make their fairer and wiser contribution to not just our deficit problem, but more fundamental and corrosive problems of excess concentration of wealth that is crippling global consumer demand and leading to a stagnation that free markets are unable to correct on their own. Even the wealthy, and most certainly corporations will be better of with thriving global economies.
In the spirit of a footnote, Alexis Kleinman offers a list of facts supporting the view that global warming is our biggest economic challenge:
There are many other useful facts you should check out, including statistics on the staggering and increasing costs of weather related economic damage. Climate change is already a leading cause of death causing 5 million be year now, and expected to continue to increase as global atmospheric conditions deteriorate.
Climate change is projected to cost the average U.S. household $1,250 per year by 2020, $1,800 per year by 2040 and $2,750 per year by 2080.
Climate change will likely cost the U.S. economy $3.8 billion per year by 2020, $6.5 billion per year by 2040 and $12.9 billion by 2080.
The U.S. economy may be held back by 2% of GDP over the next 20 years because of climate change.
Failure to act on climate change already costs the world economy 1.2 trillion dollars in lost prosperity each year, according to one study.
While these statistics and challenges are tragically sad, Joseph Stiglitz has such a brilliant big picture view combined with a powerful straight-forward easy to read vision of a way forward that I find his essays encouraging and inspiring.