Sustainability and Money

Sustainability and money Deirdre Kent Nov 2020

A few months ago I gave this presentation to a climate change group. Hope you enjoy it. Well it’s not actually enjoyable to know that energy use and economic growth are so closely linked. As Naomi Klein said “The economy is at war with the climate”. We are going to need all our collective intelligence to downshift without chaos. Can we manage an energy descent without it being haphazard and dangerous socially?

That is why I got to be studying Tradable Energy Quotas (TEQs) which set the scene for a well managed transition to a low energy economy.  I even wrote a blog on it recently.

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Tradable Energy Quotas (TEQs) – Rationing that works

Some years ago I read about Tradable Energy Quotas as a method of ensuring everyone has access by right to their fair share of what fossil fuels are left and high energy users could buy units from low energy users. Then, being aware that our country, and indeed the whole world, was not make the necessary cuts to emissions in time to have a liveable climate, I thought to revisit the idea.

I discovered that not only had the idea lasted, but that there was a UK  organisation called the Fleming Policy Centre which promoted it. This was named after the visionary green economist Dr David Fleming whose ideas on de-growth for a post fossil fuel economy are well worth reading. He died in 2010 but his friend Shaun Chamberlin carried on his work, finishing his two books Surviving the Future and Lean Economy.

Rationing had always appealed to me.  As a child I remember taking ration coupons to the shop to buy sugar, clothing, butter and tea along with our money. Naturally our parents managed the petrol coupons.

Petrol was rationed from 1940 to 1950. During the last three years of the war the restrictions were severe. New Zealand also rationed clothing, footwear and nylon stockings.

Then in the 1970s there were oil shocks. When carless days were introduced in 1979 they were unpopular and largely ineffective because a black market arose in exemption stickers given to car owners in essential industries. Petrol rationing was threatened but never imposed.

The fact is that black markets will always appear when there is no trading allowed in ration coupons. And if you ration per month with no trading allowed, then people will buy all the petrol they can and store it in all sorts of containers like “califonts, kegs, kettles, demijohns, vinegar and whisky bottles, tins of all descriptions” as one account says. The government then made this illegal, which really encouraged a black market.

TEQs are ration coupons but they will come in digital form these days like Airpoints or Flybuys. The difference is that you can’t use them alone when you cash them. You will have to surrender them along with your cash when you buy petrol or gas or any fossil fuel.

Fleming worked it out that only 40% of petrol users were private individuals and the rest were business, governments and other organisations. Each year there is a set number of TEQs allowed. 40% are given to individuals in a weekly allowance. The business and governments have to get theirs through buying them at a weekly tender and this sets the price in NZ dollars when people come to trade them. Through a market, heavy users will be able to buy TEQs from low users. Buying and selling is as easy as topping up a mobile phone or Snapper  or HOP card for bus trips.

Fleming argues that this method puts the onus on the users to find the best ways of reducing their fossil fuel use. (More about this later). In WW2 people used horse and cart or just walked.

And of course TEQs units also be denominated in emissions rather than energy. In fact it makes more sense these days to do that now that we know how many categories there are for emissions. That’s worth doing instead probably. But you can understand that this was invented in 1996 before so much was known about our NZ emissions. We certainly didn’t know agriculture contributed nearly half our emissions in those days and we have quantified emissions from waste much better too.

A great deal more information on TEQs are at https://www.flemingpolicycentre.org.uk/faqs. This will take a long time for you to get through. Skim it and come back and back. I recommend reading the 2011 All Party Parliamentary report.

If you are a New Zealander and interested in following through as an idea, please get in touch with me at deirdre.kent@gmail.com as we are trying to start a movement to promote TEQs.Facebooktwitterredditpinterestlinkedinmail

Kate Raworth’s “Doughnut Economics” is a great starting point for new thinkers

Kate Raworth is an author who can’t be ignored. Google her book “Doughnut Economics” and you get 155,000 results. In September 2020 Goodreads had 549 reviews and Amazon 469 ratings. Her book is lucid and accessible and I love her chapter headings. She has an extraordinarily comprehensive list of references.(Some chapters have 90-100)

This is a comprehensive review of orthodox economics over a few centuries. Her “doughnut” metaphor describes the realm of a living habitat for humans as being only in the doughnut. We have to be lifted out of poverty to reach a certain minimum standard of living, yet not consume so much of the earth’s resources so that we are breaching planetary boundaries. Her doughnut is unforgettable and will go into future economics textbooks. She describes a social floor for wellbeing and an ecological ceiling. 

To illustrate her strong call to rethink economics she packs her chapters with a dense and interesting mix of facts and trends within economics thinking. The strength of this book is that because of Raworth’s deep understanding of the history of economic thinking she is acutely aware she is just but one thinker in a chain, and that there will be another generation of thinkers beyond her. She regularly invites her readers to think our way out of this mess and tempts us with numerous leads. She is an advocate of drawing diagrams. 

However naturally there are omissions and blind spots. 

Naturally when reading a new book on new economics (I have written two) I go straight to their bibilography and there I find a good list on the topic of money and an excellent one on tax –Gaffney and Harrison, Henry George, Michael Hudson, JS Mill, Ricardo, Josh Ryan-Collins and Peter Barnes. I also find Michel Bauwens on the commons and Janine Benys on biomimicry.

So here is what I think a list of what the next generation of thinkers could productively focus on:- 

First Omission – asking what is the root cause of the growth imperative?

One of the more irksome features of her discussion is that she never really asks what causes the growth imperative. She doesn’t appear to stress that it is built into the system. While she cites many who write on money creation including Benes and Kumhof, Charles Eisenstein, Michael Hudson, Steve Keen and Bernard Lietaer but never seems to use the phrase “interest-bearing debt” or explore the consequences of issuing money this way. She dabbles but pulls back when it comes to probing important leads. I urge thinkers to read Chapter 2 of economist Richard Douthwaite’s book The Growth Illusion, where after a discussion about the consequences of issuing money as interest bearing debt, he concludes. “In our present economic system, the choice is between growth and collapse, not growth and stability…The alternative is slums, dangerous roads, old factories, cramped schools and stunted lives.” Douthwaite, like Raworth, was a development economist who spent years on overseas aid work,  and in the process he had to spend time relearning and unlearning economics. 

Second Omission – the role of power

When I was a  full time advocate in the smokefree campaign in the 1980s, I watched public opinion change over a decade of debate and conflict. I was high profile in the media for a decade. On non-smokers’ rights I was a controversial figure in many households, workplaces and clubs. The health lobby, equipped with all the scientific facts, gradually and painfully learnt the reality of political power. We started to understand the subtle influence of the tobacco industry, and came to realise that the frustrating reluctance of politicians to move was because they were waiting for public opinion to change. So I always notice when an academic advocates for change and appear to imply it happens without pain and struggle. The famous quote of Mahatma Gandhi, “First they ignore you, then they laugh at you, then they fight you, then you win” is relevant here. So even a passing reference to the role of power and the agony of the political struggle would have been helpful here.

Third Omission – the importance of currency design 

Kate Raworth leads us to the insightful author Silvio Gesell, summarises his argument for a demurrage currency, chooses the best quotes from him, and then pulls back. I urge the next generation of thinkers to follow through this clue, because the design of money changes everything, from purchasing behaviour to investment patterns. If Keynes called Gesell ‘an unduly neglected prophet’ we should really pay attention. She has a whole chapter called ‘Design to Distribute’, but completely omits the critical nature of currency design. 

She has read Bernard Lietaer, or at least one of his books, but the next thinkers should read the more of Lietaer and think deeply about his argument that the design of money affects human economic behaviour and that there are good examples in history of a dynamic, successful societies where dual currencies contribute to this result.

Fourth Omission – Energy Decline

I am not sure I do it justice either, but those who understand that because of peak oil the net energy in the industrial system must decline, also know that we have to live with progressively less net energy. That is a big concept because economic growth has for decades been closely correlated with energy growth. 

When it comes to discussing the regenerative circular economy,  where the essential concept is to ensure we can unmake everything we make. I am not sure how this fits with the Second Law of Thermodynamics says that processes that involve the transfer or conversion of heat energy are irreversible. … It  also states that there is a natural tendency of any isolated system to degenerate into a more disordered state. As energy is transferred or transformed, more and more of it is wasted. So the circular economy is not that simple.

I am rather inclined to agree with a University of Otago scientist Craig Anderson who recently wrote on an email discussion, “Concepts like Doughnut Economics will not achieve what we need – they sound lovely and the heart is definitely in the right place – but these concepts are still not yet grounded in the realities of the remaining resource base and energy constraints.”

Fifth Omission – Land Tax reform

She has spent a few pages on Henry George who would replace income tax with land value tax and on the origins of the board game Monopoly. This occurs under the chapter heading Design to Distribute. But she doesn’t really convey that land tax is the most powerful way to distribute wealth. Those wanting to take this topic further should learn about the value of inner city land, not just rural land and learn from Georgist organisations like Progress in Australia for more information. A discussion of the relative merits of capital gains tax, land value tax, death duties, wealth taxes, estate taxes would have been useful.

This book is a must read for any critic of orthodox economics. Raworth concludes, “We are all economists now”. So if we are to survive, we can’t avoid this discipline. 

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To get the next economic system we need to find the assumptions of this one

Banks Peninsula fires after drought Feb 2017

Many are asking if we have to sit around waiting for the current system to collapse. If we have only 3 years to turn around the emissions pattern as the UN has said, we had better get on with designing the next system.

The current system assumes:

  1. There will be only one currency for a country.
  2. The majority of the country’s money will be created and controlled by private banks.
  3. The money will be created as interest-bearing debt.
  4. All land, all natural resources and natural monopolies can be privately owned, and this means people can profit from buying and selling it.
  5. All major decisions will be made by national or international governments or agencies.

This all adds up to a system with a growth imperative built in.(For years I thought it was just the money system but I believe now after a conversation with Steve Keen it is a combination of that and the land tenure system) The consequences are regular booms and busts, regular monetary crises, banking crises and sovereign debt crises and ever widening wealth inequality.

Edgecumbe floods 2017

The growth imperative also means that it is inevitable that we consume our natural and social capital.  Perpetual growth is not natural. There is no entity in nature which is designed to grow forever, unless, as Margrit Kennedy pointed out, you count cancer. And now we are paying for our blindness with floods, droughts, coastal erosion and food shortages.

Therefore the phrases ‘doughnut economy’, ‘stable state economy’, ‘no-growth economy’, ‘regenerative or resilient economy’ are good descriptive words, but they don’t change the current economy’s DNA. We have been inventing more and more names for this since the publication of The Limits to Growth and arrival of the NZ Values Party in the seventies. They all sound good but we can’t go on and on pretending there isn’t a growth imperative built into the design of our mono-currency economy.

It is like saying I would like this rose to be white and scented but in fact it is red and unscented. The redness and unscented is built into its DNA and no amount of nice new language or great new writing will alter it. We just can’t go on creating more and more names for a good economy.

The Growth Imperative is in the DNZ

I am sure economists like Kate Raworth are contributing to raising awareness but honestly, give or take a few years of dormancy, people in the advanced economies have been at it since the 1970s. The Greens talked about it for a few years but dropped it like a hot cake quite a while ago.

Now I don’t expect too much new thinking will come out of universities. It is tricky for a university economist to breach the parameters of what they can say without losing their salary. Professor Steve Keen is having to crowdfund his salary now.

It is now time to acknowledge that we need to leave the new system alone and invent an entirely new model. We can’t solve climate change within the current model.  Within the old system you can’t put on a hefty carbon tax and expect a different political result from Australia. (Yes you can plant trees and do other things, sure.)

Supposing therefore we allow:

  1. There to be more than one currency
  2. It must be publicly created and controlled for inflation.
  3. The currency will be spent into existence not lent into existence.
  4. The currency will be designed to decay (Silvio Gesell’s quote is “Only money that goes out of date like a newspaper, rots like potatoes, rusts like iron and evaporates like ether can be capable of standing the test as an instrument for the exchange of newspapers, potatoes, iron and ether.”)
  5. The commons must be publicly owned and rent for their monopoly use must replace income tax and sales tax.

I realise that these are all huge jumps in thinking and the last point means there have to be very strong leasehold contracts to protect the occupier of the property together with no rent on land used for conservation or historic purposes.

Naomi Klein has spelt out this challenge for a new economic system in her book This Changes Everything.

Though The Next System Project is grappling with the challenge of finding it in Washington DC it would be great to have a special platform somewhere in NZ to work on it ourselves.

Oh, and by the way, my book The Big Shift – Reinventing Money, Tax, Welfare and Governance for the Next Economic System is available from Living Economies bookshop. It is the result of a four-year think tank of what was the New Economics Party and is the source of the above ideas. We may be right we don’t know, but we tried.

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The price of petrol and climate action

Climate change groups were noticeably absent from the recent public discussion about the rising price of petrol. Nobody was saying publicly that if we are to turn emissions around, we have to make it more expensive to drive. Not the Greens, not Generation Zero or 350.0rg. Nobody. It had been a unanimous outcry of pain against high petrol prices. Why? Surely lower petrol prices would clog up our roads, get people off public transport and adversely impact our emissions?

Here was a discussion about how the margins had increased in Wellington and the South Island yet nobody had said we should drive less so use petrol and reduce our carbon footprint. Nobody came out with a comment that the oil companies have a growing debt burden because it is getting more and more uneconomic to get oil out of the ground, so it is not surprising. They have been binging on debt and are struggling to pay dividends and find new barrels. The big four doubled their net debt between 2014-2016.

The public debate was started by Judith Collins the Minister of Energy and Resources after a report came out, and Labour’s Stuart Nash praised her for ordering the report. Labour’s Stuart Nash praised her for ordering the report.

So how important is petrol to us? The average Kiwi family spends $42.30 a week on petrol – only $8 less than their average weekly spend on meat, fruit and veggies. That is mighty close. It won’t take much for petrol to be a bigger part of the budget than food. And to complicate it, when petrol costs rise food costs mostly get passed on to us.

But then I thought of the implications. The gross profit margin on fuel at the pump had doubled to about 30 cents a litre in Wellington and the South Island over the past four years and gone up by 5c a litre elsewhere. It has something to do with Gull only selling petrol north of Levin, but it is more than that.

The petrol retailers Z Energy, BP, Mobil, Caltex and Gull all defended their positions. Maybe the companies are suffering from their growing debt burden so increasing their margins are the only way to stay solvent.

Ten years ago when many environmentalists were involved with peak oil we would argue that the price of oil will one day be over $100 a barrel. It hasn’t turned out that way because we didn’t factor in debt or falling interest rates. As actuary Gail Tverberg says, the economy was far more complex than the original model assumes. “When interest rates fall, this tends to allow oil prices to rise, and thus allows increased production. This postpones the Peak Oil crisis, but makes the ultimate crisis worse.”

We all remember that the economy slowed right down when the price of oil spiked in 2008. That showed us how critical the price of oil is. High prices on energy products ripple through the economy is many different ways. Just thinking about the price of petrol gives a misleading impression. Tverberg says, “Because interest rates, debt, wages, and oil prices (and, in fact, commodity prices of all kinds) are linked, the system is much more complex than what most early modellers assumed was the case.”

Not all of us can get a handle on the huge complexity of it all and I am no exception. But I know Tverberg believes the price of oil will not rise beyond about $50 a barrel because consumers can’t afford it.

Environmental commentators are faced with several problems. First they are unlikely to have an understanding of the complexity of the peak oil problem and secondly because they know that saying petrol prices should rise (through increased taxes) will be unpopular. The petrol price components vary.

What should happen of course for climate change purposes is for the Government to increase taxes on petrol, diesel etc. The fact that the oil companies have been the villain has excused the government for inaction. Now we can cry together that the oil companies are a greedy, conniving cartel. I am not sure that does much to reverse climate change trends.

Back in 2015 the IMF issued a warning that permanently low fossil fuels are choking off investment in renewable sources of energy and hindering the fight against climate change. A year later after a big study, the World Bank chimed in.

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Sarah vs the Govt – thoughts after first day in court on climate targets

Sarah Thomson poses for media outside Wellington High Court. She is taking the Government to court on their climate change targets

On approaching the High Court yesterday I was first struck by the sign outside that said “System Change not Climate Change” held up by a pressure group. Why didn’t I call my book this? It’s a damn good slogan. Crowds soon gathered and the media arrived to interview Sarah Thomson, the law student taking the case on climate targets.

When a 24 year old takes the Government to court it has got to be newsworthy and important. When her lawyer Davie Salmon started up, the years of preparation showed and a very long friendly conversation between Salmon and the judge began. Huge piles of documents were behind the young woman judge and I couldn’t help thinking this judge has the power to rule that the government revisit its emission targets and she looks five foot nothing. We have to stand up when she leaves the court.

Sarah Thomson with supporters. From left Deirdre Kent, James Renwick behind, Sarah, Paul Bruce, Tim Jones (behind) Diana Shand RNZ photo

The argument that New Zealand is small therefore we don’t need to do much was thoroughly demolished, especially with Salmon’s suggestion that if the boat is sinking everybody bails, no matter how small their bucket.

He took us through the difference between the target of 1.5 degrees vs 2 degrees of warming. Reality strikes when you realise that, although he said he wouldn’t exaggerate, he used the word ‘catastrophic’. Yes beyond two degrees it is catastrophic and James Renwick had reminded us outside that it is only five years till we get to 1.5 degrees. David Salmon persuasively argued that you shouldn’t rely on technologies that don’t exist yet to take carbon dioxide from the atmosphere. He said it was like telling someone to keep smoking in the hope someone would invent a cure for lung cancer. One cannot predict inventions. Therefore no real weight can be put on that hope.

System Change not Climate Change

He impressed on the judge the comprehensiveness of the AR5 summary of climate change knowledge worldwide. The sheer size and scale of the work was noted and the fact that it is always out of date before it is published. He said, “I don’t want to make you read it all Your Honour, is scary reading about floods and famines, mass migrations and conflicts and some of it is dry and detailed”. She replied, “I’ll be happy to read it”. He said,”Maybe not happy by the time you finish.”

Sarah and her boyfriend were sitting in front of me in the gallery. Occasionally she would lay her head on his shoulder. When later she put her arm around him I wondered if that couple would ever have children and what sort of world will it be for them. Will their mothers grieve for the grandchildren they wish they had? But I do know they should be immensely proud of their children and of themselves for bringing them up to have such a huge sense of responsibility.

My thoughts, as always, went to economics. Where were the economists in this court? I couldn’t see a soul.  What would they say if they were here? Yes, Salmon talked about Business-as-Usual scenario and I thought that even Helen Clark’s government did nothing to stop the intensification of dairy because it feared the economy wouldn’t grow enough and they would be out of government. And so we get agricultural emissions rising.

Sarah Thomson and Prof James Renwick outside Wellington High Court Monday 26 June 2017

And Naomi Klein realised the economy was at war with the climate.

So I thought what would it really take to change the economic system from growth dependent to a healthy one? How many really want to face up to the money system and that the land tenure system (and therefore the tax system) simply have to change. It’s a big shift for people’s mindsets. What causes the growth imperative? It is the combination of privately owned land system with an interest-bearing debt money system controlled by private banks. A match made in hell. Maybe we have to get to hell before we wake up.

We have the choice of catastrophic climate change or economic collapse. Both are horrible. Please, someone, focus on changing the political economy before it is too damn late!!

I kicked myself that I hadn’t written a flyer for my book and taken it with me.

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