Green Keynesianism: Beyond Standard Growth Paradigms

Jonathan M. Harris, Guest Blogger

In the wake of the global financial crisis, Keynesianism has had something of a revival.  In practice, governments have turned to Keynesian policy measures to avert economic collapse.  In the theoretical area, mainstream economists have started to give grudging attention to Keynesian perspectives previously dismissed in favor of New Classical theories.

This theoretical and practical shift is taking place at the same time that environmental issues, in particular global climate change, are compelling attention to alternative development paths.  Significant potential now exists for “Green Keynesianism” : combining Keynesian fiscal policies with environmental goals.

But there are also tensions between the two perspectives of Keynesianism and ecological economics.  Traditional Keynesianism is growth-oriented, while ecological economics stresses limits to growth.  Expansionary policies needed to deal with recession may be in conflict with goals of reducing resource and energy use and carbon emissions.  In addition, long-term deficit and debt problems pose a threat to implementation of expansionary fiscal policies.

I suggest that these apparent contradictions can be resolved, and that Green Keynesian policies offer a solution to both economic stagnation and global environmental threats.

Policies for Full Employment, Climate Stabilization, and Ecological Balance

What would a Green Keynesian policy mix aimed at a combination of economic and environmental goals look like?  There are many options, but here are some possibilities:

• Increased hiring in public sector: teachers, police, transit and park workers, etc.
• Large-scale building retrofit publicly financed but carried out by private contractors
• Increased public R&D expenditures with accompanying higher education investment (like the “Sputnik” push for stronger science education in the 1950s)
• Major energy efficiency and renewables investment, partly public and partly incentivized private investment
• Investment in public transit and infrastructure
• Carbon tax or equivalent (cap & trade with auction)
• Recycle carbon tax revenues for energy efficiency, renewables, progressive rebates
• Infrastructure investment – hi-speed rail, public transit, green buildings
• Efficiency standards for cars, machinery, buildings
• Preferential credit or subsidy for energy efficiency investments
• Financial reform and re-regulation including the equivalent of Glass-Steagall “firewall” between basic banking and risky investments (another Keynesian precedent).

And at the international level:

• A Global Investment Fund for efficiency and renewable energy investment (like the World Bank but with a non-carbon energy focus).
• Integrated cap-and-trade schemes for industrialized economies with carbon credits for developing countries, including agriculture and forestry.
• Efficiency and renewables technology transfer, with waiver of intellectual property and WTO subsidy rules for least developed economies
• Microcredit schemes for local solar, wind, ecological preservation, etc.

This list of policies is by no means comprehensive, but it is meant to suggest the outlines for a new and more optimistic approach to economic policy.  Just as the impact of Keynesian analysis helped to break through the seemingly intractable problems of the Great Depression, a revised and “greened” Keynesian vision can help us escape the daunting problems of economic stagnation, debt crisis, and global environmental threats that confront us today.

The needed theoretical and policy reorientation requires a turn away from the narrowed vision that has until recently characterized modern economics.  The tools are available, drawing both on the historical tradition of Keynesianism and the modern vision of ecological economics, to guide a new social response that can mobilize the strengths of both human capital and technology to respond to economic, social, and environmental problems.  The main difficulty lies not in the practical challenges, large though they are, but in overcoming the restrictive habits of thought that limit the scope of economic theory and policy.

For a more detailed look at these issues, see the author’s working paper “Green Keynesianism: Beyond Standard Growth Paradigms.”

Jonathan Harris is Director of the Theory and Education Program at the Global Development And Environment Institute. He holds a Ph.D. from Boston University. Inquiries can be sent to Jonathan.Harris@tufts.edu

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