Guest essay by Eric Worrall
Climate ambition meet Modern Monetary Theory – a slap for every remaining productive sector of the New Zealand economy.
Ardern says climate crisis is ‘life or death’ as New Zealand landmark report calls for sweeping changes
Climate Commission recommends shift to electric cars, large-scale agricultural reform and an end to reliance on gas in homes
New Zealand has been handed a new vision for dramatic reduction of its greenhouse gas emissions – including reduced animal numbers on farms, no new household gas connections by 2025, and a dramatic shift to electric cars in the next decade.
The report laid out pathways for New Zealand to meet its greenhouse gas reduction obligations by 2050. They include wide-scale agricultural reform to reduce methane emissions, dropping herd sizes by 10%-15%, ending imports of combustion-engine cars, eliminating new household gas connections, and less travel by car overall. Some of those changes would need to be dramatic transformations: to meet its goal for transport emissions, New Zealand would need to increase electric vehicle share of the market to 50% in the next 10 years. It is now around 1-2%.
At the release of the commission’s advice, Ardern said the report was “one of the most significant documents I’ll receive in my time as prime minister”.
She also noted that the path ahead would be challenging for New Zealand. “Having a roadmap doesn’t change the fact the road will be steep and tough at times,” she said.
The full report is available here, but it is pretty heavy going. I didn’t make it past the self congratulation, assurances of respect for the indigenes, and repeated claims the report is objective. The signal to noise ratio makes it close to unreadable.
If New Zealand intends to follow the report recommendations, New Zealand likely needs to find a lot of money for subsidising Lithium electric cars, building new renewable generators, and building or renovating houses so they can survive New Zealand’s brutal winters without fossil fuel heating. But the Ardern government probably thinks lack of money is not a problem. New Zealand Prime Minister Jacinda Ardern openly embraces Modern Monetary Theory.
- Can pay for goods, services, and financial assets without a need to first collect money in the form of taxes or debt issuance in advance of such purchases;
- Cannot be forced to default on debt denominated in its own currency;
- Is limited in its money creation and purchases only by inflation, which accelerates once the real resources (labour, capital and natural resources) of the economy are utilized at full employment;
- Recommends strengthening automatic stabilisers to control demand-pull inflation rather than relying upon discretionary tax changes;
- Bond issues are a monetary policy device, not a funding device.
The idea appears to be governments can print money whenever they run short, limited only by the risk of triggering hyperinflation or stagflation. President Joe Biden’s advisors are also reportedly fans of Modern Monetary Theory.
While the already rich do very well in a loose fiscal environment, such as the environment created by practitioners of Modern Monetary Theory, some might suggest excessive money printing has negative effects, like debasing the value of the cash savings of pensioners and other people of limited means. But I guess the government can always help pensioners out with some of that newly minted money, if they behave.
There are well known methods to restrain demand pull inflation in a loose fiscal environment. For example the government could radically increase the supply of workers, flooding the market with labor, to counter demand pull upward pressure on wages. More workers chasing the same number of jobs makes it difficult to demand a raise, even if the cost of living is rising.