Investment is a Win-Win for the Global Economy and Climate Change

| 2/2/2011 10:12:06 AM


This article was originally published at New Deal 2.0 


Recently Joseph Stiglitz, the Nobel-prize-winning economist and Senior Fellow and Chief Economist at the Roosevelt Institute, gave a very interesting speech in South Africa concerning climate change and the global economy. He argued that by implementing policies that help to reverse global warming, we can also reverse the global economic downturn. Although he also pointed out many barriers to doing so, he outlined some interesting policy proposals.

For me, the most interesting part of his speech concerned the use of a Keynesian approach, not just for a single country, as is usually done, but for the entire world economy. Keynes pointed out that when the private sector is unable to generate enough demand in the economy, that is, it is unable generate enough spending from consumption and investment, then the government must step in to kickstart spending. Thus in recessions and depressions many now acknowledge that at some point it may be necessary for the government to spend more than it takes in to get the economy moving again. (See numerous articles from Marshall Auerback on this basic idea.)

There are a couple of fine points to what Keynes was saying, however, that are either often glossed over or challenged. First, he asserted that when demand is low, saving can get in the way of recovery. So — and this is the part that is ignored — since the rich save more than the poor, their excess income gets in the way of recovery. The horrendous implication, from the rich person’s point of view, is that they should be taxed more. The less direct way to put this, which is the way it is discussed even in much of the progressive media, is that an “unequal distribution of wealth” leads to negative economic outcomes. The important statistic for the US is that while in 1970 the top 1% of households pulled in about 10% of total income, now they receive close to 25%. Not good, from a purely Keynesian perspective.