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Article - Houston We've Had A Problem

Possible responses to “the triple crunch” of an economic crisis, peak oil and climate change have been compared to a new Apollo programme – a programme of 'green growth'; a green 'New Deal'.

However, if we are to draw parallels between missions to the moon and our economy, then perhaps we ought to move beyond mere rhetoric. Instead we should apply the more systematic approach that those in the Apollo programme did all those years ago.

When, the often mis-quoted words “Houston, we've had a problem” were uttered by Commander James Lovell from Apollo 13i, it signalled the start of a crisis. Both the short-term and long-term responses to this crisis were not to simply try again with a few parameters tweaked. They asked serious questions about the causes, and thoroughly considered the longer-term effects of any actions before carrying them out. During the mission that meant modelling what impact any one decision would have on fuel and oxygen depletion, and afterwards there was a long investigation to find out how to avoid this problem ever happening again.

Surely, we should take the same approach with our current 'crisis'.

One attempt to do this is the “Green New Deal”ii, published by the New Economics Foundation, and inspired by F.D.Roosevelt's New Deal of 1933. It calls for a similar approach to mirror FDR's “100 Days of Legislation”; for strong banking regulation; low interest rates and 'green' job creation through government spending.

I very much support banking reform and giving the 'crisis' top priority. Beyond this, however, the Green New Deal (GND) is seriously flawed. It is equivalent to Houston having responded: “Ah, yes, we had a vaguely similar symptom on Apollo 11. Tell you what: open the finance regulator into the green tank. If the 'jobs' dial starts falling, turn up public spending. Does that sound good to you, Apollo 13?”

What the GND's authors have failed to identify, is the fundamental cause of our crisis. They have mistakenly assumed that the New Deal solved problems, when in most respects, it just created even bigger problems for the future.

It is true that our problems sound similar to those of the Great Depression, “traditionally explained”, according to Wikipedia, as “a combination of high consumer debt; ill-regulated markets that permitted malfeasance by banks and investors; cutbacks in foreign trade; and growing wealth inequality, all interacting to create a downward economic spiral of reduced spending and production.”iii However, to think that our problems are the same but with climate change added in, is a complete fallacy.

The problems above were just superficial. Few looked beyond them. Back then, our carbon emissions were a problem too; so was deforestation, which has been a problem for even longer. We have only one notable new problem – our dependence on declining oil reserves.

Simply put:

  • the financial system is our immediate problem

  • our short-term problems are the scarcity of resources on which our present day standard of living is built, and the inequitable way they are shared

  • and our long-term problems are climate change, the destruction biological systems and declining biodiversity

The 1933 New Deal only addressed the immediate problems, because it followed the thinking of economist John Maynard Keynes.

Keynes was, unsurprisingly, ignorant of global warming; he didn't address the unsustainable use of resources like oil and forests; and his seemingly sole focus around poverty was an effort to create full employment and end economic depressions. He failed to provide an answer to centuries of wage-slavery, and he left the challenge of sustainability to technological advancement.

Keynesian economics results in an unsustainable economic model and an inequitable one. It relies on the “trickle down” effect to alleviate poverty, which requires perpetual growth in economic activity, which operates unconstrained by the resource limits of our finite planet. It's not just in need of a tune-up, it's broken!

So is there an alternative? In a word, yes.

While I'll rule out 'green' socialism-on-the-promise-of-a-communist-utopia – even though I'd be the last to ignore the valuable lessons there are to learn from Cuba's energy descent – there is a way forward that is neither this, nor the GND's retro-green-Keynsianism.

That way forward is to set people free; to give them power, motivation and reward; and to do so within a framework that provides for a stable society, economy and environment. Given fair choices, people will chose to do what's best for us all.

Most importantly, it is possible to address poverty, without having “growth” – whatever its' colour – as the answer. By addressing growth, we get the opportunity for sustainability without misery.

Had the Green New Deal looked at earlier work published by the New Economics Foundation, they'd have found the reforms needed in the 1990s writings of James Robertsoniv. These built on the writings of Henry George, who, back in the 1870s, did address scarce resources, poverty and technological progress. Unsurprisingly his book was titled “Progress and Poverty”. It was a best-seller.

All that time back, George explained why the wealth gap would continue to grow, and what should be done about it. His solution not only deals with poverty but also gives us the tools to deal with our energy and climate “crunches” too.

James Robertson spotted this and proposed a radical reform of our tax and welfare system, which built on George's analysis. More recently still, a new group has been formed to evolve and champion Robertson's approach to the challenges we face. They've called the approach Systemic Fiscal Reform (SFR)v.

Systemic Fiscal Reform proposes how government funding, tax and welfare should work for the benefit of all, both within their lifetimes, and in the impact we have on future generations.

Ultimately, SFR would make the tax and benefit system unrecognisable compared to today's complex loop-hole ridden forest of legislation. Its' key reforms are:

  • No employment or business taxes – replaced with Scarce Resource Value Taxes

  • No VAT – replaced with Resource Consumption Taxes

  • No Benefits – replaced with Citizen's Income: universal welfare.

  • Most subsidy schemes and low revenue taxes would be abolished

(more details can be found at www.sfrgroup.org and http://fiscalreform.blogspot.com)

The 'value taxes' are taxes on value that exists due to the success of the economy as a whole, and are typically things that cannot be created, destroyed or altered. These items suck in the surplus value generated by the economy – value generated by the work of us all – as their price is only constrained by demand. They are items that can be withheld from the market to make profit, and they include land; take-off and landing slots for aircraft; and radio spectrum allocations.

Once built, roads even count, as they provide road access time-slots. The LibDem road user charging proposal is actually a value tax, as the high demand times of day/week on high demand roads would raise revenue and others wouldn't – certain routes and times of day are more valuable, which is why we fight over them in traffic jams.

While some may be familiar with the concept of Land Value Tax, it's important to say how much of our property prices are based on the economic rent, as it is called. If you own a property which is 'worth' £225k, and it would cost £75k to rebuild, then the land value is £150k. Having a mortgage at 6% on this land value means that the banks get £9000 per year out of your pocket. Under a full LVT scheme, the bank would lose their income, the money would be available to pay in taxes. This £9000 is (roughly) what the location of the land is worth to someone.

The 'resource taxes' are to discourage the use of scarce resources that affect our whole economy and the prospects of future generations. These taxes promote behaviour change; investment in efficiency improvements and also in sustainable alternatives.

A carbon tax is the most obvious resource tax. As part of the EU Emissions Trading Scheme, this could be implemented, initially by setting a reserve price on UK ETS permits when auctioned, and specifying how this price was going to increase over time. A simpler and easier approach would be to have it as an 'upstream' tax on fossil fuel importation and extraction – thus capturing the 50% of emissions that the ETS doesn't cover. The ETS permit auctioning could then happen without a reserve price.

A tax that many may not have considered is one on the importation of wood and wood products, such as paper. Deforestation is an equally urgent and important problem, that we need to address, and it's long-term cost could be factored in, using a resource tax.

The great thing about these taxes, is that they can be non-regressive, as the revenue can be added to the Citizen's Income. This is the sort approach gives people real choices, in a way that the fuel duty escalator never did. Imagine people arguing for the fuel duty to go up. Many would.

Having a Citizen's Income is made possible because a well run society creates more value than it destroys. Not only does this allow us to pay out some extra, but unlike benefits, a Citizen's Income is not removed when you start earning. With this baseline income, someone who wants a moderate lifestyle can work only one or two days a week. If someone wants to live life a bit 'bigger', they'll have to work more days, especially if they want to burn scarce fossil fuels.

Key parts of the economy change beyond recognition. These are areas such as the arts, leisure and education. Being inherently low-carbon activities, these can be provided at very low cost (remember, there are no employment taxes, nor VAT), thus allowing much more time to be devoted to these non-destructive pursuits.

There would also be a reduction in waste, which would not just be due to breaking the wage-slave, growth-addicted economic model. The very complexity of our tax system itself also creates a huge amount of waste. Adverts say: “tax doesn't have to be taxing”, but at the moment it is. It is taxing the people and the planet. Estimates of this 'deadweight' cost the the UK economy are in the region of £100-150bn per year. That's the equivalent of everyone getting an extra 20-25 days a year holiday.

Tax also doesn't have to be intrusive. The SFR proposals would eliminate the most intrusive and bureaucratic aspects of our tax system. For example, there would be no tax return, nor would you have a PAYE code.

I think I've now given a flavour of the sort of reforms that I'd see as possible, and would welcome. While there is 'devil in the detail', I would certainly not advocate “rebooting” the economy as per the Green New Deal, without also setting out a programme of fiscal reforms towards a sustainable economy.

Yes, the economy does require re-regulation of banking. Yes, it may need low interest rates to stimulate investment. I support those aspects of the GND proposals. Beyond that, though, they've missed the biggest problem. People say “It's the economy, stupid”. It's not. It's the stupid economy!

So, let's not talk about 'green growth'. Instead, let's do what the Apollo programme did: evaluate failures; test our theories and implement robust economic solutions.

If we don't, then consider the UK's significant position in the global economy. Our decisions have knock on effects on people and the natural environment across the globe.

Crucially, this global influence means that we must take a far more responsible approach to our policy making. If we fail to move to a sustainable economy, we continue to push the world to a real economic collapse – not just a collapse of the financial economy, nor of the 'real' economy, but also most importantly, a collapse of the economy we all depend on: nature itself.

More information on fiscal reform can be found at:

http://www.sfrgroup.org and


Neale Upstone

November 2008

i Mission Transcript: page 167, entry “02 07 55 35”, http://www.hq.nasa.gov/alsj/a13/AS13_TEC.PDF

iiGreen New Deal”, New Economics Foundation, http://www.neweconomics.org/gen/greennewdealneededforuk210708.aspx

iv Benefits and Taxes – A Radical Strategy”, Roberton, http://www.jamesrobertson.com/ne/benefitsandtaxes-1994.pdf

v Systemic Fiscal Reform, http://www.sfrgroup.org