The Paradox of Green Keynesianism

This report is taken from chapter 3 of Green House's book The Post-Growth Project: How the End of Economic Growth Could Bring a Fairer and Happier Society published in 2014.

The lesson economists learned from the last slump of the 1930s was that a capitalist economy will fail without sufficient demand, and that the social and political consequences of the failure of demand are insupportable.

While the UK Chancellor is still resisting viewing the economy as a system rather than a household or business, his refusal to acknowledge both the importance of multipliers in magnifying the impact of spending cuts and the potential for infrastructure investment to achieve positive multipliers is leaving him daily more isolated. Techniques to stimulate demand after World War 2 through ensuring products needed replacing and encouraging consumerism seemed sensible if not humane in an era when the ecological limits to growth were not apparent, but now they are dangerous.

The persistent economic recession and the need for a transition to green infrastructure and industrial systems has led many environmentalists to call for a form of Green Keynesianism. But how can this co-exist with the fundamental commitment amongst green economists to an end to economic growth?

Four policy proposals are made to resolve this apparent paradox:

• Transitional investment, where energy and money are only invested in infrastructure in the short term if it can be demonstrated that in the long term it will reduce demand for energy;
• Substitution of local economic activity for global economic activity to build local resilience;
• Ecological Enterprise Zones to enable experimentation with policies that would enable a transition to a post-growth economy in pilot areas; and
• A sales tax related to energy and social necessity, determined by a deliberative and democratic process of consultation.