Why we need a new economic model! According to free-market economists, governments should cut taxes, reduce regulations, reform labor laws, and then get out of the way to let consumers consume and producers create jobs. According to Keynesian economics, governments should boost total demand through quantitative easing and fiscal stimulus. Yet neither approach is delivering good results. We need a new Sustainable Development Economics, with governments promoting new types of investments. Free-market economics leads to great outcomes for the rich, but pretty miserable outcomes for everyone else. Governments in the United States and parts of Europe are cutting back on social spending, job creation, infrastructure investment, and job training because the rich bosses who pay for politicians’ election campaigns are doing very well for themselves, even as the societies around them are crumbling. Yet Keynesian solutions – easy money and large budget deficits – have also fallen far short of their promised results. Many governments tried stimulus spending after the 2008 financial crisis. After all, most politicians love to spend money they don’t have. Yet the short-term boost failed in two big ways. The problem with both free-market and Keynesian economics is that they misunderstand the nature of modern investment. Both schools believe that investment is led by the private sector, either because taxes and regulations are low (in the free-market model) or because aggregate demand is high (in the Keynesian model). The key is to reflect on six kinds of capital goods: business capital, infrastructure, human capital, intellectual capital, natural capital, and social capital. All of these are productive, but each has a distinctive role. These six forms of capital work in a complementary way. Business investment without infrastructure and human capital cannot be profitable. Nor can financial markets work if social capital (trust) is depleted. Without natural capital (including a safe climate, productive soils, available water, and protection against flooding), the other kinds of capital are easily lost. And without universal access to public investments in human capital, societies will succumb to extreme inequalities of income and wealth. The G-20 recently took a small step in the right direction, by placing new emphasis on increased infrastructure investment as a shared responsibility of both the public and private sectors. We need much more of this kind of thinking in the year ahead, as governments negotiate new global agreements on financing for sustainable development (in Addis Ababa in July 2015); Sustainable Development Goals (at the United Nations in September 2015), and climate change (in Paris in December 2015). These agreements promise to shape humanity’s future for the better. If they are to succeed, the new Age of Sustainable Development should give rise to a new Economics of Sustainable Development as well.
Posted on: Mon, 08 Dec 2014 05:23:01 +0000
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