Banking on climate breakdown

For 2023, what has been striking is how far the tone of the discussion is shifting towards a recognition that in the last few years the world has decisively changed. As the Financial Times reports: “During the… three-day symposium, current and former policymakers from around the world voiced worries that the well-established economic relationships that underpinned government authorities’ policy decisions were in jeopardy. 

“They issued an urgent call for a revised playbook to better understand and respond to a rapidly changing landscape that threatened to stoke more frequent supply shocks, higher prices and heightened volatility across financial markets.”

Now all this might sound reasonably familiar to regular readers of The Ecologist, but what’s notable here is how the great and good of financial governance are trying to catch up. 

Particularly notable, as the FT says, was the speech by Christine Lagarde (pictured), who told the central bankers that: “There are plausible scenarios where we could see a fundamental change in the nature of global economic interactions… we may be entering an age of shifts in economic relationships and breaks in established regularities.”


Lagarde highlighted “profound changes in the labour market and the nature of work”, including large numbers dropping out of the labour market in the wake of covid and digitisation; the “energy transition”, as the world moves out of fossil fuels, but also including future energy supply shocks; and “deepening geopolitical divide and a global economy that is fragmenting into competing blocs”.

Putting all this together, Lagarde argued that “we are likely to experience more shocks emanating from the supply side itself” and that these will be more likely to transmit through the system due to “firms changing their pricing strategies” and workers “in a stronger position to recoup real wage losses”. The result would be higher and more persistent inflation into the future.

It’s worth reading her whole speech, which places the ecological catastrophe in a context alongside the chaotic geopolitical shifts and technological transitions were are living through – collectively, often labelled the “polycrisis”. 

I’ve argued the case previously that the shocks of the last few years or so indicate the start of new, more volatile and certainly more costly economic period – in which, on the positive side, labour may find itself in a stronger bargaining position than previously; but, on the negative, capital will be looking to dump the rising costs of climate change, ecological collapse, geopolitical tensions, technological failures and so on on to wider society. 

Fiscal activism

Economic historian Adam Tooze called covid “the first crisis of the Anthropocene” – I think it’s worth taking that point seriously, with the eruption of the pandemic acting as a phase-shift in how our global systems operate. 

In a historical period like this, where growth remains broadly lower, the economic decisions we face start to boil down to a blunt question of working out whose side you are on: should labour, which is to say workers, their families, their allies, their communities, carry the costs of the Anthropocene; or should it be capital and the wealthy? 

Lagarde, you’ll be surprised to hear, doesn’t put the question this, instead focusing on how monetary policy might still (somehow or other) be used to stabilise the economy. 

But another speech, also attracting attention, by Barry Eichengreen, the economic historian perhaps best known for his classic history of the Great Depression, Golden Fetters, laid out the pretty bleak outlook for government debts across the world in an age of what elsewhere has been called an age of “fiscal activism”: that repeated shocks, and the higher costs of providing the essentials of modern life, from healthcare to education to infrastructure, means governments will be spending more. 


Eichengreen’s argument, with Serkan Arslanalp, comes down to the recognition that we will be entering this new period of shocks and uncertainty carrying the massive debts of the old, closing down the room for relatively painless transition by the various governments of the world. 

Everything will cost more; options for government borrowing or, for that matter, the kind of central bank interventions we’ve seen since 2008, via Quantitative Easing, may well be reduced; and so the result will be more fights over who has to pay for it – which will mean primarily via taxes. Think about, for example, what’s been happening with ULEZ in Britain, and multiply this, many times over.

There’s a severe naivete amongst many politicians about this: either they think the magic of green growth will provide a cost free transition or, far worse, there’s a still a group of them that think the costs of transition and the ecological crisis can be simply wished away. 

What will happen instead is likely to be a version of what we’ve seen in Britain, where failures to deal with problems today stoke up massively bigger problems in the future – all with less and less capacity to deal with them.

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Dr James Meadway is an economist and former political advisor. This article is a transcript from his Macrodose podcast.


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