The financial sector and the “real economy”

Can you stand a bit more meltdown blogging? Over at Grist, the proposed bailout has stirred up an understandable level of angst over the government’s willingness to shower Wall St. with money at the first sign of crisis, and meanwhile sit idly by while the ice caps melt.

And the point is well-taken, of course, but the some of the more piqued comments do ignore the broader implications of the financial crisis. Wherever the blame for the current mess lies, the “let Wall St. burn” approach won’t do anybody any good, least of all the environment.

To be clear: I’m not suggesting that the bailout plan as currently proposed is the right one (such questions are above my pay grade). But banks do matter, credit matters, and voters matter, particularly when it comes to climate change. All of these factors will be deeply and negatively affected by a spreading financial panic.

A commonly held notion is that if the government can find a trillion dollars in its pocket to buy toxic mortgages, it ought to be able to cough up at least some comparable figure to solve the climate crisis. And there’s a large kernel of truth to this notion. Our current level of investment in both R&D and infrastructure is a travesty.

But this line of thinking quickly runs into a hard limit. It’s going to take more than a trillion dollars to fix climate change. It’s going to take more than ten trillion dollars. In fact, it’s going to take a lot more.

That’s the scary bit. The happy bit is that this money is going to be spent anyway, as the private sector pours unimaginable sums into infrastructure over the coming decades. The important question is whether the economic and political incentives will favor clean development, or whether we’ll continue down the path we’re presently on.

Do you want offshore wind farms to beat out coal plants in competitive bids? Then wind developers need access to capital. Politicians need space to maneuver. And voters need not to be scared out of their wits by the prospect of slightly higher electricity bills. (Note that the potential for offshore wind in the mid-Atlantic region of the United States is by itself a “trillion-dollar-plus build-out.”)

Again, this is in no way a defense of the status quo ante in the financial industry, or an argument against accountability. But the things that made sense a week ago — carbon pricing, efficiency measures, investments in renewable energy — continue to make sense today. And all of these things will be held back by prolonged sickness in the financial sector.

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adam

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  1. Nigel Seale - September 24, 2008

    Re:The financial sector and the real economy.
    It seems to me that whenever an ‘emergency’ takes place we move to survival tactics and abandon, to a large degree, any long term solutions. This leaves only a handfull of citizens who have the wherewithall to continue on in working on the ‘real economy’ and ‘the real crisis’ ie: long term, slow motion and somewhat invisible, to our senses, climate change etc.
    A few of us call this a ‘conciousness of immediacy’ which i believe was coined by Paul Erlich. If my house is burning down i don’t sit and contemplate the long term consequences, i get myself and my family the hell out! Same with financials and their meltdown. Could effect my pay cheque and my ability to feed my family, better to focus on my business at hand and forget about the long term.
    I think this is normal, to a degree. Greed is ‘conciousness of immediacy’ as is fear.
    I am glad that we have some cool minds sitting out there who have the wherewithall to keep beating the long term drum. Never forget, however, that ‘conciousness of immediacy’ will win out 99 times out of a hundred.
    A good book on this is “The Shock Doctrine” by Naomi Kline. She is suggesting that when an emergency happens, the powers that be, move in to take control. Actually a ‘takeover’ happens. Tough to combat that when you are in survival mode…

  2. AdamH - March 26, 2009

    In the midst of crisis I think hedging is the best solution. With the aid of hedging we could minimize exposure to business risk. Corporations in which individual investors place their money have exposure to fluctuations in all kinds of financial prices, as a natural by-product of their operations. Financial prices include foreign exchange rates, interest rates, commodity prices and equity prices. There is financial emergency product that caters your financial need Fast payday loans can be a viable option. Payday loans can be used in lieu of credit cards, if you already carry a balance and don’t want the hassle of accruing interest. Savings are a great thing to have, but not everybody can build up the advised 6 to 10 months of salary in savings. You need a different solution in a financial emergency.

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