FST BLOG

Listen to the Canaries

• 15 May 2020
• Environment
• Tom Burke

Outside of the global wars of the twentieth century humanity has never experienced a shock as sudden or as profound in its implications as that brought to us by the Sars-CoV-2 virus. It surprised everyone bar a very small number of medical and ecological scientists. For them, the canaries had been singing a warning for decades about both the growing risk of zoonotic diseases and of our lack of preparedness to deal with a pandemic.

If history is anything to go by we will now learn a lot of lessons rather quickly. We will then develop plans to reduce our exposure to the health and economic risks. We may even go as far as implementing parts of them. As the headlines move on however, and the health of both people and the economy recovers, memories will fade; economists will regain their hegemony over public policy; politicians their confidence that they know what they are doing and we will all go back to ignoring the canaries.

Despite an extraordinary global cooperative effort by scientists, we are still a long way from fully understanding the exact nature of this virus. As yet, there is no clear treatment for the victims of Covid-19. Indeed, we are still someway from full understanding what it does to the human body. There is still no vaccine and not even much confidence that when, or if, one is found what kind of immunity will emerge.

The impact of the pandemic on the economy is equally uncertain. There is no consensus on when we can safely begin to let people travel back to work to restart our economies. Nor is there agreement about how and when to unwind the astonishingly assertive policies used to prop up the economy during the crisis. The commentariat is in full, if inharmonious, voice on the shape and speed of economic recovery. We are all being inducted, willingly or not,  into the mysteries of ‘V’, ‘U’ and ‘L’ shaped recoveries and their myriad variations.

Much fruitless effort is currently being applied to trying to see through the thickest fog of uncertainties we have experienced since 1940. We are indeed in uncharted waters and on a very dangerous shore. We are probably better off without a map at all than with one that is wrong. The last thing we need at the moment are people who are sure they know what is next and how to deal with it.

We are better off starting with what we know with certainty and then making our best effort to deal with whatever the virus and the economy throw at us. Two of the things we do know with certainty are that the climate will go on changing and that governments will have to get the economy going again. Dealing with both problems will require a huge and focussed effort over a long time. Common sense suggest that if we can get these efforts to work together then we will deal with whatever comes out of the fog better than if we let one distract us from the other.

It is certain that the climate will go on changing. How much and how fast will depend on whether common sense prevails. The nature of our impact on climate system is such that we have already created the future we will experience tomorrow. The damage Covid-19 has done to the economy has created a pause in our relentless determination to make that future worse by burning more fossil fuels. It is no more than common sense to restore the economy in a way that stops it ensuring that the climate continues to worsen.

It is also certain that governments everywhere will work to  restore the economy as fast as possible. In the first instance this means very rapidly restoring purchasing power. We live in a consumption driven economy. If people cannot spend, the economy stalls. A danger for any government bail-out programme is that it becomes a bail-in to a host of other problems. A very clear test then emerges for bail-out bids. How fast will this spend put how much purchasing power back into  the hands of consumers. Improving the energy efficiency of our buildings is a clear winner against this test. It can be scaled up quickly, creates lots of jobs and thus lots of income and adds a bonus by reducing bills so multiplying the restored purchasing power. It is also gets you the biggest and fastest reduction in carbon emissions per pound invested.

But, to do this we must overcome our current phobia about Government debt. As we are frequently reminded, the Government can borrow money more cheaply than anyone else, currently at interest rates close to zero. The clear signals from central bankers and investors are that these low rates will not increase soon. A recovering economy will require levels of debt we have only ever experienced before in the aftermath of global war. Sinking this debt will be the next priority for governments as they rebuild their economies.

Here there is a clear lesson from history. After the first world war the way chosen to deal with the debt was to reduce public spending. The consequence was the Depression from which economies were only truly rescued by the  next war. After the second world war the policy choice was to mobilise public investment in creating the welfare state in Britain and the Marshall Plan in Europe. The resulting productivity improvements meant the economy was growing fast by the fifties and the debt was back to manageable levels.

A second test for economic recovery policy will be which public  investments, especially on infrastructure, will do most to improve productivity. It is four years since Mark Carney pointed out in his Arthur Burns lecture that the best way to deal with what was then seen as an economy threatening level of debt would be to invest in productivity enhancing green investment. He was right then and he is even more right now.

We now find ourselves in the very welcome position that the effort to protect the climate is exactly what is needed to recover the economy. However disruptive the Sars-CoV-2 virus is being, it is marginal compared to the disruption accompanying a failure to build the net zero emission economy a safe climate requires.

The viral disruption was a sudden and visible shock that commanded, and got, an immediate response. Climate change is a stealth disrupter – its impacts on our lives are remorselessly incremental and all the more dangerous for that. As has often been pointed out, by the time the need to act is obvious it will be too late to do so. It is now more important than ever that we listen to the canaries.

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