The Trillion Dollar Question - Two bets

What is the way out of the recession? This is the trillion dollar question these days. If someone could credible answer this question and had a money-back guarantee, the G-20 (which meet later this month) may even put their remaining funds together. This would be money well spent.

But there is noone who has the answer. And so the trillion dollars are spent by governments betting in the worldwide lottery. Some put their money into nationalising banks, others in betting on automotive and Japan is just handing out money for free. Some of these numbers may win. But it looks like the jackpot will continue to build up.

I am in no position to bet government billions. But if I had I would be torn between two bets: system change or Re-bubbling.

Bet 1: We are experiencing a total system failure. This is not just a banking crisis but a crisis of our whole economic system which is based on permanent growth and consumption. This system encouraged extreme risk taking, greed and decoupled the real from the virtual economy. In the last years we saw that a substantial part of our growth was based on invented values, or on nothing. Quite clever actually - making billions out of nothing. For many it’s now back to its original value-nothing.
This could all be a normal recession if it were not for the fact that it hits almost all sectors and all countries. We have a system failure. Can we just rebuild the same defaulted system? Or should we think again and come up with a new system? This is not about going back to socialism. This is about thinking new. Let’s have a competition for a new economic system which can be retrofitted to what we have at the moment. Or we wait a bit longer and we may have to go for a totally new model.

Bet 2: System change is hard, especially globally. It will probably not happen. Therefore, my second bet (and second best option) is to revitalise the current economic system by create a new bubble which creates growth, prosperity, jobs. But this time let’s at least create a bubble which makes sense, let’s create a green bubble. Governemnts have started putting stimulus money into green investment, on average 10-15%. This is good but not enough to create a green bubble. Let’s study the previous internet, housing and banking bubbles and transfer that knowledge into creating a green bubble. And when the green bubble deflates, let’s plan the next useful bubble already.

Disclaimer: Before taking this advice please consult your common sense. There is no money-back guaranty.

Who will win the competition for the Greenest Economy?

Joseph Stiglitz and Nicholas Stern write in the FT that "The US, in particular, has a window of opportunityto act on the financial crisis and at the same time, lay the foundations for a new wave of growth based on technologies for a low carbon economy."

Four months ago I put it like this: "Yes we can create a new energy revolution. While we are still in the midst of the financial crisis, global leaders are already turning to the fast approaching recession in the real economy. After major bailout packages for the banks, major economic stimulus packages are now in preparation. This is the right approach. But these packages should be targeted and used to stimulate the new, renewable-energy growth sector and help to initiate an energy revolution which creates sustainable growth now and in the future. The trillions of euros which will likely be spent on fighting the global recession should be spent on fighting climate change at the same time. It's a question of efficiency and forward thinking. And it combines the urgent with the important. The European Union's structural-funds model, based on EU co-funding of up to 80%, can be used to disburse the EU's new energy-stimulation package, making it attractive also for east-central European member-states to join the new energy revolution." http://www.opendemocracy.net/article/the-global-financial-crisis-opportunities-for-change

While I fully agree with the Stiglitz/Stern opinion, as a European I hope that Europe grabs this green growth opportunity. After all climate policy has been Europe's most successful foreign policy in the last 5 years.

Will now the US take the lead from Europe, or will it be China (see previous article on Wilkens Observer)? And does it matter? Whoever is the leader, it is good that there is competition for the Greenest Economy. Just a year ago the competition was rather for who can avoid expensive cuts in CO2 emmissions the longest.

In the end we may find that we needed a global recession and good old capitalist competition to deal effectivly with the challenge of climate change. And the Copenhagen conference will then only be a buraucratic confirmation on what is happening anyway in the real economy.

Wishful thinking? I think the current global recession is a reminder that everything is possible.