A conversation on investment strategies for the green transition

In late March, the Biden administration announced the $2 trillion American Jobs Plan, with approximately half of the sum dedicated to fighting the climate crisis. While the legislation would mark sea change in federal action to avert climate catastrophe, many have argued that it falls dramatically short of the amount required to usher in a green transformation of our infrastructure and energy systems.

Responding to this large investment gap, a recent Phenomenal World essay by Anusar Farooqui and Tim Sahay proposes a plan for a public ratings agency for green finance, which would “be mandated to assess the economic viability and contribution towards decarbonization of project proposals” and “serve as a public signal for the state, investors, cities, and firms to back, fund, and undertake projects that are both viable and contribute significantly to decarbonization and resilience against climate change.”

Living in Hyman Minsky's world

“An effective way to write the history of the last thirty years of the twentieth century,” economist Albert Hirschman wrote in 1985, “may well be to focus on the distinctive reactions of various countries to the identical issue of worldwide inflation.” Writing just as the global “great inflation” of the 1970s was abating, Hirschman could not have understood how right he was. As Claudia Sahm has recently written in the New York Times, the fear of the great inflation of the 1970s still dominates the thinking of the Federal Reserve, even as its recent messages indicate some acceptance of higher inflation.

Economists lack a good understanding of what causes inflation—and its inverse, deflation. In introductory macroeconomics curricula, Milton Friedman’s mantra “inflation is always a monetary phenomenon” remains central. By this, Friedman meant that excessive price growth happens when a state loosens the supply of money, thus over-expanding the monetary base. However, recent research

Managing an international public good

The global dollar system has few national winners. The typical frame for understanding the US dollar is that of “exorbitant privilege.” But the role of the dollar in structuring the international financial system and defining the relationship between a hegemonic US and the rest of the world is ambiguous—as is the question of who exactly benefits from the current arrangement. Dollar primacy feeds a growing American trade deficit that shifts the country’s economy toward the accumulation of rents rather than the growth of productivity. This has contributed to a falling labor and capital share of income, and to the ballooning cost of services such as education, medical care, and rental housing. With sicknesses like these, can we say for certain that the reserve currency confers substantial benefits to the country that provides liquidity and benchmark assets denominated in that currency?

For the rest of the world, the ills are clear enough. In developing countries, the need to insure their economies against currency crises and debt deflation has meant the accumulation of dollars at the expense of necessary domestic investment. These policies are usually accompanied by a suppression of consumption and incomes to establish a permanent trade surplus vis-à-vis the dollar system. And in many countries, the dollar system allows corrupt elites to safely transport their ill-gotten earnings to global banking centers located in jurisdictions with opaque ownership laws.