As the threat of inflation still looms, Andrew Lydon of Localise West Midlands looks at how the Green New Deal can offer an alternative to state bailouts.
The current round of inflation figures in the main G8 countries shows that the fall in consumer prices is coming to an end.
Last Friday’s US figures did not fall into negative territory. On a year-on-year basis they were negative for clerical and manual workers.
Likewise for the broad population in President Obama’s adopted home city of Chicago. In the UK we are much further away from actual deflation.
Last month’s UK prices were three per cent higher than the year before, half as much again as the Treasury’s prescribed inflation target, and only 0.1 per cent down on December.
In 1982 the USA threw mortgage interest payments out of the baskets by which it measured inflation.
They had recognised how interest rate cuts would distort recognition of inflation at crucial points.
On that occasion the UK did not follow suit, so this distortion affects one of the indices we regularly use, the Retail Price Index. It is only this index that is telling us we are anywhere near UK deflation.
The US inflation indices are localised. In the President’s adopted city, the regional branch of the US Federal Reserve models inflation right across their social spectrum.
In the 1970s, young Michelle Obama’s family could be run on one income, but in his presidential bid her husband emphasised that in today’s America this would be very unlikely.
Many of those who had spoken out about the “Two-Income Trap” in the USA were central to Obama’s campaign. They denounced the deceptive prosperity of recent decades, and the problems it has brought with it.
A similar awareness about inflation and living standards is needed here among our political class.
The Brown Government longs to get us back on the consumption binge as the way out of the economic crisis. The VAT cut has been their hallmark policy.
But most of our G7 counterparts see spending on infrastructural renewal as the way out. That will be the solution in Germany.
President Sarkozy has made housing renewal and greener vehicle production France’s priorities. The new US stimulus package is mainly infrastructure. Demand will be fostered for the needs of the future rather than things everyone spent too much on in recent years.
These deals look to the future and are different from an agenda of “bail-outs” founded in the hope that business as usual will return.
Bail-out stratagems are now coming very close to printing money. They are directed to support business sectors with dubious prospects rather than the challenges set out in the Green New Deal outlined on the New Economics Foundation website.
This sort of approach risks keeping inflation going here in the UK, and that could become a real UK problem as the global economy finds its feet and puts upward pressure behind international food and energy prices again.
Localise West Midlands (LWM) is working on these issues.
As the Statistics Commission begins a review of the UK inflation indices in June or July we will be actively pressing our proposals.
In recent months we have also helped bring together a grouping of energy enterprises, campaigners, and trade union, education and business representatives, to press the case for a Green New Deal in the West Midlands.
The Green New Deal promotes tackling the energy, climate and financial crunches together by spending for job creation in meeting our energy infrastructure needs, by using savings as investment for that energy infrastructure, and by measures to make our financing more stable and more rooted in the productive economy. It offers a range of opportunities to deliver massive energy efficiency and renewable energy retro-fitting programmes for the region’s housing and creating new investment mechanisms to fund them.
The localisation policies LWM advocates combine to deliver sustainable economics.
For a couple of decades the arrival of China and other emerging economies brought the price of everything down around the world.
The economic collapse of 2008 was in large part because that dynamic was going into reverse and driving up prices. The future will be one where countries will need to reduce their exposure to viciously destabilising global price shifts through minimising resource abuse and import dependence.
The Prime Minister claims that the British banks are lending more to business than they did in 2007. In this he may be correct.
He goes on to say that it is the disappearance of foreign lending that is the main reason why there is still a UK “credit crunch”.
Our dependence on importing the savings of others became a noose around our necks. It is only around inflation and banking policies that foster savings here in the UK that we will be able to redesign a new banking sector that will be committed to jobs and production in Britain.
A Green New Deal will require new economic fundamentals. In the 1980s the UK sought to suppress inflation and foster “competitiveness” through shadowing the Deutschmark. In the New Labour Era, they thought this could be done through lurking in the shadow of the policy of Alan Greenspan of the US Fed.
What we really need are policies that reflect the profiles of the increasingly diverse economies which rely on sterling in 2009 and the guidance of what is currently the Bank of England.