15 March 2020

Updating the Mellon doctrine

Herbert Hoover reports that Andrew Mellon, Secretary of the Treasury, advised him at the start of the Great Depression to “Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.”

If you replace "liquidate" with "decarbonize", that's not a bad policy statement.

Decarbonize labour, decarbonize stocks, decarbonize the farmers, decarbonize real estate.

There's a global demand crash going on right now, in response to a pandemic.  It's not going to go away quickly; borders are going to be shut, long, complex supply chains are going to contract or truncate, and a whole lot of people will be out of work as various segments of activity are shut down to limit the spread of disease.  Even if nothing else goes wrong (we've got trade wars, an oil price war, the prospect of quite distinct financial crises in the US and China, and Brexit all in the offing) that's going to produce at least the Greater Recession.  It's going to take significant public spending to put the economy back into a functioning state.

Putting that spending into the existing economy is obvious malfeasance; everybody knows the Oil Empire is over, everybody knows the bill is due for the Carbon Binge, and everyone wants a future they can survive in.  Put all that inevitable public spending into decarbonizing and there's some possibility of people believing in some survivable, improving future.

It'd need to go along with a strongly value-driven[1] economic policy and a commitment to egalitarian outcomes (meaning income and asset caps; ten and five hundred times the least of the mean or median income, along with an associated (and necessary!) return of effective taxation on the rich), rather than the "keep the loot" system we have now.  Some planning is in order; that's OK, because we've got several months before we can even hope that the pandemic will have been resolved.

[1] Value-driven economic policy is about an economy that returns value; value is the ratio of benefit to cost.  Profit maximization destroys value, because to get your profit up, you have either deliver less benefit or raise the price you charge.  Something about restricting market interactions to peer entities gets involved, too; for example anyone who thinks there's a free negotiation of terms between a human individual and the phone company is advised to avoid operating heavy  machinery.

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