The financial sector and the ‘real economy’ aren’t that far removed
Sean has done an estimable job knocking down some of the more piqued reactions to the financial bailout in comments, but this really is a topic that deserves above-the-fold treatment. The crisis raises a host of big-picture questions about the proper role of oversight in the financial industry, but wherever the blame for the current mess eventually falls, the "let Wall St. burn" approach won’t do anybody any good, least of all the environment.
To be clear: I’m not suggesting that the bailout plan as currently proposed is a good one. But banks do matter, credit matters, and voters matter, particularly when it comes to climate change. All of these factors will be deeply and negatively affected by a spreading financial panic.
A commonly held notion is that if the government can find a trillion dollars in its pocket to buy toxic mortgages, it ought to be able to cough up at least some comparable figure to solve the climate crisis. And there’s a large kernel of truth to this notion. Our current level of investment in both R&D and infrastructure is a travesty.
But this line of thinking quickly runs into a hard limit. It’s going to take more than a trillion dollars to fix climate change. It’s going to take more than ten trillion dollars. In fact, it’s going to take a lot more.
That’s the scary bit. The happy bit is that this money is going to be spent anyway, as the private sector pours unimaginable sums into infrastructure over the coming decades. The important question is whether the economic and political incentives will favor clean development, or whether we’ll continue down the path we’re presently on.
Do you want offshore wind farms to beat out coal plants in competitive bids? Then wind developers need access to capital. Politicians need space to maneuver. And voters need not to be scared out of their wits by the prospect of slightly higher electricity bills. (Note that the potential for offshore wind in the mid-Atlantic region of the United States is by itself a "trillion-dollar-plus build-out.")
Again, this is in no way a defense of the status quo ante in the financial industry, or an argument against accountability. But the things that made sense a week ago — carbon pricing, efficiency measures, investments in renewable energy — continue to make sense today. And all of these things will be held back by prolonged sickness in the financial sector.