The Brooklyn Rail

I don’t know if it is still true, but the last I heard the official US war-fighting doctrine held that the nation must be prepared to engage two enemies at the same time. Such a doctrine, of course, doesn’t guarantee that the American armed forces can win even one war at a time—witness the most recent defeat, at the hands of the Taliban. I thought of this while reading Vinod Thomas’s recent Financial Times op ed, “Overlapping crises could fracture the global financial system.” A former senior vice president at the World Bank, Thomas has in mind “the interplay of the climate crisis with financial fragility,” which in his view “threatens potentially insurmountable dangers unless immediate action is taken.”¹ On the one hand, he points to the dangers inherent in “unprecedented levels” of global debt and the unregulated character of the shadow banking system—made up of so-called nonbank institutions like hedge funds, pension funds, insurance companies, and so forth—that “now dominates about half of global financing.” On the other, he worries about the effect of ever wilder weather on insurance companies, food supplies, and industry supply chains. Being a banker, Thomas sees the problem posed by climate collapse and mass starvation as the effect on price levels and the demands that central banks would have to face “to fend off the impact of insurance company defaults.” It is to stave off the brewing financial crisis that the G20 (the world’s richer countries) must make “an all-out effort to decarbonize economies.”

Two aspects of this idea particularly strike me: first, the remarkable high point of economic fetishism reached by the view that the environment on which human life depends must be preserved in order to safeguard the financial system; second, the apparent acceptance that nothing can be done to make that system less fragile. The second of these may well be true. The whole point of shadow banking is its lack of regulation—it was exactly to escape from the mild regulation of the banking system that nonbanks moved massively into credit production. At last month’s central banker symposium in Jackson Hole, Wyoming, economists Barry Eichengreen and Serkan Arslanalp argued convincingly that high public debt levels—debt to GDP ratios increased on average from 40 percent to 60 percent since 2008, for wealthy nations to 85 percent—cannot go down, as expenses, including interest on past debt, increase and GDP growth continues to slow down (as the IMF and World Bank predict it will). Low growth also means less money available for new investment, which therefore increasingly requires increased corporate debt, while falling or stagnant real incomes mean that consumer debt must also increase (in the US, for instance, household debt has risen from around 7 trillion dollars to over 17 trillion dollars since 2003, with credit-card delinquencies unsurprisingly rising sharply in 2023 as savings collapsed from their 2020 high).

So low growth (and remember that “growth” includes, along with the increase in capitalist investment and production, increases in government spending of taxed or borrowed money) also means that debt will tend to increase, whatever the rantings of “fiscal hawks,” although certainly efforts will be made to cut government financing of healthcare, education, housing, and food support, even while fossil fuels continue to receive high levels of subsidy. At the moment, economic authorities seem quite uncertain about what to do: while they believe central banks must raise interest rates to “tame inflation,” this is supposed to work by further slowing investment, which by increasing unemployment will push down wages, blamed by business people as basic to inflation. The alternative anti-inflation move would be to somehow get business to stop raising prices. Unsurprisingly, no one thinks this is a serious option (as opposed to subsidizing some energy expenditure, as was tried on a small scale in the UK and Germany). There is a comic opera flavor to the Italian government’s recent call for producers and sellers to “try to resist raising prices” of pasta and other staples, at least for three months.²

According to European Central Bank president Christine Lagarde, “There is no pre-existing playbook for the situation we are facing today—and so our task is to draw up a new one.”³ While waiting for the new J.M. Keynes or Milton Friedman to emerge with a solution for the problems of an economy which has been sliding towards stagnation since the mid-1970s, perhaps it does make sense to try to “do something” about the climate. In any case, as UN Secretary-General Guerrero pointed out recently, “Climate breakdown has begun. … Surging temperatures demand a surge in action. Leaders must turn up the heat now for climate solutions.”⁴ Apart from an unfortunate choice of phrase, the problem with this is that the leaders show no inclination to step up to the task. Fossil fuel production is expanding worldwide and CO2 levels are rising. Even possible minor symbolic moves like banning ocean cruises, private jets, and the wastage of increasingly scarce water on golf courses don’t come up for discussion. Instead the next big climate-change meeting is scheduled to take place under the aegis of a petro-state.

As has been pointed out repeatedly in these pages,⁵ an economic collapse would have good effects on the climate; from this point of view, Vinod Thomas is looking at things the wrong way around. But it is true that if the economy holds together for another decade or two, with further money injections by governments and so growth of debt—and financial fragility—it may well be environmental catastrophe, not the economic crisis to which Marxists have traditionally looked, that finally convinces the led, given the powerlessness of the leaders, that the time for self-protective action has come. In fact the climate crisis and the declining economy are twins, originating alike in the demand of capital to grow by absorbing the labor of those who work for it. It is this dynamic need that prevents both the necessary abandonment of fossil fuels as part of a general turn away from the exploitation of nature and the substitution of human well-being for accumulated profit as the engine of social activity. The two fronts belong to one war.

1. Financial Times, September 7, 2023.
2. “Italy’s anti-inflation pact aims to keep the lid on pasta prices,” Financial Times, 9-10 September, 2023.
3. “No playbook: policymakers face up to changing global economy at Jackson Hole,” Financial Times, August 27, 2023.
4. “Climate breakdown has begun with hottest summer on record,” United Nations Press release, September 6, 2023.
5. https://brooklynrail.org/2019/10/field-notes/Lets-Have-That-Recession; https://brooklynrail.org/2023/09/field-notes/Why-a-Recession-Might-Not-be-Such-a-Bad-Thing-Considerations-on-a-Hard-Landing.