Save money and the planet?
Green campaigners encourage us to buy less non-essential ‘stuff’, but would that cause an economic crash?
Whether it’s an iPod, a new jumper or a set of saucepans, everything we buy has a carbon footprint. From manufacture to distribution, our purchases are a significant source of CO2 emissions and other environmental damage.
Given the impact of global warming and the current global credit crunch, checking into retail rehab doesn’t sound like such a bad idea. But even if buying less helped save the planet and our purses, what would it do to the economy?
Economists and journalists tell us that the economy is imperilled whenever retail sales look set to fall. A fall in consumer spending of just 3 per cent in the early 1990s helped cause the biggest recession since the Second World War and pushed unemployment above three million.
So would going green mean pushing the country into the red?
Out one wallet, into another
Economists since the Great Depression have recognised that incomes and spending are two sides of the same coin. John Maynard Keynes showed that the goods and services we buy generate income for the firms and workers that sell it to us. When spending drops, there will not be enough work to go round and unemployment will rise.
And it’s not just unemployment we’d have to worry about - tax rates might shoot up as well. In the process of buying and working to pay for things, we pay the taxes that fund public services. If we wanted less stuff but the same level of service in public services, we'd need to raise tax rates to get the same amount of money from less work and less spending.
Secondly, the relative cost of some things would change. With less money around to be spent on them, things in fixed supply – like land, houses and natural resources – would tend to get cheaper.
Thirdly, with mortgages fixed at their current levels, the resulting fall in house prices could push some homeowners into negative equity. And more generally, the fall in spending could reduce company profits and therefore share prices, thereby threatening the solvency of our pension schemes.
In other words, our economic wellbeing seems to depend to a great extent on the willingness of the general public to go out and spend. In 2007, as the American economy began to falter, George Bush went so far as to say “I encourage you all to go shopping more”.
Spending without the stuff
With all these impacts in mind, it would be hard for policymakers to recommend that we as a nation cut back on shopping overnight. But is it, in the longer run, possible to maintain a healthy economy while buying less stuff?
Of course, it’s not only ‘stuff’ that causes carbon emissions. The main drivers of climate change are things you can’t put in a box or a shopping trolley – things like heating, power and travel. But it is true that factories and shops emit a lot of carbon.
One way to square this circle might be to shift our spending away from goods and towards services, although not all services are eco-friendly. Paying a taxi driver to take you somewhere you could easily reach on foot wouldn’t necessarily reduce emissions compared with spending the fare on, say, a new item of clothing.
But many services do allow economic activity at minimal cost to the environment. Attending a French class, paying a cleaner or joining a hockey club – all of these generate employment without generating very many greenhouse gases.
Of course, we’ll always need to purchase some physical goods – services alone won’t feed us or furnish our homes. So a more obvious way to reduce the impact of our spending is to ensure that the stuff we do buy is as green as possible. For example, chicken is more climate-friendly than beef, and a sustainably sourced wooden table far less environmentally damaging than an aluminium one.
Rethinking the economy
Shifting our spending to services and eco-friendly products is all well and good, but to create a truly sustainable economy we might need to reduce overall spending too. With careful planning, there may be ways to achieve this while reducing the painful effects that some economists and politicians fear.
Take working hours, for example - a fall in spending will tend to reduce the number of jobs. But if more of us sought to work part time, we could share out the work between more people and avoid mass unemployment as we think of it today.
A change like this would reduce gross domestic product and economic growth, but not necessarily our quality of life. Economists like Paul Ormerod and Richard Layard have argued that, beyond a certain level (which we reached some time ago), more wealth does not make a nation any happier.
Time for radical change?
But such a radical change would require careful planning. Think of a firm that has just borrowed money to build a shiny new shopping centre. If no one were to shop there, that firm might well end up going bust, along with the bank that lent it the money.
Such business failure would have knock-on effects on the wider economy and perhaps on the political landscape, too. In a time of recession, a government focused on protecting the climate, rather than driving economic growth, may be less likely to get elected.
The key to a less painful and more politically popular transition would be to make it predictable and gradual enough so that businesses and government could plan for the effects. This would mean doing things like adjusting their business plans, investments and pension schemes.
On the other hand, if the changes were too gradual, we may miss our window of opportunity to avoid runaway global warming. After all, some experts think we only have a decade or so to slash our emissions.
Balancing the twin threats of climate change and economic disruption should be a leading consideration for governments in coming years. In the meantime, we can all do our bit by making sure that when we do buy ‘stuff’, we opt for goods and services with the lowest carbon footprint possible.
Share this
(What is this?)