Brick wall policy

High energy prices could result in either recession or investment in cleantech.

I imagined a car driving into a wall, say, in a film. In one film the car hits the wall and it’s written off. That’s the recession. In another, less plausible, thriller, the car smashes through the wall and carries on on the other side, with some modifications to the bumper and bonnet.

The outcome seems to depend on the momentum of the car and the strength of the wall. If the car is a little Fiat tootling along at 30mph it will end up under a pile of bricks. A Hummer going at 80mph might make it through.

So probably if the economy is febrile, high energy prices cause recession and if it is robust then high energy prices will divert investment towards cleantech.

This is scary because we know for certain that economists and politicians don’t know how to make the economy robust. So the pre-condition for energy taxes or carbon pricing to work looks like something over which policy makers have little control and about which our understanding is still patchy.

Since the effects of climate change are bigger than the economy (they are expected to affect adversely well being inside and outside of the monetary economy) we should be looking hard for climate change policies whose effectiveness is not dependent on the state of the economy.

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