In the chaos and distress now experienced in large parts of the country as the result of quite unprecedented weather patterns, among the multitude of things which have become clear, one above all stands out. The infrastructure, whether it is drains, power lines, railways or the maintenance of natural systems like dykes and rivers is just not up to the standard which will hereafter be required for the modern post climate change world.
Why the climate is changing, whether such changes are natural to earth’s evolutionary progress or unnatural and man made, is not the issue in this context. It can be debated and argued over, but the need to do something practical to deal with the consequences is now no longer up for discussion. The problem is how to pay for the massive programme needed to make the country more able to cope and recover from these events in the future.
In the post WWI era government borrowing has been the way to finance public works. This approach has been abused by governments for nearly one hundred years to the point where the nation is now over borrowed and in debt with an annual interest bill of £50 billion to pay for its existing debt mountain. To add significantly to that is difficult.
The answer, but one nowhere on any government or central banking agenda, lies in Dynamic Quantitative Easing. This differs from the ordinary QE with which we have become familiar and which uses new money to buy in government bonds to increase the liquidity of the financial markets. That new money enters the financial industry and has done much to ensure the City was more or less insulated from the downturn. Quite a bit of the new cash goes overseas into emerging market countries. Very little of it filters down into the real economy and none of it goes towards, for instance, building robust flood defences.
Unlike regular QE where the Central bank issues the new money, Dynamic QE is new money issued by the Treasury. In WWI this took the form of Treasury Banknotes, but now it would be electronic money. This new money is then used directly to create new wealth by funding, with direct payments, infrastructure renewal and public works and can also be used for industrial development. The economy grows and the ratio of debt is reduced without further borrowing.
A side benefit is that the increase in the volume of sterling would drive down its value, helping exports and making imports more expensive, giving home industries an opportunity in the domestic market. Clearly the bank of England would have to monitor the money supply carefully and use a combination of interest rates and special deposits coupled with lending restrictions if the economy begins to overheat. This is a very different approach but it is one that Whitehall will have to get its collective head around, if Great Britain is ever to climb out of the hole it has dug for itself over several decades.