"Limitation to 1.5 degrees with our economic system not possible"

By Klaus Weinert

[This article published on 9/23/2021 is translated from the German on the Internet, "Limit to 1.5 degrees with our economic system not possible" | Telepolis (heise.de).]



Economist Helge Peukert on dominant trends in economics, risk research and climate change

Prof. Dr. Dr. Helge Peukert teaches economics at the University of Siegen. He deals intensively with climate change in his book Climate Neutrality Now and is one of the economists who use various methods to look at economic conditions and seek solutions to problems - the so-called heterodox economists. Telepolis asked Helge Peukert how he assesses research in economics, what needs to be changed and what challenges the new federal government will face.

Mr. Peukert, a study by the Institute for Labor Market Research (IZA) asked economists how satisfied they are with the focus of research in economics. The result is that only about 30 percent of the 10,000 scientists surveyed, based on the Journal of Economic Literature,are satisfied with the current research priorities. Does that surprise you?

Helge Peukert: No, of course not. On the one hand, it is undisputed that, especially when it comes to empirical research, interesting and important data and correlations are determined, which are indispensable even for heterodox economists like me. On the other hand, from a purely methodological point of view, a strong narrowing can be observed by insisting strongly on modeling, i.e. establishing mathematically formulated causal relationships, which are then to be empirically proven.

In addition, for decades there have been virtually no appointments at the economics faculties of German universities from the schools of thought of post-Keynesianism, feminism, the Historical School, socioeconomics, Marxism and critical old institutionalism (Thorstein Veblen, who already proved more than 100 years ago how important institutions are for economic developments).

Even the typical German ordoliberalism (Eucken School after 1945), which committed itself to a consistently decentralized economic form, no longer has any representatives. In economics, for example, an international mainstream dominates, which establishes optimized formal models that exclude many areas of economic relations, such as feminism, historical school, as well as post-Keynesianism, which considers the importance of demand and demand to be at least as important as good conditions for companies.

Many economists believe in the IZA study that economic policy research, multidisciplinarity and risk research should come much more into focus. Would you underline this and which fields of research are important to you?

Helge Peukert: I am pleased to see that many economists actually see it that way. I share this view and have already referred to excluded schools of thought above.

This is hardly surprising: If a heterodox economist applies for a professorship and there are only yellow frogs of the mainstream in the pond of the commission and the applicant says: I am a self-confessed blue frog who criticizes considerations of the yellow frogs, then you don't take him, but a yellow frog.

That is all too human, but it is detrimental to the plurality of possibly complementary perspectives in science and the opposite of what we might call a liberal-open scientific landscape.

The ECB as a central policy actor

So what would have to change, where do you see important deficits, for example in the banks?

Helge Peukert: What is essentially missing are approaches from an overall economic perspective. Let's take the developing state-monopolistic central bank capitalism. Here, states and even communities of states like the EU, weakened by deregulation and globalization, enter - through internal strife - into a relatively novel alliance of convenience with monetary bureaucrats - especially central banks like the ECB - and banks.

The ECB becomes the central policy actor, lender, buyer of last resort, market maker, to use technical terms. It becomes an all-round fire department (whatever it takes), buys trillions of government bonds, and also becomes the central playmate of the shadow banks. It is always surprising how infantile even professorial experts in the field of monetary and financial theory and practice are in ignoring these developments or reciting the old mantra of price stability orientation.

With the zero interest rate policy, full allocation of central bank money, foreign currency swaps, dilution to the limit of the collateral to be deposited by banks, and QE (Quantitative Easing) with 3.0 trillion, as well as negative interest rates, we have pretty much arrived at the opposite of what not only the Germans were told as basic principles when the euro was introduced and what is finally also written in the corresponding European treaties.

What are the consequences of this policy from your point of view, especially of the ECB?

Helge Peukert: The asset price inflation that accompanies this ECB policy drives up rents, increases social inequality, expropriates the little man on the savings or checking account via negative interest rates, and pushes the majority of citizens, who sensibly stay away from the speculative financial market, into the stock markets, which plays into the hands of right-wing populist parties.

The average citizen becomes a forced speculator who will probably once again get in too late, and when the next financial crisis approaches, will get out too early. In short, all of these aspects must be considered in economic policy reflections, assessments and reform proposals. This is a challenging task for the new federal government after the elections on September 26, and one that absolutely must be tackled.

So is economic development often viewed too one-sidedly? Do we need a broader view?

Helge Peukert: In Germany, there was once the German Historical School, which was marginalized from the universities. It had a broad perspective on economic problems, including a social perspective. It is true that wealth inequality is criticized now and then, but who critically questions the profiteers of the globalists' internationalism, namely the central banks, the financial big business, media giants, international (IT) corporations, the political establishment?

There are economists like Heinz Bontrup or Ralf Marquardt who also address these questions in their textbooks, which still happens too rarely. I find it particularly alarming that, in view of the climate catastrophe that has now arrived on our own doorstep, far too few professorships are being established in this area.

The dominant textbooks for students continue to be head-to-toe on growth. There is also a complete lack of professorships with financial independence from "policy-ready" third-party research.

"Tipping points are approaching or have already been reached"

You just referred to the climate catastrophe. How do you see the current situation?

Helge Peukert: Mainstream economists are all too happy to calculate exactly the cost of climate change and the cost of stopping it at 1.5 degrees global warming or more. According to the latest IPCC (Intergovernmental Panel on Climate Change) report, we are already at 1.5 degrees of global warming over land.

The tipping points not yet reached in the last main report are approaching or have already been reached. As of 2022, the global community has 230 gigatons left for the 1.5-degree target over land and oceans, with large uncertainties about that number and annual emissions of 35 gigatons.

The usual efficiency-oriented arithmetic is therefore all cheating in the face of bitter facts. Self-reinforcing effects, tipping points are ante portas. The Bank for International Settlements notes in its highly regarded 2020 study The Green Swan:

Crossing tipping points can have catastrophic and irreversible effects that make any quantification of financial damages impossible: study The Green Swan.

Risk research would have to become uncertainty research, which would have to make extreme events - which unfortunately can no longer be ruled out - the basis of all proposals.

So would you say that the German government of the past years is to be blamed for major failures, especially in climate policy and, related to that, in the economic response to it?

Helge Peukert: According to the IPCC report I mentioned, Germany will still have 2.3 gigatons of CO2 available from 2022 onwards, assuming equal distribution among the world's population - and with only an 83 percent probability. That makes 12.5 metric tons per person by the time all German citizens are climate-neutral.

According to the manufacturer, an e-Golf is already associated with three times the volume of emissions over the vehicle's life cycle. In other words, it is not possible to limit global warming to 1.5 degrees within the framework of our growth economy system.

A staggering fact. Even the amended climate protection law comes down to 9.7 gigatons. But even these reduction values are not being met.

The think tank "Agora Energiewende" states: In the election year 2021, Germany will record the highest increase in greenhouse gas emissions since 1990.

This exceeds even the increase following the 2009/2010 economic crisis. In 2021, Germany will even fall short of its 2020 climate target, as we will be only 37 percent below the 1990 level. This is not a balance sheet to be proud of.

In your view, the most important task of the new German government's economic policy is a decisive economic climate policy. Wouldn't this climate policy lead to high unemployment?

Helge Peukert: A radical climate policy would inevitably lead to high unemployment in the first place, which in connection with an increasingly unequal distribution of income and wealth means enormous fuel for the fire.

In my opinion, it would require the creation of a public third labor market that would guarantee everyone a conditional basic income. The minimum wage there would certainly have to be at least 15 euros an hour for ecological-social professional activities. Therefore, it would require a significantly higher income taxation, say from 200,000 euros, and an inheritance tax that could also be one hundred percent from certain amounts of several million.

The only party making these demands is the Left Party, of which I am not a member. Of course, there are warnings against red-red-green because a new redistribution threatens. But only in this way can we make a better economic-ecological policy as well as fight inequality and especially child poverty.