Macroeconomic Policies for a Sustainable World

ABSTRACT

The urgency of the climate crisis is such that it needs to inform most policy-making. It represents a major threat to human development. Yet while the existence of the crisis is generally acknowledged, this has not affected macro-economic policy even though the climate crisis has major effects on the accepted objectives of macro-economic policy, including growth and economic stability. The paper explores changes in macro-economic policy needed for sustainability which should become an intrinsic and overriding objective of policy. Implications of doing so are explored, including replacing the growth objective with green/sustainable growth, altering the measurement of GDP accordingly; greatly increasing the weight given to the well-being of future generations with implications for interest and investment rates; and reforming taxes and expenditures. Ballooning of debt is justified to support a rapid transition to a carbon-free economy. Among high-income countries, the growth objective should be questioned. Low income countries need green growth to attain reasonable living standards. Large-scale resource transfers to low income countries are essential to support green expenditures for mitigation and especially adaptation. High priorities are a change in the approach of the IMF and World Bank, and innovative financial mechanisms to support the required transfers.

KEYWORDS:

• Climate change
• macro-economics
• growth
• discount rate
• human development
• sustainable

Disclosure Statement

No potential conflict of interest was reported by the author(s).

Notes

1 These were freshwater use; land system change; biogeochemical flows; ocean acidification; atmospheric ozone depletion; release of novel elements; biosphere integrity and climate change.

2 Biosphere integrity, land-system changes; biogeochemical flows; climate change; release of novel elements; and freshwater.

3 I am not considering the many composite indices that have been proposed that incorporate social as well as economic objectives because these are not likely to displace the crude measure of national income in economic policy-making.

4 In a paper, prepared by the staffs of the IMF and the World Bank, on how to achieve a sustainable debt situation, defined as a situation in which a country “can meet its current and future external debt service obligations in full, without recourse to debt rescheduling or the accumulation of arrears and without compromising growth” the authors concluded that the value of the Net Present Value of debt should not exceed 150% of a country’s exports or 250% of a country’s revenues, or higher if exports were greater than 40% of GDP or revenues were greater than 20%, i.e. between 50 and 60% of GDP for an export ratio of 40% and a revenue ratio of 20%. This is considerably below the debt/GDP ratio of many developed countries (Association and Fund 2001).

Additional information

Notes on contributors

Frances Stewart

Frances Stewart is emeritus professor of Development Economics at the University of Oxford. She was Director of the Oxford Department of International Development and the Centre for Research on Inequality, Human Security and Ethnicity. She has been an adviser to the UNDP’s Human Development Report since its inception in 1990 and received the Mahbub ul Haq award for lifetime contribution to Human Development. She was Chair of the United Nation’s Committee for Development Policy (2010–2012). She has an honorary doctorate from the University of Sussex and was awarded the Leontief Prize for Advancing the Frontiers of Economic Thought, by Tufts in 2013. Her prime research interests are horizontal inequalities, conflict and human development. Among many publications, she is leading author of Horizontal Inequalities and Conflict: Understanding Group Violence in Multiethnic Societies (2008) and Advancing Human Development: Theory and Practice (2018).