Central planning is, by definition, a rejection of free markets. And that is as good an explanation as any as to why central planners’ projects so often end in miserable and, on occasion, catastrophic failure. The so-called race to Net Zero is shaping up as a classic example of the genre, a carnival of malinvestment that may well lead, if it’s taken far enough, to economic disaster, political upheaval and, for the West, geopolitical catastrophe.
In the meantime, here’s a bit of news from Britain that gives yet another example of how Net Zero will, if those steering its introduction are given the chance, distort the way in which markets operate. This particular example concerns the pricing of money.
Jeremy Hunt’s nominee to join the Bank of England’s rate-setting panel has called for the bank to create “preferential” interest rates to help speed up the push for net zero, despite acknowledging that such a move could threaten its independence.
In an article published before her nomination, Megan Greene warned that central banks needed to “go further” to help combat climate change and said that the BoE should introduce a system of “dual interest rates” to “give banks preferential (negative) rates if they direct the funds toward green investments”.
Jeremy Hunt is Britain’s chancellor of the exchequer (finance minister), a member of the country’s “common good” Conservative Party, for whatever that’s worth.
But back to the Telegraph:
A government source questioned why Ms Greene had been nominated by Mr Hunt given these views. The source stated: “This would be an extraordinary departure from the Bank of England’s policy of regarding interest rates as neutral and would be an explicit favouring of one section of the economy over the other. It is surprising that this nomination has been made.”
Well, favoring “one section of the economy over the other” is what central planners tend to do.
The Telegraph:
In the article, Ms Greene acknowledged that ministers would not “want unelected central bankers to make decisions about how to allocate resources in the economy” and that central banks taking such an approach “could ultimately threaten their independence”.
But she insisted that such a system of preferential interest rates for green investments “may be the only feasible response to climate change”.
The only feasible response? Oh, please.
The Telegraph quotes Conservative peer Lord Frost:
“The suggestion of lower interest rates for “green” projects does at least acknowledge that such projects are not viable on normal terms, something which their proponents are usually reluctant to recognise. So if implemented this proposal would take us a further step away from normal market economics, with the Government instead allocating investment capital to its favoured clients and projects.”
Frost is right. A central bank underpricing money, which is what this scheme would mean, leads (as we ought to know after the last decade or so) to malinvestment, something of which, as alluded to above, Net Zero is doing quite enough to encourage as it is. Not only that, the opportunities that schemes such as this will open up for cronyism are too obvious to need stating.
The article in which Greene set out her views was published in December. She was nominated by Hunt in April. I don’t know which would be worse. That Hunt, or members of his team, were too idle to Google her writings, or that they came across (or were informed about) this one (it was published by Project Syndicate, a high-profile outlet) and decided that it was just fine.
What am I saying? The latter would be worse, far worse. It’s also the more likely of the two.