A few weeks ago there was a spate of articles in the news media about how the coronavirus was helping to save the environment.  The reports generally had a positive flavour, and yet the pandemic will almost certainly be an environmental disaster when, or if, we come through it.

The reports were premised on the reduction of greenhouse gas and pollution generation due to people not driving or flying, industry closing down,  reduced electricity demand, and other reductions in human economic activity.  All these things are truly happening, and yet after the pandemic they are likely to rebound to much greater intensities than before.  The two underlying reasons for this are debt and economic growth.

Recently, there has also been a spate of articles in the news media about the debt predictions being made by the Australian government.

The Australian government and governments around the world are choosing to create a vast amount of global debt as they try to keep their countries afloat, support their citizens, and keep businesses alive so that, when, or if, we find a solution to the corona virus, economic activity can continue.  That debt will have to be repaid – the already wealthy people who lent money to the governments will want it back, plus interest.

That vast global debt is a commitment to vastly increased amount of economic activity in the future as the government deals with this debt, and the interest on the debt.  

A government could try to deal with this debt by increasing the rate of taxation so that everyone pays more tax, and then using the money that it collects to pay off the debt.  However, if these increased taxes divert too much money is from the economy, the economy will be stifled and won’t grow, as people won’t be able to spend that money back into the economy, so the effectiveness of this method is limited.  

A government can also increase the amount of tax collected without increasing the tax rate by stimulating more economic activity to make the economy grow.  

As well as collecting more tax a larger economy can also withstand more absolute indebtedness – from an economics point of view it’s only the relative size of the debt when compared to the size of the economy that matters, not the actual amount of debt.  This is the economic concept of the debt to GDP ratio (GDP is gross domestic product – the value of all of the end-products that are finally consumed in a nation’s economy).  As the economy becomes larger the unpaid debt and associated repayments become relatively smaller and easier to manage.

All that growth in economic activity to generate more tax and to make the debt relatively smaller will incur the usual negative consequences of economic activity, including resource extraction, consumption of energy resources, land use, production of pollution and waste, and burning of fossil fuels that produce greenhouse gasses.

Governments will be desperate to bring about that economic activity at any cost, and, as we can see happening here in Australia, will roll back environmental protection (what our current government calls “green tape”) to achieve it.  All that growth in economic activity will contribute to the issues that humanity and all life on Earth faces – an environmental disaster! 

You can find related posts here:

economic growth, government debt, environmental degradation

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