Private finance won’t decarbonise our economies – but the ‘big green state’ can | Daniela Gabor

While the private sector wants to keep control of the green transition, what's needed is massive public investment

The pandemic, we often hear, is forcing a rethink in economics. We are leaving behind one model: the austerity-obsessed small state that outsources the job of macroeconomic stability to unelected central banks. Central banks, in turn, worked to target inflation under a regime of benign neglect for unemployment; it was assumed, meanwhile, that the bond market should and would discipline governments into fiscal rectitude.

Now, the Biden administration's once in a generation" spending plans suggest a paradigm shift is under way. It puts governments, through fiscal policy (taxing and spending), back in the driving seat. In this sense, macroeconomics has the potential to become more democratic. But are we celebrating too soon? The big test of the paradigm shift, possibly the fundamental test, is how we go about decarbonising our economies.

Daniela Gabor is professor of economics and macrofinance at UWE Bristol