Why the London Protesters Are on the Right Side of History

By Johann Hari, Huffington Post. Posted April 6, 2009.

He showed that recessions are actually caused by a failure of consumer demand. When people sense that they might lose their job, they -- perfectly sensibly -- cut back on their spending. They buy fewer DVDs or restaurant meals or holidays. But this causes a fall in demand for services -- and more people lose their jobs, causing demand to fall further in turn, and on and on, in a spiral. He called it "the paradox of thrift": what is rational for an individual consumer is irrational for the society as a whole.

But he also showed there is a way out: the government needs to spend large sums of money, financed by borrowing, to get all the workers waiting idle back into action. This government spending brings consumer demand back - and reverses the downward trend. Then, once you've recovered, you pay off the debt.

Keynes stressed you can spend this money on anything: at one point he proposed burying wads of cash and paying people to dig them up. But today, we face an incredible coincidence. At the same moment, we need to spend lots of money on something, anything -- and we need an immediate transition to a low-carbon economy.

And it gets better: it turns out a green stimulus is best for the economy. A major study by the University of Massachusetts compared the effects of an old-style stimulus that simply gives people more cash to a green stimulus. They found that a green stimulus creates four times more jobs, and three times more "good jobs," defined as those that pay more than $16 per hour. Why? Because a green stimulus is labor-intensive: you spend more money on people and less on machines. And the money you spend stays at home, making it easier to sell: you can only insulate a loft in Hull in Hull; you can only build a wind farms in the Mid-West in the Mid-West.

But it's not happening. A study by HSBC has found that only 6 percent of Britain's stimulus so far has gone to green projects. In the U.S., it is just 16 percent. It's nonsense to claim there aren't enough green projects "shovel-ready": during World War Two, the industrial capacities of our countries was transformed from making consumer goods to making tanks and weaponry in less than sixty days. We could do the same.

But this alacrity shouldn't surprise us. The weight of conventional wisdoms and the sway of powerful corporations with vested interests in the old sickening world holds back even the better leaders. The first New Deal wasn't handed down by Franklin Roosevelt as a benevolent gesture. On the contrary: he came to power as a budget-balancing centrist, and only became a great President because he was confronted by massive riots and civil disobedience across the United States. The American people pushed him in a more radical direction, often with behavior that made this week's riot in London look like a Buckingham Palace reception.

On Wednesday, one of the young protesters sat in a tent at the edge of the City of London, looked out towards the glistening towers of the financial district, and said to me: "The dinosaurs were killed by an asteroid. Suddenly, we are realizing that we are our own asteroid." She shook her head. "How can so many people just sit at home and watch it happen?"

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