As the world economy grapples with deflation, spending big on infrastructure could be just what’s needed.
Funded by central banks, it would be ‘monetized infrastructure investment.’ A more colloquial name would be ‘infrastructure helicopter money.”
The impact would be the same. The investment would spur demand across a host of industries.
It would create badly-needed global economic growth through government spending and its multiplier effect. The long-term bonds created to fund it could then be distributed to government retirement schemes.
There, the bonds would generate the future repayment streams needed to fund the looming public retirement obligations. These are now met via increasingly unsustainable ‘pay-as-you-go’ schemes.
The good news is that government infrastructure investment creates future revenue streams. Government retirement obligations create future revenue outlays. They just occupy opposite sides of the ledger.
Infrastructure and retirement needs are easy to forecast up front. At present, both are underfunded. Supplemented by carbon prices, the benefits of monetized infrastructure investment compound. The results: improved fiscal solvency, a solution to underfunded government retirement programs and a more efficient global economy.
The proposal here is for nothing short of a post World War II Marshall Plan or 1960s-era moon shot for energy. This time, however, the aim would be to solve climate change and fund the needs of an aging global population instead of rebuilding shattered countries from global war.
Since the 1990s, wiring the world with fiber optic cables and developing a common protocol for packetized information transfer (aka ‘the Internet’) has revolutionized global communications. It’s spawned wealth-creating industries and sped up the innovation cycle.
More deeply linking the world for energy — primarily electricity and liquid/gaseous natural gas/hydrogen — will create the kind of common protocols for transmitting energy from place to place that uniform data packets created for moving information.
In other words, ‘helicopter infrastructure expenditure’ represents a ‘Gaia Hypothesis’ (ie a self-healing system) solution to climate change and aging demographics. The challenge now is to seize the opportunity. The timing is right.
Global economic experts ranging from former US Treasury Secretary Larry Summers to major international banks now argue a major reorganization of the global economy is now needed. This would focus on investment and decarbonization.
The core institutions are in place: the Asian Infrastructure Investment Bank (AIIB), the Asian Development Bank (ADB), the World Bank, the International Energy Agency (IEA), the World Trade Organization (WTO) and others.
What’s needed now are common standards and universally-applied carbon pricing. These will provide the right signals for investment. Stated conversely, climate change represents a failure to correctly price carbon. Rising sea levels and more destructive weather are the paybacks of this ‘market failure.’
The place to start is Asia. There, the world’s largest regional economy is taking shape. It includes China, South Korea, Japan, the Association of Southeast Asian Nation (ASEAN) states, Australia, Papua New-Guinea and East Timor.
Together they represent the world’s most dynamic regional economy. Much of the region is being built out with infrastructure for the first time: power lines, gas pipelines, roads, rail and telecommunications.
The challenge now is to create the technical and marketplace standards to encourage interconnection and to create aggregated, cross-border markets governed by pan-Asian demand-supply price signals for carbon-adjusted energy.
Properly run, China’s AIIB can be in the forefront here — at least over the short-term. The AIIB already has announced two cautious initial infrastructure projects — both roadways.
Future projects — planned for the longer term, should include deepening electricity and natural gas interconnections between China, Japan and South Korea in Northeast Asia and China, the ASEAN states and Australia.
The Pan-Asian Energy Infrastructure emerging from this would include Joint Development Areas (JDAs) in the South China Sea.
Grenatec has proposed a series of South China Sea JDAs offering a template for this kind of bright future. These would connect promising offshore oil and gas fields to land and sea-based gas pipelines and power lines delivering their low-emission energy to downstream markets in the form of natural gas, electricity or hydrogen.
The model could then be extended southward to Australia and north and west to Russia,central Asia and eventually Europe. What’s needed now is to mesh all the good ideas for global infrastructure into a financial plan of investment to create the 21st Century global clean energy economy.