Inflation, Central Banks, and the Climate Crisis with Guy Dauncey

What do inflation and central banks have to do with the climate crisis?

A lot because central banks have the power to create money, and climate activists need to understand why if they are to campaign for change. Guy Dauncey is cofounder of the West Coast Climate Action Network. For the past seven years, he has been researching and writing his yet-to-be-published book on The Economics of Kindness – How to End the Economics of Selfishness and Build an Economy that Works for All.

If you have read Kim Stanley Robinson’s “The Ministry of the Future”, or have been following the work of Barbados Prime Minister Mia Mottley, you might have an inkling of how important this piece of the puzzle is for getting humanity out of the mess we are in.

Most importantly, Guy is an impeccable teacher and sees the future we can create together.

We encourage you to watch this video.


Important points covered:

  • This presentation focuses on tackling inflation, inequality, power, and the climate crisis
  • What causes inflation?
    1. Supply-side disruptions
    2. Greedflation by corporations
    3. The increased price of oil
    4. The increased price of housing and rent
    5. Wages push inflation
    6. Falling currency
    7. Excess aggregate demand (the total demand for final goods and services in an economy at a given time.)
    8. Central banks printing more money than the economy can absorb
    It is NOT caused by excessive government spending because every dollar taken out by the government is balanced by taxes or bonds to finance the debt
  • There are eight causes of inflation but raising central bank interest rates seems to be the only solution to counter excessive aggregate demand. Is it because all governments are trained in neoclassical economics which says the market knows best or is it because raising the rates dumps the pain on the lowest economic brackets while profiting the banks and big corporations?
  • There are three kinds of money
    3% of Money is banknotes and coins
    Money in debt and banks is a reciprocal debt
    Money at Central Banks is not reciprocal debt
  • Thus, there are two magic money trees:
    – banks and credit unions
    – central banks
    Neoclassical economics does not really accept this fact.
  • What is money?
    Money is credit created as reciprocal debt based on the trust that it will be repaid.
  • Central bank money is based on collective trust in a cooperative economy. But if done too often it can lead to inflation. It can be used to protect the people as was done allegedly during COVID and when banks failed such as they did circa 2008.
  • But who really benefits? COVID data strongly suggests there has been profiteering during COVID. The solution is not raising bank rates. The solutions are windfall taxes and antitrust regulations.
  • What are key ways of dealing with inflation without raising interest rates?
    1. Get off oil as soon as possible to deal with the price of oil causing inflation. Guy strongly recommended carbon pricing with rebates such as we have in Canada
    2. We need government programs to act directly on the housing crisis to counter inflation. Raising the bank rate will not impact housing costs.
    3. Give workers a pay raise: 2/3 workers’ wage raises are falling below inflation. We cannot tame inflation by putting a burden on the lowest-paid workers. Expand the labour market too. Expand childcare and senior’s care.
    4. Excessive aggregate demand during  and after COVID: In the USA the richest benefited from “quantitative easing and now 40% of the current aggregate demand come from the top 1% and 75% comes from the top 10%. The solution is to tax the rich.
  • How does a central bank inject money into the economy? They buy bonds or securities for banks and corporations. It is a.k.a “Inject liquidity””Quantative easing””Monetizing the deficit””Expanding the balance sheet”.
  • During COVID stock markets were crashing, and the central banks jumped in. Who benefitted? Everyone who owns property and shares. Financial values of stocks and properties rose without lifting a finger, but the money from the central belongs to all of us!
  • Key points: Don’t print money unless you know it won’t cause inflation. Make sure the economy can absorb. We can make climate solution bonds and housing bonds.

Resources Mentioned:

The Organization POSITIVE MONEY

About Guy Dauncey
Guy Dauncey is an anthropological economist who works to develop a positive vision of a sustainable future, and to translate that vision into action. He lives on Vancouver Island. He is the founder of the BC Sustainable Energy Association, and the author or co-author of ten books, including The Climate Challenge: 101 Solutions to Global Warming and Journey to the Future: A Better World Is Possible.  In 2020 he authored, Climate Emergency: a 26 Week Transition Program for Canada, which was presented to MPs in Ottawa in 2020. The Seven Ways to Tackle Inflation without raising interest rates was published earlier this year in Corporate Knights.