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Thank you for the opportunity to exchange views on this. I’m currently trying to write up my professional experience. I’m finding it challenging, but your respo

Thank you for the opportunity to exchange views on this. I’m currently trying to write up my professional experience. I’m finding it challenging, but your response and the dialogue helps me sharpen my own understanding and thinking. Most of my career has been spent building mechanisms to pay the private actor as you suggest. It works well at one level. But the problem is that there isn’t enough government money in the world to pay off all private actors needed to get to sustainability. The other thing to recognize is that banks create money far more than governments do, and they create it to finance projects which likely destroy more wealth than they create: just not wealth in a strict financial sense. Is blaming banks ineffective? The blame probably lies with the system which allows banks to determine the future, and to make that determination on the basis of what creates narrow financial value to a small group of insiders to the exclusion of other values such as environmental, good relations between people etc. I don’t have any beef with the bank mandate per se, their social utility is the allocation of resources to what society finds most useful. But that valuable mechanism breaks down if non-financial values are excluded from credit-scoring systems.

richrichie 3y ago
Thanks for the reply. Is there a better mechanism than financial incentives? I am afraid that is the best working mechanism we have. Planned economies generally have not fared well in history, not only from economic value added perspective, but also from the fascist political systems they produce as a by product. They may get some narrow domains correct, but by and large they are net negative.
- Biologist123 3y ago
  Firstly, I entirely agree with your point about planned economies. I would go slightly further and say that any system where power is centralised to too small a range of actors ultimately fares poorly, and monopoly of any type of power, government, industrial, financial, tends to lead to abuse. I’ve been wondering recently whether western economies despite not being planned are increasingly de facto centralised due to a high degree of monopoly and control by a narrow interest group. Secondly, financial incentives are very powerful if correctly designed. At the moment they are used for things like subsidising hydrogen or adaptation technologies. But they are not deployed - for example as penalties - to deter investment in stuff that is net damaging to human wellbeing. We have a situation where banks are both financing companies that create climate change and also companies that create climate change solutions. Aside from that being GREAT business, it’s also the type of problem that might arise in a centrally planned economy (to the first point).
- drewcoo 3y ago
  > Planned economies generally have not fared well in history, not only from economic value added perspective, but also from the fascist political systems they produce as a by product. The best-known planned economies were socialist and were under constant attack from outside capitalists (hard to make a buck on some other country making life better for its citizens). Socialists are notable because, like Woody Guthrie's guitar, they kill fascists. Capitalists tend to ignore that because they don't like to admit that strong capitalism is one of the pillars of fascism. If you can't be bothered to read a book, at least start with Wikipedia: https://en.wikipedia.org/wiki/Planned_economy https://en.wikipedia.org/wiki/Planned_economy
  - richrichie 3y ago
    1. Can you list 2 or 3 best known planned economies? 2. I don’t trust Wikipedia, it is a far-left nutcases cesspool. Can you point to a book or two for me to read?
credit_guy 3y ago
> But the problem is that there isn’t enough government money in the world to pay off all private actors needed to get to sustainability That’s where governments can partner with banks. Take a hypothetical startup that aims to manufacture green hydrogen. A lender will ask to look at the cashflows, preferably under a base scenario and a few stress scenarios. Will the borrower turn a profit? Let’s assume it won’t because fossil fuels don’t pay a carbon tax. The government can offer to pay a green subsidy, let’s say of $2 per kg of hydrogen. Is the company now profitable? If yes, the banks will advance the loan, roughly speaking. Maybe the base scenario looks good now, but the tail risk is still too high. Then the government can write a loan guarantee, either for the entire borrowed amount, or for half of that, for example.
- Biologist123 3y ago
  Your (good) proposal is in fact formal G20 policy to meet the Sustainable Development Goals via the Hamburg Declaration. It is seen to have two problems: firstly, it is not politically viable to do it at scale as democratic countries won’t accept an arrangement where private profit is derisked with public money. Rightly or wrongly. Secondly, it solves the problem of creating an incentive for public goods. That’s great, but does not disincentivize public bads which I mentioned above.
  - credit_guy 3y ago
    > Rightly or wrongly. No comment. > That’s great, but does not disincentivize public bads which I mentioned above. It’s simple. Tax the externality. In this case institute a carbon tax. It appears to me you are saying we can’t figure out how to be a functional democracy. That’s a shame. One solution could be to try and identify what tools we have in our collective toolbox to taclke the problem at hand. Another solution is to blame the banks that they don’t have enough civic virtue. To me it looks like one of these two solutions is more likely to work than the other.
    - Biologist123 3y ago
      > It’s simple. Tax the externality. In this case institute a carbon tax. A currently popular idea is “a revenue neutral carbon tax” in which funds raised are paid back out to low emitters. Maybe the progress of this idea will be a good benchmark for whether we’re a well functioning democracy. I appreciate this sounds cynical, but I mean it sincerely. > One solution could be to try and identify what tools we have in our collective toolbox to taclke the problem at hand. Another solution is to blame the banks that they don’t have enough civic virtue. To me it looks like one of these two solutions is more likely to work than the other. You’re layering in a value judgement here about the civic virtue of banks into a problem statement which I hope can be evaluated on factual accuracy rather than values. If the problem statement holds, the solutions can then be debated and the toolkit of solutions evaluated for the job. 1. Banks have a powerful ability to determine which projects happen and which don’t through the credit mechanism. Because often times no credit = no project. 2. When projects are evaluated on narrow financial criteria, wealth can be destroyed rather than made. The project will create free cashflow and the loan will be repaid, but the credit issuance process will not take into account whether the project is a net benefit to human wealth across other important metrics such as environmental and human heath. 3. Banks lobby to prevent the credit issuance mechanism being broadened to exclude projects which move costs onto third party balance sheets. You’ve pointed out a possible problem with the democratic process, so maybe the above is really a symptom and not a true root cause, which in fact would be something along the lines of: Powerful economic actors stymy reform of the economic system to favour financial profit at the expense of sustainability. [Edit: for inclusion of final two paras]

richrichie 3y ago

Thanks for the reply. Is there a better mechanism than financial incentives? I am afraid that is the best working mechanism we have. Planned economies generally have not fared well in history, not only from economic value added perspective, but also from the fascist political systems they produce as a by product. They may get some narrow domains correct, but by and large they are net negative.

Biologist123 3y ago
Firstly, I entirely agree with your point about planned economies. I would go slightly further and say that any system where power is centralised to too small a range of actors ultimately fares poorly, and monopoly of any type of power, government, industrial, financial, tends to lead to abuse. I’ve been wondering recently whether western economies despite not being planned are increasingly de facto centralised due to a high degree of monopoly and control by a narrow interest group. Secondly, financial incentives are very powerful if correctly designed. At the moment they are used for things like subsidising hydrogen or adaptation technologies. But they are not deployed - for example as penalties - to deter investment in stuff that is net damaging to human wellbeing. We have a situation where banks are both financing companies that create climate change and also companies that create climate change solutions. Aside from that being GREAT business, it’s also the type of problem that might arise in a centrally planned economy (to the first point).
drewcoo 3y ago
> Planned economies generally have not fared well in history, not only from economic value added perspective, but also from the fascist political systems they produce as a by product. The best-known planned economies were socialist and were under constant attack from outside capitalists (hard to make a buck on some other country making life better for its citizens). Socialists are notable because, like Woody Guthrie's guitar, they kill fascists. Capitalists tend to ignore that because they don't like to admit that strong capitalism is one of the pillars of fascism. If you can't be bothered to read a book, at least start with Wikipedia: https://en.wikipedia.org/wiki/Planned_economy https://en.wikipedia.org/wiki/Planned_economy
- richrichie 3y ago
  1. Can you list 2 or 3 best known planned economies? 2. I don’t trust Wikipedia, it is a far-left nutcases cesspool. Can you point to a book or two for me to read?

credit_guy 3y ago

> But the problem is that there isn’t enough government money in the world to pay off all private actors needed to get to sustainability That’s where governments can partner with banks. Take a hypothetical startup that aims to manufacture green hydrogen. A lender will ask to look at the cashflows, preferably under a base scenario and a few stress scenarios. Will the borrower turn a profit? Let’s assume it won’t because fossil fuels don’t pay a carbon tax. The government can offer to pay a green subsidy, let’s say of $2 per kg of hydrogen. Is the company now profitable? If yes, the banks will advance the loan, roughly speaking. Maybe the base scenario looks good now, but the tail risk is still too high. Then the government can write a loan guarantee, either for the entire borrowed amount, or for half of that, for example.

Biologist123 3y ago
Your (good) proposal is in fact formal G20 policy to meet the Sustainable Development Goals via the Hamburg Declaration. It is seen to have two problems: firstly, it is not politically viable to do it at scale as democratic countries won’t accept an arrangement where private profit is derisked with public money. Rightly or wrongly. Secondly, it solves the problem of creating an incentive for public goods. That’s great, but does not disincentivize public bads which I mentioned above.
- credit_guy 3y ago
  > Rightly or wrongly. No comment. > That’s great, but does not disincentivize public bads which I mentioned above. It’s simple. Tax the externality. In this case institute a carbon tax. It appears to me you are saying we can’t figure out how to be a functional democracy. That’s a shame. One solution could be to try and identify what tools we have in our collective toolbox to taclke the problem at hand. Another solution is to blame the banks that they don’t have enough civic virtue. To me it looks like one of these two solutions is more likely to work than the other.
  - Biologist123 3y ago
    > It’s simple. Tax the externality. In this case institute a carbon tax. A currently popular idea is “a revenue neutral carbon tax” in which funds raised are paid back out to low emitters. Maybe the progress of this idea will be a good benchmark for whether we’re a well functioning democracy. I appreciate this sounds cynical, but I mean it sincerely. > One solution could be to try and identify what tools we have in our collective toolbox to taclke the problem at hand. Another solution is to blame the banks that they don’t have enough civic virtue. To me it looks like one of these two solutions is more likely to work than the other. You’re layering in a value judgement here about the civic virtue of banks into a problem statement which I hope can be evaluated on factual accuracy rather than values. If the problem statement holds, the solutions can then be debated and the toolkit of solutions evaluated for the job. 1. Banks have a powerful ability to determine which projects happen and which don’t through the credit mechanism. Because often times no credit = no project. 2. When projects are evaluated on narrow financial criteria, wealth can be destroyed rather than made. The project will create free cashflow and the loan will be repaid, but the credit issuance process will not take into account whether the project is a net benefit to human wealth across other important metrics such as environmental and human heath. 3. Banks lobby to prevent the credit issuance mechanism being broadened to exclude projects which move costs onto third party balance sheets. You’ve pointed out a possible problem with the democratic process, so maybe the above is really a symptom and not a true root cause, which in fact would be something along the lines of: Powerful economic actors stymy reform of the economic system to favour financial profit at the expense of sustainability. [Edit: for inclusion of final two paras]