05.10.2021 | Sergio Focardi, PhD | Video

A New Economic Theory for the Green Transition

Ignored for a long time, environmental issues are rapidly escalating to a true state of emergency. The Governments of advanced economies are beginning to act in order to mitigate climate change, avoid exhaustion of natural resources, and reduce biological and industrial pollution. The European Union Green Deal announced at the end of 2019 by Ursula von der Leyen, President of the European Commission, is an ambitious project to make Europe a truly sustainable economy. The Green Deal is articulated in three major goals:

  • no net emissions of greenhouse gases by 2050
  • economic growth decoupled from resource use
  • no person and no place left behind

This webinar deals with the goal of creating a growing economy decoupled from resource use. In order to achieve economic growth without exhausting natural resources, advanced economies must become more qualitative. To support this process, both economic theory and the practice of finance must understand qualitative growth.

But mainstream economic theory is unable to understand and model qualitative growth. The key issue is aggregation of heterogeneous variables. This webinar discusses how the current view of growth is primarily quantitative and how qualitative growth is ultimately factored as inflation. Without a major overhaul of economic theory, policies to avoid exhausting natural resources will be perceived as producing recessions. As clearly stated in various EU briefings, economies must develop a new concept of growth.

After discussing the difficulty of aggregating heterogeneous variables and how it impacts the notion of inflation, the webinar claims that parsimonious economic models are idealized models connected to financial observables. The webinar discusses how to represent qualitative growth and sketches a growth model which is both qualitative and quantitative.