Facing ecological constraints: implications and challenges for short- and long-run macroeconomic stability and macroeconomic policies

Chapter 9 deals with some of the recent debates in post-Keynesian and ecological economics addressing the macroeconomic implications of ecological constraints. First, the relationship between post-Keynesian and ecological economics is reviewed, and it is argued that these two heterodox schools of thought have some basic features in common. Second, the immediately pressing problem of climate change and the required ecological transformation of modern economies is touched upon. Concepts of de-growth and green growth are reviewed, and their macroeconomic implications are pointed out. Finally, implications of low or even zero long-run growth imposed by ecological constraints for macroeconomic stability in a monetary production economy are addressed. The question of a growth imperative given by endogenous money and credit and positive interest rates and the requirement of positive profit rates is examined, in particular. It is shown that zero growth with endogenous credit, positive interest rates and positive profits is possible and can be stable under a set of restrictive assumptions regarding the behaviour of firms, households and the government, and specific conditions regarding model parameters, like the rate of interest and the propensities to consume out of income and out of wealth. Finally, the conditions for stable employment with zero growth and technological progress are explored. It is concluded that a socio-economic and -ecological transformation in order to respect the environmental constraints is a huge challenge and requires a significant transformation of capitalism as we know it. Green New Deal concepts for the socio-ecological transformation, as well stabilising low or zero growth in the long run, would have to be more closely linked with the post-Keynesian macroeconomic policy mix derived in Chapter 6.