How Central Banks are Driving Climate Change

tl;dr: By continually increasing the supply of money and making inflation a core part of our economic systems, central banks contribute to climate change. Here’s how.

I don’t remember exactly how it all came together for me as I was listening to Capitalism without Capital: The Rise of the Intangible Economy, but it was a moment of epiphany.

As we know, the measure of economic success and growth, GDP, and how we measure the standard of living, “consumer price index,” are some of the fundamental units of post-WWII notion that “American consumerism”.

That model has become pervasive globally as the standard for success of a country. And we see where that is getting us.

The very term “consumer price index” has the concept of “consumption” in it.

After all, it’s not the “reduce, reuse, recycle” index. It’s not the “saver index.”

We get what you measure. We get consumption because we measure it.

But it gets worse than that.

Because we have to have these measures of growth move in the right direction at all costs, central banks have been on a program of ‘quantitative easing’ (better known as ‘creating money out of thin air’) for more than a decade.

This creates an unintended and undesirable consequence.

As the amount of money in the economy increases, there are more dollars chasing fewer goods.

The result is that products are sold (which is the GDP metric that banks want), however, it creates the impression of growing demand for those same goods.

Firms, because they are profit-driven, are therefore motivated to increase output.

This leads to an increase in production, which means…

  • more plastic
  • more logging of forests
  • more oil
  • more carbon created
  • more depletion of natural resources

all because there is more money in the economy, creating incentives to abuse the earth.

And we just thought inflation was an erosion of purchasing power.

Turns out inflation actually erodes the earth as well.


How Central Banks are Driving Climate Change was originally published in Data Driven Investor on Medium, where people are continuing the conversation by highlighting and responding to this story.