Chile's energy problems are begging for a Green New Deal
Chilean society is in upheaval, all thanks to a hike in public transit prices.
Earlier this month, in response to rising energy costs, the Chilean government jacked up the cost of riding the country's metro systems. That set off protests across the country, which turned violent in the last week: buses, train stations and buildings burned, hundreds were arrested, and a state of emergency declared. The government suspended the pay hike this past weekend, but so far the rioting continues.
"This was the straw that broke the camel's back," Robert Funk, a political scientist at the University of Chile, told the Financial Times. Long-simmering frustrations over inequality in the country are finally boiling over.
As out-of-left-field as it may sound, a Green New Deal might be just the thing to douse the fires of Chilean unrest.
As mentioned, the logic of the price hike was driven by the country's rising energy costs. Chile imports almost all of its coal, oil and natural gas. By and large the country must pay for those imports in U.S. dollars, the currency used for the vast majority of the globe's international trading. This introduces a fundamental economic risk: If the value of the Chilean peso falls relative to the U.S. dollar, then the price of energy within Chile's economy will jump, even if there's no actual problem with the world's ability to supply those resources.
And that's exactly what happened this year.
As long as global demand for Chilean exports — mainly copper — remains high, the peso's value will stay up. But thanks to a whole host of factors outside Chile's control, the global economy is in a slump. Demand for Chile's copper is down along with it. And the dollar-denominated cost of Chile's energy shot up relative to the pesos everyday Chileans use to buy it. Basically, Chile's riots are a hard lesson in the dangers of relying on the rest of the world for a resource as fundamentally important as energy.
That's where a Chilean version of a Green New Deal enters the picture. If Chile can get its energy from its own sunshine, its own wind, its own geothermal, then it will be far less dependent on trade for that energy, and sudden global shifts in exchange rates will be far less likely to wreak havoc on Chileans' livelihoods. Ironically, this argument isn't even primarily about climate — though eliminating carbon emissions and other pollutants is obviously a huge bonus. First and foremost, it's about stabilizing Chile's economy for the long term.
But it doesn't end there.
The price hike for metro rides was so enraging to Chileans because many of the country's everyday citizens already have a tough time getting by. Chile has one of the highest child poverty rates in the developed western world. Its market inequality — inequality before accounting for government taxes and transfers — is relatively high. The country's inflation rate is low, and its unemployment rate is bouncing around 7 percent.
This is not a picture of a workforce in all-out crisis, exactly. But it's not good. And it suggests Chile could employ considerably more people and pay significantly higher wages without overheating its economy.
A big part of the Green New Deal concept is job creation: solar and wind farms must be built, the grid must be improved, transportation systems must be electrified, buildings and infrastructure must be revamped. More jobs means lower unemployment, which means more worker bargaining power and higher wages. This economic activity would not be entirely confined to Chile's domestic economy: No doubt, it would need to import resources and technology to build out its green energy. But a huge part of the Green New Deal would occur within Chile's domestic ecosystem — workers paid in pesos who then conduct their lives in pesos. If Chile prints pesos to chase goods denominated in other currencies, that would drive down the value of the peso relative to those other currencies, and invite disaster. But if Chile's economy is not making use of all its domestic, peso-denominated resources — like, say, its workers — then it can safely print pesos to chase those resources. All of which means a large part of Chile's Green New Deal could be financed by government deficit spending.
That's not all, either.
While Chile's market inequality is high for the developed world, its post-tax-and-transfer inequality is literally the highest. Chile's job market is deeply unequal, but the government's system of taxes and spending also does basically nothing to redress the imbalance. Large parts of Chile's welfare state are an underdeveloped patchwork, often forcing Chileans to pay private companies for services and benefits.
Equalizing pay within the job market can do a lot to alleviate this problem. But it can't address all of it. Large portions of any country's population — the young, the old, the sick, the disabled — cannot and should not work. Therefore a Chilean Green New Deal could also be a chance to expand, clean up, and universalize the country's welfare state. Given Chile's sky-high child poverty rates, a universal child allowance would be an obvious place to start.
Here in the U.S., technocratic centrists push back at Green New Deal proposals, preferring a carbon tax instead. But Chile passing a carbon tax would've been indistinguishable from its metro fare hike: Prices would rise, with businesses and individuals left to adjust on their own. As France already demonstrated, and Chile now demonstrates, that leads to unrest or worse.
The government cannot simply reform price signals; it needs to step in and actively build the independent, alternative energy system that would prevent crises like this from happening again. It must do this while reducing inequality, to ensure the burdens of the transition are shared in as just and equitable fashion as possible. That will require both a dedication to full employment, and a bigger and more robust welfare state.
Finally, though America is much less vulnerable to exchange rate crises than Chile, even our last big bout of inflation was largely driven by our dependence on oil. Shifting your economy to green energy does not just come with health and climate benefits; it also makes for a more stable and self-sufficient economy.
Want more essential commentary and analysis like this delivered straight to your inbox? Sign up for The Week's "Today's best articles" newsletter here.