How does change happen?

So, now we have a better sense of the challenges, and what we are up against, how should we go about saving the city? Or put it another way: how do we think change happens? This is an important question. We live in a complex, vast and messy world, where billions of people are simply trying to get by, improve their lot, and make sense of it all. All of us, to different degrees, have a sense of how we think the world works and how change happens. This is built up from our own experience, from what we have read, and from what others tell us. Most people, then, are in the change game. There is, of course, the influence of lobbying, manipulation, disinformation, evasion, corruption and deception. This is why engaging with how change works is so important.

The reason I start with strategy, is that if we are going to influence and change our cities positively, there needs to be some time dedicated to think about how and why change happens, and importantly how we link our aims and outcomes. What interventions do we need to undertake to get from where we are to where we want to be? Are we basing our work on causal links between evidence, action and outcomes? This kind of method is called a theory of change (UN Development Group 2017). In reality, there is no one-size-fits-all approach. There are multiple and competing theories of change. It takes a while to build up a clear sense of how and why change happens. Groups can be more or less open on the topic of whether they have a theory and how they see change happening. But anyone who wants to influence the future needs to adopt some kind of approach to change. There are no guaranteed formulas. What works in one time and place might not work so well in others. Some of this depends on luck and circumstance, as well as hard work and perseverance. Success also might only become clearer with the passing of time, after a group or initiative has ceased. Much of our change work, then, is about contributing to the flow of ideas and energy passed down over the years rather than immediate wins in the here and now.

Without making moves, our energy and drive for change will be wasted. Our moves need to be embedded in our strategic approach and involve the unique strengths, talents and insights of our players. In this chapter I highlight a selection of moves to give a flavour of the bold, necessary and entirely doable changes that can happen right now to save our city. I have focused on the big areas that affect our daily lives where we have to make immediate and decisive changes: how we get around, where we live, what we do for work, how we make decisions. My list is not exhaustive. There will be other emergency moves we need to make and I invite you to develop your own.

In all this we have to make sure our moves are powerful, decisive, immediate and live up to the scale of the triple emergencies, that we see benefits not just in terms of carbon mitigation and adaptation but also social justice and nature recovery. The powerful element is exploring the connections between moves: how change in one area unlocks and accelerates change in another. We have to bring a sense of urgency and purpose to how we think and act. We need immediate changes that also build towards major system change in the decade ahead. The key emergency moves I explore below – car culture, cities economies, placemaking, aviation, nature and democracy – offer opportunities for all our players to act as emergency first responders and use our strategic approach.

Car-ism and how to beat it

Take a look outside your window. There is probably a highway or road – a long stretch of hard surface with painted lines, layered with aggregate and topped with asphalt, a sticky form of crude oil. But what do we actually see and think about when we look at a road? A convenient way to get to work, school and the shopping mall? A corridor of danger if you are a six-year-old or small mammal? Something that gives you a sense of freedom? A challenging obstacle to mobility for the vision impaired that divides you from surrounding communities? A place to meet and flirt, show off your driving skills, or get an adrenaline rush?

Do we really only have ten years left to save the planet? What does this mean for immediate action, and where do we need to be by the 2030s? Given this really is an emergency, what can we all do to empower ourselves, understand what is happening and respond appropriately. Amongst the inaction, denial and confusion, how can we get into an effective position as first responders to our triple emergencies? Let's start by exploring some of the science and policy that needs to guide our emergency action.

In 2015, the Paris Agreement was signed by most of the world's nations to limit global heating to preferably 1.5°C, compared to pre-industrial levels. This legally binding treaty was a watershed, marking a moment of hope that the international community could galvanize emergency action. Very quickly it became apparent that not enough progress or commitments were being made to make the Paris Agreement a reality. Leading scientists continued to put out further dire warnings. In 2018, the United Nations Intergovernmental Panel on Climate Change (IPCC 2018) made a rare bold statement in their special report that avoiding dangerous levels of global warming would now require rapid and far-reaching transitions in energy, land-use, built environment and infrastructure which are unprecedented in terms of scale. This was distilled for policy makers and the media as roughly a decade to halve greenhouse gas emissions on a journey to zero by about 2050, but equally that immediate and urgent action is needed year on year to achieve these.

The 2021 Glasgow climate talks at COP26 reinforced the same dire situation and lack of progress. Without a huge step change in commitments and action the Earth is heading to be a much hotter and less safe place for humans. In the same year in their 6th Assessment Report the IPCC (2021) stated that unless there are immediate, rapid and large-scale reductions in greenhouse gas (GHG) emissions, limiting heating to 1.5°C will be beyond reach. This matters. One and a half degrees of heating does not sound much in the greater scheme of things. Our world is already about 1°C hotter and as a result the last few years have broken record after record in terms of floods, droughts, mega fires and super storms.

Today is my fourteenth birthday. My alarm sounds at 9 am. No more rushing for me. The new dedicated cycle lane means I can cycle to school quickly and safely. No more boring bus or wading through rush-hour traffic! And now they’ve opened the local job hub, my mum has a workspace down there. She doesn't miss the commute, or the cost of diesel. The hub used to be the office of one of the world's biggest law firms. But they abandoned it a few years ago when the government hiked tax for big corporations. They also introduced a law that said that no bosses could earn more than ten times their lowest paid worker. Imagine that. No more billionaires! Power to the people, my gran says.

Anyway, my dad does get up earlier than us, but he's really happy to do that now he runs the local cafe. All the corporate coffee houses were sold to community businesses as part of the Great Community Reform Act. It gave a huge boost to local jobs. Now loads of people round here are running their own businesses. All the adults officially work four days a week which makes them happier and have more time for other stuff and not being so grouchy. After the government got all the big firms to pay their tax there seemed to be more money around. It paid for free public transport, insulating homes, free education and healthcare and capped rent and energy bills. That was a smart move as the price of gas has gone through the roof, what with the big wars between some gas-producing nations.

Today, my mum is working down the innovation hub, where she's experimenting with rewilding the local area. Our class is visiting and helping to change what was once our local highway into what the adults call a biodiversity park. Now that there's a tram system across the whole city most of the big highways were shut. The highway used to be a nightmare. It was the scariest thing for me. Six lanes to cross, and one of my mates and his mum were badly hurt there. Now we’ve taken all the concrete up and we are laying plants that will help with flood control in the local river. Last week we planted some trees on what used to be the centre of the road.

In 2018, dozens of people died in Tokyo as temperatures exceeded 40°C for several continuous days, and in California the town of Paradise was largely destroyed by a wild fire in just a few hours killing 85 people. In the summer of 2021, deadly flash floods killed scores of people in the Bad Neuenahr-Ahrweiler area of Germany. In early 2022 Cyclone Batsirai left 120 people dead and nine out of ten homes destroyed in Madagascar's coastal city Mananjary, while later that year residents of Jacobabad in Pakistan endured temperatures almost intolerable to humans at 51°C.

As these climate disasters unfold, our urban world continues to grow. One recent estimate suggests that 290,000 km2 of natural habitat could be converted to urban land between 2000 and 2030, with huge implications for habitat and biodiversity loss (McDonald et al. 2020). In the UK, between 2006 and 2012, 22,000 hectares of green space has already been lost to urban sprawl, the equivalent of an entire city, while in Shanghai urban greenspace declined by 30 per cent between 1980 and 2015 (Wu et al. 2019).

Equally worrying are the persistent social challenges facing our urban world. In Africa only 15 per cent of residents in Lagos and Kampala have piped water to their dwelling (Beard & Mitlin 2021), while in the Democratic Republic of Congo and Chad only around 40 per cent of the urban population have access to electricity (Our World in Data 2020). A recent study found that 51,000 premature deaths could be prevented each year across 1,000 European cities if they achieved levels of small particulate air pollution (PM2.5) recommended by the World Health Organisation (Knomenko et al. 2021). In New York, according to the Eviction Lab (2022), there were almost 180,000 evictions filed by landlords between 2020 and 2022.

Getting into emergency mode …

These examples are not isolated or trivial. What we make of them is the core argument of this book. They are a selection of events and facts that represent the broader climate, ecological and social emergencies currently experienced in our urban world.

What follows represents the broken shards of a shattered consensus, and an ultimate answer should not be expected because there actually is none at the moment and one is unlikely to emerge in the near future. It is therefore just as well to follow a chronological order. The lack of a consensus has developed ever since the days of the financial crisis and has become all the more significant because of the Coronavirus pandemic. There are different sides here that have made different arguments and to understand what these mean, it is preferable to put together a sort of timeline of this shattered consensus. In the immediate aftermath of the financial crisis (2007– 08), fiscal policy was called upon to act as a countercyclical tool and has been used extensively to that effect. With the turn of the decade (2010) things changed substantially and there was a shift of opinion in policy circles, whereby the concern about the size of the deficit and all the debt accumulated, as the result of a response to the financial crisis, started coming to the fore to the extent that then there were theories put forward as to how fiscal contraction might be expansionary. Following on the years 2010, 2011 and 2012 saw the unfolding of what has come to be known as the Reinhart-Rogoff controversy. With the latter part of the decade, the insurgence – so to speak – of a seemingly heretical point of view that goes under the name of modern monetary theory (MMT) became relevant.

Immediate aftermath 2007– 08

Calls for using fiscal policy as a countercyclical option followed immediately the realization of how little conventional monetary policy tools could achieve and in the full knowledge that the effectiveness of unconventional ones was very much an unknown quantity. The logic for it was that as much as unconventional policies were trying to release the lending constraint and lead banks to lend again, direct supportive action was needed on the level of demand and spending of the private non-banking sector, because the lack of demand creates the problem and also constraints the expansion of credit on the part of banks. After all, banks could easily find themselves with nobody to lend to, because nobody would be asking for a loan, as there is no demand.

At the risk of confusing the reader, this final chapter will be dedicated to illustrating some problematic and ambiguous cases with the help of the model as articulated over the previous chapters.

The problem, obviously, is that shocks never come singularly and are often of a complex nature with many and varied repercussions so that – at times – the policy reaction is ambiguous. At the time of writing (Spring 2023) the obvious examples to look into are the recovery from the Covid pandemic and the return of inflation after the Russian invasion of Ukraine in February 2022. The point to note is that these complex shocks cannot be constrained to be either a demand or a supply shock because there are major repercussions on both sides so that how to react to them is sometimes a major conundrum as far as policymakers are concerned.

The energy crisis

The rise in the price of energy is an example of such ambiguities. It may be envisaged that the price of energy would enter the specification of the Weintraub relationship in the component labelled R where the price of raw materials for production was factored in the pricing equation.

A rise in this price was represented already as a permanent negative shock to supply in Figure 1.7 so that potential output was lower than before (from ye to ye’) prompting the central bank to raise the interest rate in order to restore inflation to the target rate. However, for a country that is a net importer of energy the picture can be more complicated because the rise in energy price is also a negative demand shock. This is true for a number of reasons. First, in an open economy model the rise in the price of energy would indicate that the current account balance must show either a reduced surplus or a deeper deficit than before such a change occurred. On both accounts one can therefore imagine the open economy IS curve shifting left. But this can be justified also on the basis of energy being a necessary expenditure for consumers that are forced to cut back on other items. So on the basis of a drop in consumer confidence the IS curve can be imagined to be shifting left too. This is illustrated in Figure 10.1, which is effectively a modified rendition of Figure 1.7.

Inflation and the Phillips curve

It must be remembered that the Phillips curve is first and foremost an empirical relationship that was originally meant to relate wage inflation and unemployment (Phillips 1958). Ever since it has been in search of a theoretical justification that has come in different guises and sometimes these have also been radically different. In the context of the threeequations model (or the DSGE) it is meant to represent the behaviour of inflation relative to some measure of the output gap. Stripped of all deeper theoretical foundations, that is its bare purpose. Inevitably, when one examines what lies behind it, one is forced to examine inflation per se. It is in the treatment of this crucial economic variable and the Phillips curve that purports to represent it, that the greatest and deepest discrepancies will be found between the three-equations model and the DSGE. But in order to see this in greater detail, some general questions about inflation will have to be addressed.

In its barest form, inflation just means a positive rate of growth in prices. How it comes about and what justifies it can be done in different ways. In particular a general distinction can be made between demand-pull and cost-push inflation. The first case, in intuitive terms is when demand outstrips supply and prices have to rise. Another way of looking at it is to say that it is a case of excess demand. These instances have already been represented in the diagrams of the first chapter in all the cases where the first shock was one on the IS curve (permanent or temporary) making it true that current output would exceed equilibrium (or otherwise put, the output gap is positive). Consistently with the specification of the Phillips curve, the positive output gap on the right-hand side causes inflation to rise on the left-hand side.

The alternative approach is to consider inflation a supply-side phenomenon whereby a rise in the cost of producing output pushes prices up. Both approaches can justify a relationship such as the Phillips curve but the causal mechanism at play and the underlying vision of the labour market are substantially different.

Accounts of inflation all too often end up quoting Friedman's dictum that “inflation is always and everywhere a monetary phenomenon” (Friedman 1963: 39).

In the last 20–30 years of the twentieth century a peculiar disconnect developed between the kind of economic policy model that was taught in universities and the practice of economic policy and monetary policy in particular. Over time the disconnect widened so that the theoretical and empirical models used to inform and analyse policy actions were equally disconnected from what was still being taught in universities. The issue obviously is that the latter remained the venerable IS-LM first introduced by John Hicks (1937) in the UK and Alvin Hansen in the United States (1938). That model remains the simplest and most intuitive one that many introductory textbooks still use.1 But understandably the disconnect referred to above created many problems because so many contemporary policy decisions could only be represented in that context with convoluted and implausible steps. Understandably the search for a model that could bridge the gap and eliminate the disconnect started in earnest. The bulk of this book is dedicated to – arguably – the most versatile of such replacements: the three-equations model pioneered by Carlin and Soskice (2006, 2009, 2014).

Why is the IS-LM model no longer suitable?

To understand why the IS-LM model has to be abandoned it is useful to distinguish between two separate sets of problems about it. One set was always there from the very beginning and its existence had been known since the 1930s, but the other advantages of the model, in terms of its simplicity and intuitiveness, were enough to compensate. These problems are the following.

First, the IS is in flow terms whereas the LM is in stock terms. That is, one relationship measures the amount of consumption, investment, and net exports per unit of time, while the other is a statement of how much liquid money there is at a specific point in time. This mismatch was essentially unavoidable because the IS-LM model was intended to be a mathematical/diagrammatic translation of what Keynes had written in the General Theory (1936), and such a mismatch was already there.

Second, the IS depends on the real interest rate (r) whereas the LM depends on the nominal interest rate (i).

In understanding how to deal with the financial crisis and how to analyse it, there inevitably is a challenge in that it obviously has complex financial roots, and indeed, one of the issues that arose was precisely the fact that institutions had signed up to financial contracts that were so complex that they themselves could not understand them fully. This was so true that, when the crisis struck, it was difficult to unravel who it was that was eventually liable to pay for these contracts. This complexity, this alphabet soup of derivatives with credit default swaps or collateralized debt obligations, is too cumbersome to be analysed in detail, and accounts of some of these contracts have been written elsewhere, Skidelsky (2018) being one such example but there also are two chapters in Carlin and Soskice (2014) dealing with these details. What is going to be covered here is instead the challenges that the financial crisis posed in terms of macroeconomic policy choices in the first instance, and macroeconomic modelling in the second instance. One of the points that will be returned to at several stages is the extent to which financial considerations had been assumed away as largely irrelevant in most of the models that preceded the financial crisis. The question of finance basically was left as a black box that did not matter much, as largely confined with its own selfreferential dealings, but as far as the macroeconomic modelling was concerned, it was not a primary concern. That obviously became patently false and a major drawback of all models once the crisis struck.

Obviously, the policy challenges also need to be examined once a suitable model to analyse them is put together. But one of these challenges can be looked at without any changes to the existing model, and it is the problem of deflation. The first question to be looked at is, why is it that deflation is such a problem? The second one, related to it, is the fact that there is a zero lower bound to the level of the (nominal) interest rate that central banks can set.

Two further questions will need addressing later on in the chapter: how can the mechanics of the banking sector not be ignored? How can the unconventional policies that have been adopted to deal with the crisis in its aftermath be understood?