Maybe somebody can explain all this to me (from Project Syndicate):

With all of the rules pointing toward recession, how can Europe boost recovery?

A two-year €400 billion ($510 billion) public-investment program, financed with European Investment Bank bonds, would be the best way to overcome Europe’s current impasse. Borrowing by the EIB has no implications in terms of European fiscal rules. It is recorded neither as new debt nor as a deficit for any of the member states, which means that new government spending could be funded without affecting national fiscal performance.

Thus, some of the investment spending currently planned at the national level could be financed via European borrowing to relieve national budgets. Such an indirect way of dealing with strict rules would also be easier than starting long and wearying negotiations on changes to the fiscal framework…

In addition, the ECB could purchase EIB bonds on secondary markets, which would help to keep funding costs low – or even reduce them. More important, purchases of EIB bonds would enable the ECB to undertake quantitative easing without triggering the degree of controversy implied by intervening in 18 separate sovereign-bond markets, where concerns that ECB purchases would affect the relative pricing of sovereigns are very real.

Already, €200 billion of EIB bonds are available. Adding €400 billion would increase the pool substantially. Together with asset-backed securities, covered bonds, and corporate bonds, €1 trillion of assets – the threshold widely thought to make quantitative easing by the ECB credible – would be available for purchase.

What I think it means is that if we don’t have the money to do the things we want to do, we can just make some more up. But of course, we can’t just make up an infinite amount of money, because we can’t just do an infinite amount of things here on our finite planet. So if we make up too much money, people might start to realize that money is just made up.

Here on this finite planet, we have a certain amount of resources at our disposal that allow us to do things – natural resources like energy, water, and fertile soils; machines, structures, and infrastructure we have built; and the physical efforts, knowledge, and skills of people. Also, less tangible things that we have tended to take for granted in the past – the ability of oceans and other ecosystems to grow food, absorb wastes, and cycle carbon, nutrients and gases that we can’t live without, for example. If we are finding that we don’t have the resources to do all the things we want to do, then we are poorer than we would like to be. We can make up some more money, but ultimately the financial system is just something we have come up with to allocate the resources and efforts we do have available, and ultimately to impose limits on ourselves just short of the actual physical limits, which actually do exist.

Where am I going with this? If we want to get richer, we have to protect the resources we can’t do without, like the health of ecosystems and the atmosphere. We have to impose limits on ourselves voluntarily today before the real physical limits are imposed on us. Then if we want to be richer tomorrow, we need to spend the resources we do have on the right kinds of investments in the right kinds of structures and machines; we need to spend our efforts in smart ways and increase our knowledge and skills in the right areas.

The kind of short term economic and financial press coverage I quoted at the beginning of this post doesn’t make the connections between money and the real world, and doesn’t make a distinction between financial spending in general and smart investment in the future. Jeffrey Sachs has written a nice post that makes some of these points, and argues that there has been a recent drop in true investment right when the world needs it most urgently:

Neither neo-Keynesians nor supply-siders focus on the true remedies for this persistent drop in investment spending. Our societies urgently need more investment, particularly to convert heavily polluting, energy-intensive, and high-carbon production into sustainable economies based on the efficient use of natural resources and a shift to low-carbon energy sources. Such investments require complementary steps by the public and private sectors.

The necessary investments include large-scale deployment of solar and wind power; broader adoption of electric transport, both public (buses and trains) and private (cars); energy-efficient buildings; and power grids to carry renewable energy across large distances (say, from the North Sea and North Africa to continental Europe, and from California’s Mojave Desert to US population centers)…

These considerations are reasonably clear to anyone concerned with the urgent need to harmonize economic growth and environmental sustainability. Our generation’s most pressing challenge is to convert the world’s dirty and carbon-based energy systems and infrastructure into clean, smart, and efficient systems for the twenty-first century. Investing in a sustainable economy would dramatically boost our wellbeing and use our “excess” savings for just the right purposes.