Between 2009 and 2012 the Bank of England ran a £375 billion quantitative easing programme. It is now running another £60 billion programme for government bonds. That means that over a period of eight years the Bank of England, which is wholly owned by the UK government, has in effect printed £435 billion of money to inject into the UK economy, none of which will (whatever some economists, with their heads in the clouds, like to claim) ever be cancelled. That has then been a money printing programme of near enough £54 billion a year over an eight year period.
The stated aim of the programme has been to change investor risk profiles by forcing them into higher risk assets, such as lending to business, in a search for investment returns.
In fact the result of the programme has been guaranteed investment returns for those already wealthy in the UK. Without requiring anyone to do a stroke of real work, let alone take a real risk or innovate in any way, this QE programme has pushed up government bond prices, commercial bond prices, share prices and, as a knock on effect, house prices, most especially in the City of London influenced south-east of England. Bankers have enjoyed bonuses. Estate agents have had a field-day. The wealthy gave got wealthier. Income inequality has risen. Social tension has increased. The political consensus has begun to fail.
That's some legacy for a programme that I suggested was wrong headed in 2010 when, with Colin Hines, I created the idea of Green Quantitaive Easing, now better known as People's QE.
Jeremy Corbyn and John McDonnell are now proposing what I suggested in 2010, which is a National Investment Bank. And as I argued then the reason is:
There is an urgent need for action to stimulate the economy by investing in the new jobs, infrastructure, products and services we need in this country and there is no sign that this will happen without government intervention. For that reason we propose a new round of quantitative easing — or Green QE as we call it.
Nothing has changed in the meantime. Business still sits on massive cash piles and neither invests nor innovates. There is what the Financial Times calls a savings glut, fuelled by those with wealth having no desire whatsoever to take risk in the real economy when QE continually inflates the value of their assets without risk on their part. And that's true despite real interest rates effectively disappearing: there is virtually no return on money now. Despite that there is one savings based asset in chronically short supply, which is government bonds.
There is good reason for that. A mass of people of around my age (late fifties) are set to retire sometime soon. Some baby boomers already are retired. And insurance and pension companies are in decorate need of gilts, which underpin their commitment to such people as they are the only secure means available to guarantee that pension obligations can be spread over likely retirement periods.
So two paradoxes arise right now. First, we are doing QE in a sum that is a bit less than the UK's expected borrowing for this year, which means none of the new bonds the market is so desperate to buy are going to be made available to it. And second, the opportunity to meet that demand with a new bond issue that would create the new assets this country needs in the form of new housing, broadband, transport improvements, green energy and so much more, is being denied to the market.
And that paradox arises all because the Daily Mail says firstly that it is La La Land economics to supply the savings products pensioners need secondly and it's going to drive the county to the wall to build the assets we need, using the people who are under-employed in our economy, to create the legacy our children require from us in the form of the sound foundations for a twenty-first century economy.
Now, as a matter of fact the government, or its National Investment Bank could, I have no doubt, sell £50 billion of bonds to markets a year right now. But just in case it could not then People's QE could be used to buy the bonds instead. And doing so would involve creating less money a year than the Tories have been doing throughout their time in office.
What is more, as we have seen, doing this amount of QE a year does not produce inflation.
And unlike conventional QE which produces almost no return to the government, because it has all gone to almost untaxed increases in the price of assets owned by the wealthy, People's QE provides a massive yield to the government. That's because it takes people off benefits, increases incomes, so reducung claims levels, and increases the level of economic acivity so unceasing tax paid. Some estimates say it can pay for itself within a very short period in this way; those suggesting that's the case include the IMF and major rating agencies. I think they are right.
So why isn't Labour spelling all this out, loudly, clearly and consistently? I really do not know.
Why isn't the SNP demanding People's QE funds for Scotland? Again, I really do not know.
And shouldn't Sadiq Khan be doing so for London? I think so.
Likewise, Wales, Northern Ireland, Bristol, Mancheseter and more.
Those who want this country to deliver, for its people now and for those to come, should be demanding this investment that's funded either by the government backed bonds that pensioners want to buy, or via People's QE if those pensioners can't provide enough money at affordable rates.
This is not a magic money tree. It's actually spending less a year than the Conservatives have done to subsidise wealth. But it's all about creating wealth instead of subsidising it, which is what the real role of government should be. Surely nothing makes more sense than that?
In that case isn't t worth just a few politicians learning some sensible lines that really aren't hard to master to justify how and why we should do this? Isn't their vision of the future worth just that small amount of effort? I really hope so, because the time to reject the failed economics of the Daily Mail has arrived. And we need this wholly affordable investment, now.
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Richard
thanks very much for the article and your continual championing of People’s QE.You don’t mention it explicitly ,above, but how much was George Osborne borrowing each year to fund his huge spending?
I have reported on this. Search conservative borrowing in this blog
Thank you.
The reason why it will not be done is contained within your text above:
“In fact; the result of the programme has been guaranteed investment returns for those already wealthy in the UK. Without requiring anyone to do a stroke of real work, let alone take a real risk or innovate in any way, this QE programme has pushed up government bond prices, commercial bond prices, share prices and, as a knock on effect, house prices, most especially in the City of London influenced south-east of England. Bankers have enjoyed bonuses. Estate agents have had a field-day. **The wealthy got wealthier**”
The parasites have fed off the host for many decades, and will continue until the host is lifeless. They are not even remotely symbiotic, they are totally malignant.
A passionate and detailed blog on a course of action that it has been obvious to many of us needs to be adopted as a matter of urgency. That it will not is almost certainly covered first by JohnM’s comments, and, second, by Labour running scared of the likes of the Mail, and now we know that May made time in a very tight schedule while in New York to visit Murdoch, the media outlets he controls as well (not that they would have taken anything other than an anti-Labour line anyway). Sadly, those newspapers exercise tremendous influence over the thinking of a large swathe of the population – as the Brexit vote demonstrated beyond any doubt.
On which point, two things worth adding which underscore your argument. First the IFS research that demonstrates that children of the 1980s are significantly worse off than their peers from the 1970s. And, second, that what I mentioned would happen after Brexit has now come to pass, with both Nissan and Toyota clearly stating they are going to reconsider their investment plans in the UK if it looks anything like a hard Brexit – which of course, it does. And, despite Nissan’s ambiguity on the matter, I seriously doubt the new Qashqai plant will be built here – the uncertainty and government’s obvious lack of any plan or strategy for Brexit leaves them no choice but to cease any new investment.
Not that that will worry the Mail and the rest of the Tory press as one thing we can clearly say is that those who they really serve (while maintaining the historic falsehood that they are on the side of the man and woman in the street) – the 1% – will be least impacted by the any of the downsides of Brexit – of which there will be many.
I agree with all that
Although they have already won from the exchange rate of course – and seem to be ignoring that
Looks at the upsides of brexit-hard:
Loads of cheap disposable labour.
Almost a “back to the workhouse” economy.
No universal healthcare, that is becoming a “service industry” (profitable)
Another tory wet dream…
Ivan, do you feel that the political environment we are living in now is not very different from that of right or left wing totalitarian regimes? The madness of the right’s economic and social policies, supported by a propaganda machine which convinces enough people to vote against their own interests such that we get results like the 2015 GE and EU referendum result, makes me think so.
The right in this country are now so extreme, and illogical, they’d rather see all the jobs we got from inward investment due to our EU membership go if it means leaving the ‘corrupt, tyrannical’ EU, than make any attempt to negociate a remotely sensible agreement with the EU, or even realise the Leave vote was wrong.
First the Conservatives brought about deindustrialisation in the 80’s, now they want to destroy the jobs which (to some extent) replaced those lost by leaving the EU. As a country, we are committing economic, social and political suicide.
“So why isn’t Labour spelling all this out, loudly, clearly and consistently? I really do not know”
I agree with what you have written (PQE, Nat’ Investment Bank etc). I cannot say why labour has yet to spell it out – but I’d suggest that the message is somewhat complex & lends itself to being distorted by the likes of the Daily Heil – with headlines you mentioned.
Perhaps this is a task for Corbyn & McD’ – to get the Labour troops up to speed on the economic message – turn it into a readliy explained and understood form & then get out there telling people – in a way that they can absorb/understand.
You can guarantee that this ‘LaLa land’ economics will shortly be used to bail out Deutsche Bank – we’ll just have to wait to see what the ECB calls it.
Is printing money the same as debt cancellation?
I was reading some work from an economist called Richard Duncan who if I understand him correctly claims money printing by central banks in the equivalent as debt cancellation and therefore the national debt of countries such as UK and US is not as high as stated.
“When a central bank prints money and buys a government bond, it is the same thing as cancelling that bond (so long as the central bank does not sell the bond back to the public). That means governments have far less debt than is generally understood. It also has very important policy implications.”
https://www.richardduncaneconomics.com/qe-is-debt-cancellation/
Kind regards
Matt
He is right
QE has cancelled 1/4 of UK debt because it is now owned by the government and you can’t meaningfully owe yourself money
I am sure that I am missing something, but that leads to an interesting question, which is why not use QE to cancel the remaining 3/4 of UK debt ? Or is that an over-simplification ? As always, thanks in anticipation for your valuable work Richard.
We need debt to underpin pensions
Getting rid of UK national debt would firstly destroy our currency (which is national debt), bank security in the repo market which depends on it and the pension market which uses it as the basis for almost all annuities
They actually want there to be more debt right now
Richard,
You stole the march on Sue. I was going to point out the very same items you thoughtfully articulated.
On the issue of QE, the inability of many to understand the various benefits is, simply, staggering. The ability of QE to provide targeted investment, underpin the economy (and currency, as you rightfully point out), increase employment and have the tertiary effect of cancel debt, is unsurpassed.
The need on the part of civil society is to drum this home. Those in government who insist “no debt in our time” are simply demonstrating the failed rootless ideology of neoliberalism.
Also, have you considered a post on the financing of annuities, there structure, there purpose? I think it would be fascinating to hear your views.
I’ll add it to the list ….
Labour has no way to “spell it out”.
The entire media, print and broadcast, has been hijacked by the rich sociopaths.
No doubt the Momentum organisation will make use of social media: and no doubt that will also come under sociopathic control as soon as.
I have to say I disagree
I get quite depressed when I read one of these high quality efforts from you.
Why? Because it makes sense.
This is one of those ‘The only thing to fear is fear itself ‘ moments. And Labour needs to start selling this now. They should have a timetable for regrouping by at least the end of October 2016 and then get out there and get public support for stuff like this. And I’m talking about the poiticians – not the activists.
An investment bank, like any other bank, could create money. The capital requirement could be guaranteed by the Government or by the BoE, again just as the equity of commercial banks is, in the last resort guaranteed by the taxpayer.
Social assets could be placed upon the public balance sheet, many of which would generate commercial returns. Likewise with PQE. The investment credit would be on the balance sheet of the Investment Bank and the asset debit on that of the local authority, charitable trust etc..
Virtually every journalist ignores the £435 billion of QE when looking at public spending; why?
What s all this then?
http://order-order.com/2016/09/30/richard-murphy-wanted-shami/
I have been aware that this story has been circulating for a while. The national press told me they had been briefed on it. It took Guido to publish it: that may be an appropriate measure of its credibility.
The reality is that as I have said on a number of occasions I did have discussions with John McDonnell last summer on being his senior economics adviser.
When asked to consider the post I related advice given to me by a former senior Labour adviser which was that he could not see me surviving in the role for more than two weeks as Labour would require that I be silenced if I was paid as a Spad. You may have noted I am not good at silence (Quaker meetings excepted).
So discussion evolved rapidly (we’re talking five minutes here) as to whether it might be better to appoint me to the Lords. I indicated tentative interest, but advised I was also potentially being appointed a professor at City at the time.
I was next advised that it was thought unlikely that Labour would want to fund a salary for the post I was being asked to fill: I was told the idea of a peerage was being actively discussed as a way of paying me. In the meantime John McDonnell ignored my advice on Osborne’s Fiscal Charter (on which he later had to change his mind on) and I decided that and the fact that the City offer was by then on the table left me with only one sensible choice. I chose academia and made clear I did not want to work for Labour but would remain happy to advise – which I did once the Treasury team got its act together from January on. Most interaction was with Seema Malhorta, with whom I enjoyed working. The issue of peerage was mentioned to me again during this period. I made clear I was not seeking it. And given my temperament I am quite sure I made the right decision not to pursue discussion on the offer.
In that case I was surprised to see the story come to light. The version reported is wrong: the peerage was discussed solely as the only viable way in which it was believed I could fulfil the task I was being asked to do. But I never did that task so the matter was dropped. And I am pretty confident it will stay that way.
So Labour were willing to appoint you to the House of Lords purely so they would not have to pay your salary and you were OK with that!
To have the public through the HoL allowance pay you so you could provide services to the Labour party without them having to pay!
This seems a gross abuse of the appointments procedure and theft from the public purse. Would you have agreed to that?
A full blog post explaining what happened and your thoughts behind it would seem the least that is required from this deeply worrying turn of events…..
Good heavens I know you were ridiculous but really not that daft
What on earth do you think working peers are appointed to do but promote the policy priorities of their nominating party?
The only scandal would be taking the fee and not doing the job
And I knew I could not do the job
So I didn’t
It’s really hard not to be more honourable than that
I would love to know which snake oil peddler knocked you off your spot as economic advisor. Labour has made a huge mistake in my view.
The nicest thing you can say about this is that the new leadership are just finding their feet (the John Harris hypothesis). I hope so.
“What on earth do you think working peers are appointed to do but promote the policy priorities of their nominating party?”
Are you OK with that? May be the system but it sounds rotten.
Yet you expressed ‘tentative interest’.
Either way, there appears to be briefings within Corbyn’s office that is peddling a different version of events – accurate or inaccurate as that version may be. Corbyn and McDonnell don’t tolerate dissent.
We live in a party democracy
Why on earth wouldn’t I be happy with that?
I will not take part in speculation on the motivation for the inaccurate leak
“We live in a party democracy
Why on earth wouldn’t I be happy with that?”
Because Lords are unelected, and get a seat for life pretty much regardless of what they do??? How do you get rid of a Lord?
That was one reason for not accepting the offer
Have you noticed, I am not Lord Murphy?
But you say you were tentatively interested – and it appears the conversation persisted without being dismissed by you out of hand.
Am not sure how anybody who claims to believe in democracy (and the ability of the people to remove those who make the laws) can express a moment’s interest in a seat in the House of Lords.
I have always felt you live in some fantasy unrelated to any reality I know of
That is now confirmed
I suggest you stop wasting my time – you are now on the time wasters list
Looks like Adrian is banned for dissenting with you. Standard echo chamber nonsense!
No, just for being as boring as you
And this is a place for interesting people
I’ve added you to the list: it seems as if you applied so I decided to grant your request
Wouldn’t a way of changing the narrative for Labour be to say that next time Banks’ QE comes up for renewal it will not be rolled over for the banks but, because it offers so much better value to the taxpayer, the money given instead to the national investment bank for infrastructure?
The banks and their allies would undoubtedly squeal but they’d have to offer good reasons why they should hang on to QE. In doing so they’d have to campaign overtly for their own corporate welfare. Which might be difficult for them if set against investing in the country for the general benefit of everyone.
They’d probably have to suggest inflation might take off but in so doing they’d have to explain how the same money isn’t making inflation take off now!
By making it a binary choice it would neatly crystallise on the one hand specialist support for the banking system of the City versus on the other hand monetary support for the country as a whole.
I’d say the Banksters would have an all round difficult case to make.
I have suggested this
It has not been done
I think £20 billion rolled over this year. It has been a wasted opprtunity
Now that would be very courageous of Labour!
QE has always existed as a sleight-of-hand work-around for the government to get “net” money into the economy for economic growth. These days, however, much of it is ineffective because the super-rich with their narrow control over capital rapidly syphon it off for their savings which are then used to chase artificially inflating assets.
http://heteconomist.com/exercising-currency-sovereignty-under-self-imposed-constraints/
This is a timely post, Richard. It is a great contribution to the “killer” question posed by those who want to rubbish the Corbyn/Mcdonnell (in alphabetical order) programme for the Labour Party around People’s QE: “Where’s the £
500 billion going to come from ?”
Thank you.
Labour Party activist and Corbyn supporter.