As John Kay argues in the FT this morning:
The one certain outcome of QE is that those with assets benefit relative to those without.
He is right. Quantitative easing is financial engineering that has boosted banks, pension funds, stock markets and the City.
We needed a stimulus that boosted the real economy in which real people live and work and which did not boost speculation, but we got the latter.
What we needed was real investment in the real economy - what I call green quantitative easing. The evidence of that need is obvious. As The Economist has noted:
In 2012 Britain was 159th out of 173 countries ranked by investment as a share of GDP. Of the 14 farther down the table, seven were in sub-Saharan Africa. The only advanced economies were Malta, Ireland, Cyprus and Greece. Mr Osborne should not be comfortable in this company. If Britain is to remain a G20 economy, it must start investing like one.
Despite that it suggests more conventional QE. I say yes, but only if at least matched by the green variety. As The Economist also notes:
Britain's economy cannot run on consumption unless wages grow. But with little investment there is scant hope of the increase in productivity needed to justify a wage boost. A recovery based on low investment and weak wages could well stutter before 2015.
And yet without a real wage rise people cannot but - hence the TUC's wholly appropriate demand for a pay rise for the UK.
We are stuck right now. Consumption cannot rise much because of wage weakness. Investment is weak and shows no sign of changing. Exports will not be rising any time soon. Only government spending will get us out of this, and it must be on investment.
This is the policy the UK needs; the policy Labour should be shouting about, acknowledging that increased taxes on companies and the wealthy will in small part pay for it as a necessary part of redistribution of the gains they have enjoyed to date, backed by increased borrowing that will pay for itself as people get back to work, pay taxes and come of social security payments.
When Labour says this 200,000 union members would, I suspect, sign up. Until it does the question is why they should bother? And that's the key issue that this week has yet to resolve.
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‘We NEEDS economic policy’ nice bit of cool patois/ demotic creeping into you’re writing Richard! I likes it! Could be away of getting the message across more effectively!(How do you attach the smiley emoticon?)
This critique of QE is well overdue. The recent NEF report on the effects of QE come to similar conclusions and they advocate QE for housing which will NOT create asset bubbles. QE is clearly servicing corporate interests rather than social ones. And the funding for lending schemes do the same. Politicians these days will not do anything that does not incentive’s speculation and the vacuuming of wealth out of the real economy.
You needs a proof reader yourself, Simon. “servicing”, “incentive’s”;o)
Corrected!!!!!
I needs a proof reader
Money tends to do good when it is circulating so a healthy level of consumption makes sense .
I consider it my duty to go to the local fish and chip shop and a couple of pubs in town because it is a case of use it or lose it .
Even in areas where demand does not increase imports can be substituted by domestic production thus increasing circulation of money locally . Why is this not happening more ?
What sort of things should a nation which generally lacks for little in a material sense (white goods , personal transport , TV’s , computers , clothes , endless tat) , but lacks affordable housing and provision for old age be consuming ?
Services of tradesman for things like house repairs and improvements , leisure activities for the children , holidays ?
Green QE is a great idea, but QE is simply a sop to the EU that tells Britain that DIRECT governmrnt funding of the banks is illegal, which is why they use this tortuous route to funding bank reserves as they do now.
They should ignore the EU amd totally nationalise the banks or at least fully nationalise the ones that were nationalised as part of the bailouts, capitalise tham with taxpayers money and lend to industry and SME’s. The interest would be invested back into the country rather than going into shareholder pockets or else used to keep borrowing costs down.
Put money into the real economy and give pay rises of £10 an hour minimum to help get the economy moving.
Giving funds to ordinary people and pumping it into the real economy os the way to get the economy moving, NOT pumping it into banks!
15 years ago the banks got rid of the personnel who had gone through a 20 year training and natural selection process to rise to the rank of Branch Manager with authority for discretionary lending , often unsecured .
Many of the guys doing it at that time had been born during/just after the war and most were street savvy .
Crucially the culture which created the Mr Mainwaring’s was swept away .
Banks no longer have the personnel required to carry out lending to SME’s at the same quality . Junior staff will to a greater degree lend to businesses they shouldn’t and refuse loans to businesses which should get them .
The 21st Century dumbed down solution will no doubt be that you get a loan if it can be secured , otherwise you don’t .
This would be nowhere near innovative enough for what we need but unfortunately once a culture has been destroyed , it takes decades to reinstate – and that is if the change can even be reversed .