The FT has published, in the last hour or so, a review of People's Quantitative Easing on its FT Alphaville blog site. Written by an FT staffer it is headed:
For copyright reasons I cannot reproduce all it says, but given they have taken big chunks from me think I can borrow some in return. They start by saying:
If Jeremy Corbyn becomes leader of the UK Labour Party, one positive consequence will be the ensuing discussion of the monetary policy transmission mechanism. It all started with his presentation on “The Economy in 2020” given on July 22:
The ‘rebalancing' I have talked about here today means rebalancing away from finance towards the high-growth, sustainable sectors of the future. How do we do this? One option would be for the Bank of England to be given a new mandate to upgrade our economy to invest in new large scale housing, energy, transport and digital projects: Quantitative easing for people instead of banks. Richard Murphy has been one of many economists making that case.
That passage seems to have been mostly ignored until August 3, when Chris Leslie, Labour's shadow chancellor, attacked the policy, which in turn led to a detailed response from the aforementioned Richard Murphy (see also here and here), at which point what seems like the bulk of the British economics commentariat erupted. Just search the internet for “Corbynomics” if you don't believe us.
As they note:
Much of the commentary has been negative – former Bank of England economist Tony Yates concluded, for example, that “People's QE” would be “the first step along the road to undermining the social usefulness of money” – although Chris Dillow gave an intelligent defense.
And as they then add:
We don't understand the negativity. Some of the specific arguments justifying the proposal may be flawed, but the core idea is sound and possesses an impressive intellectual pedigree. In fact, it could help solve one of the most troublesome questions in central banking: how policymakers can accomplish their objectives using the tools at their disposal, without producing too many unpleasant side effects.
Having discussed weakness in much of monetary policy they then note:
The existing monetary policy tools also have the unseemly property of appearing to work mainly by making the rich richer and hoping that some of the extra wealth gets spent. Even if it's true that the rest of society benefits from this, because otherwise they'd be unemployed, this is trickle-down monetary policy. The Bank of Englandadmitted that “in practice, the benefits from these wealth effects will accrue to those households holding most financial assets”.
Quite so. They then say:
Cutting out the middle men is the most obvious way to improve the transmission of central banker desires into economic reality.
Spot on, except that they then note:
Our preferred approach would be direct deposits into household accounts offered at the central bank. It's simple and doesn't require any political debate about how best to spend the newly created money.
I quite strongly disagree: this would simply induce a rapid imports boom and GDP hit to be followed by some serious withdrawal symptoms soon after with no long term employment, investment or skills gain. I see no win in that, at all. They have noted that:
But Corbyn's plan to have the Bank of England fund government-directed investment in infrastructure could also work, especially if the pace of investment were adjusted according to the condition of the economy. In fact, Adam Posen supported something similar when he was on the Monetary Policy Committee of the Bank of England, except that he focused on small businesses.
They then compare Posen to my suggestion: they did not note that I got there the year before Posen did, but that's splitting hairs. As they say:
Posen thought that private lenders weren't providing credit where he believed it was needed, so he recommended creating new public investment banks that could originate and securitise loans into bonds that could then be purchased by the Bank of England, thereby funding new business investment. Corbyn/Murphy want specialised “green” investment banks, housing authorities, and local governments to be able to finance infrastructure investment secure in the knowledge that the Bank of England will be there to provide funding support. We fail to see a significant difference.
And add:
You could oppose the policy because you think the government will make bad investments, but by that logic you're really just against any government-led infrastructure spending. You could also object to the idea that the government is effectively using the central bank to finance its deficit spending and undermining the shibboleth of “central bank independence”, but you would have to contend with the arguments of, among others, Martin Wolf, Paul McCulley, and that old communist Milton Friedman.
Before saying:
The main concern about Corbynomics isn't whether the monetary transmission mechanism needs an upgrade – it does – but whether the UK actually needs that much additional investment spending.
On this they use an analysis remarkably like mine on private sector debt growth, before noting on pure macroeconomic grounds that:
If Corbyn's preferred investments are useful, they could help restore some of the lost ground in productivity and lead to higher real wages for Britons. And by expanding capacity, this extra investment spending may not even end up being inflationary. (The actual amounts in question, according to Murphy, are quite small relative to the size of the UK economy.)
And then conclude:
“People's QE” is far from an obviously wrong idea. Implemented properly, it could even improve the Bank of England's ability to fulfill its mandate without needing to goose house prices or get into contentious debates about helping the rich at the expense of pensioners.
I agree, but that's hardly surprising.
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Hat’s off the FT. All the same, this is a lot of weasel words (“far from an obviously wrong idea”) for a very simple concept: When inflation is zero, you can afford to print money and let the government spend it in any way they please.
Not sure if you’d seen Tim Worstall’s Forbes article on ‘The hole at the heart of Jeremy Corbyn’s economics’.
http://www.forbes.com/sites/timworstall/2015/08/06/the-hole-at-the-heart-of-jeremy-corbyns-economics/
I think it might be fair to conclude that he regards you as the ‘hole in the economics’ and refers to you as the ‘egregious Richard Murphy’. Following a quick look through the article, it seems he is determined to misrepresent many of the arguments that you have coherently argued on your blog.
I seem to remember previous contributions he has made on this blog being little more than crude trolling attacks, so this latest name calling may more of the same. Probably just a crude attempt to get noticed by joining in the debates you have done so much to create. Perhaps a back-handed compliment.
Keep it up!
As far as I know Tim Worstall has never yet found merit in a single thing written by anyone who might be considered left of centre
Tim is undoubtedly technically clever but the lack of any wisdom that he persistently reveals coupled with the continuously personal and crude nature of the attacks he makes means that there is no one with any credibility, left or right, who takes this former UKIP press officer’s comments seriously
He is, of course, a fellow of the Adam Smith Institute, which as I noted yesterday published an article calling for new slums in the UK
FT Alphaville is not really the FT.
Oh yeh?
Yes. Your title which starts “The FT says …” implies that this is a comment coming from an FT editorial. A journalist at FT Alphaville is not the same.
They are FT journalists writing with a collective ‘we’ in an FT publication
Split hairs if you wish
People will just spot pedantry
From wikipedia: “FT Alphaville is a daily news and commentary service for financial market professionals created by the Financial Times in October 2006.” In other words it is the FT, but writing for a specific audience (financial market professionals) – looks like Richard was accurate.
It comes from the FT
It’s published by them
It’s called Ft
And it’s pink
Looks like a duck
Etc
OK. So you are claiming that the Editor of the FT supports PQE because one minor journalist blogging on a website owned by the FT thinks it “could” be a decent idea.
He used the term “we”
It’s a huge advance that this is actually being talked about. The Overton Window clearly expands under the right kind of pressure 🙂
It’s good to see some more positive commentary on this. Hopefully there will be more to come.
Is Green Quantitative easing the same as Overt Monetary Finance? If so, is it effectively deficit spending which is not recorded as such? This means that government does not balance the spending against taxes. Does government just have the money created through the central bank? Does it involve buying bonds? It is obviously a good policy and the only way to increase household and business assets as the private sector can create jobs, buy more and pay off bank debt with it.
I remember reading Ha Yoon Changs “23 things they do not tell you about capitalism” a few years ago. In it he describes how world class industries like Micro soft have benefited from government subsidies for decades, and that is how they got to be world class. They have not relied on bank credit or as Hayek put it “denationalised money.” Bank debt though it may be useful, must be repaid, but government money, as the MMTers say, is the only real asset to the private sector. So Jeremy’s policy is at least, evidence based.
Sandra
I have not heard of OMF
Green Infrastructure Quantitative Easing is explained here
http://www.taxresearch.org.uk/Blog/2015/03/12/how-green-infrastructure-quantitative-easing-would-work/
It’s neatly explained by Bill Mitchell, who also seeks audience with Corbyn, here http://bilbo.economicoutlook.net/blog/?p=31487 Myself, I’d prefer to see just a guy maybe in a field somewhere, half-druid, half Captain Mainwearing, armed with a keyboard and a thin client connected to the web with bank protocols, creating money from nowhere if as and when it’s needed into individual accounts. Have a team of them nationwide, answerable to each other but primarily only to their educated consciences, all working to the same basic principles that their job is to create money to foster their community, all the while remembering that money created this way but not put to productive use devalues the currency itself. A form of distributed governance then. similar principles worked when we had the druids, the real ones, not the toga-wearing tree-huggers of cartoon derivation, and when we had a nationwide network of conscience-driven bank managers. Both parties aimed to foster their communities, quite the reverse of what banking does now. I mention all this as every scheme we come across seems to mention involving central banks. Aided and assisted by the government of the day, the first central bank, ours (I use the term loosely) was created mainly for the purpose of getting the coinage of the day, mostly gold, out of circulation so it could be replaced with something the bankers could create from next-to-nowhere for next-to-nothing, bank notes, which would serve to have the approximate value of the gold it was replacing. This wasn’t done with the well-being of the community at large in mind. I don’t know that central bankers (or many governments) have changed that much in attitude over the centuries, so I’d be happier to see schemes for money creation which specifically excluded any central bank.
Overt Money Finance seems to be a euphemism for ‘helicopter money’ as well as ‘moetisation of debt-Lord Turner talks about here: http://positivemoney.org/2013/02/adair-turner-debt-money-and-mephistopheles-how-do-we-get-out-of-this-mess/
If only Lord Turner defined his ideas with the geometric precision of his bouffant hair do he’d make a better contribution to the debate it#s great that Richard fills this role (sans bouffant hair-do!).
It’s important to be clear here.
‘Helicopter Money’ is the central bank spraying money all over the place indiscriminately in the hope some of it sticks.
That is a bad idea. The central bank is not elected and it is not really the job of the MPC to decide who should get public funds and who shouldn’t. That is what elected individuals in parliament are there for – representatives of the people who decide what is to be promoted and what isn’t. If they get it wrong we sling them out and give the other lot a go. When the MPC get it wrong, you can’t get rid of them.
A lot of the middleman stuff – via public owned banks and institutions issuing liabilities to the Bank of England – is all there to get around stupid restrictions in various laws and treaties that may take a little while to get eliminated. You sort of have to show it works first before you can move to bin the silly and pointless restrictions in law.
Ultimately it is all operationally equivalent to the government running an overdraft at the central bank – the old Ways and Means Account that worked fine for generations. Government causes money to be created and then spends it on stuff. That is spent again by the recipients and more real things are then created. And so on.
Infrastructure investment is fine, as long as it is the right sort. If you spend the money hiring thousands of unemployed, give them a shovel and get them to fill in all the potholes, then that is the right sort of spending. Huge public benefit, and then the recipients spend their wages in the economy which rapidly reorientates itself to providing goods and services for poorer people rather than over providing goods and services for the rich (one of the main structural failings of trickle down – too many real resources allocated to providing fripperies for the rich).
But really you just hire people who haven’t got a job and get them working doing things for the public good – of which there are loads of things to do. Millions of houses to insulate to start with.
Neil
We are on a wavelength
Richard
“The central bank is not elected and it is not really the job of the MPC to decide who should get public funds and who shouldn’t” Who ever said the MPC should make that decision? No one, far as I know. For example in the version of peoples’ QE advocated by Positive Money and the New Economics Foundation in their submission to Vickers a few years ago, the authors make it very clear that the exact allocation of extra new money should be entirely in the hands of democratically elected politicians, while the TOTAL amount of new money is determined by the MPC (something the MPC already does).
@ Sanjay
“the TOTAL amount of new money is determined by the MPC (something the MPC already does”
Actually it is price they control but even then just how successful have they been? Not very is the answer or we wouldn’t be in this mess.
I have to say the suggestion is very weasely worded, the “total” amount is whatever they decide, who gets to say if the total amount is too little or too large?
Andy,
You’re right: that final phrase of mine was over-simple: it papered over a number of cracks. But I’m sticking to my basic point, namely that (contrary to Neil’s suggestions) one can perfectly well implement PQE in such a way that professional economists (flawed as they are) take the decision on the total amount of stimulus, while the electorate and politicians decide on the exact nature of additional spending.
Re my above final phrase, in normal times, the MPC decides on the price of money, not the volume, as you point out. In contrast, at the ZLB and when traditional QE is implemented, the MPC decides on the quantity rather than the price. Re your skepticism about the effectiveness of adjusting the price (i.e. interest rates), I quite agree. The evidence from several studies is that interest rate adjustments are not brilliantly effective.
There is another reason to look at new ways to increase the money supply and one that I don’t think gets enough consideration. Privatisation, including PFI and contracting out services are seen by the governments that oversee them as useful to economic growth. This is officially credited as being due to the wonders of the private sector. I suspect though that it has far more to do with the creation of new assets that can be leveraged, creating a corresponding increase in the money supply. That this process is needlessly destroying the public asset base and hypothicating future tax revenues should be a major concern and add to the arguments in favour of a more direct and policy driven approach to the governments capacity to increase the money supply.
I believe PQE should end the need for PFI for good
It should also end the need for taxation as all government expenditure can be created by the people’s QE. That would be a great step forward.
You misunderstand the reasons for tax then
I explain these in the Joy of Tax, forthcoming
There is a slight problem with PQE a la Murphy as follows. Having the state print and spend is a form of stimulus. Stimulus is needed most years, e.g. a deficit is called for most years, but occasionally the private sector has a fit of irrational exuberance in which case no deficit or “print and spend” is needed. Possibly even a budget surplus is suitable.
Now if infrastructure spending is tied to the amount of printing, that means infrastructure projects will cease altogether in those “low deficit” or surplus years, and that doesn’t make sense. Ergo infrastructure should be funded mainly via the usual sources, that is tax and government borrowing, with print and spend being used to boost a wide variety of different types of spending when stimulus is called for. Incidentally a right of centre government might not want to increase public spending at all: it might just boost private spending.
The above points are incidentally incorporated in the version of PQE advocated by Positive Money and the New Economics Foundation.
PQE is a tool to be used when appropriate
It is not a replacement for tax
I think you have created a straw man here: you are certainly not fighting a position I have put forward
“When appropriate” being what? If you mean by that that we should print and spend on infrastructure when stimulus is needed, that runs straight into the problem I referred to above, namely that spending on infrastructure will gyrate too much: possibly even for example motorway construction projects will grind to a complete halt in years when no stimulus is needed.
Alternatively, if by “when appropriate” you mean that we should print and spend when more infrastructure spending is needed, that doesn’t make any sense because print and spend is stimulatory, and there is no reason to assume that just because more infrastructure is needed, that therefor more stimulus is needed. Indeed, on the assumption that no extra stimulus is needed, then print and spend would be daft: the appropriate way of funding the infrastructure spending would be extra tax or borrowing because those reduce demand (hopefully) to the same extent as the infrastructure spending increases demand.
I mean political judgement is necessary
That is what I believe politics is all about
In my birth country not long ago the politicians said there would be a new borrowing programme to invest. Of course, the base of all investment is having some land to do things on, and immediately it was announced the price of agricultural land within 1km of a road shot up about 25%. The landowners got richer, and the rest of the public got shafted.
I think we came in from the same facebook group. I know that when agricultural subsidies were abolished in New Zealand the price of land went down. So perhaps we can invent something together called a Double Corbyn. We keep everything in balance by getting rid of corporate subsidies like these to landowners ( deflationary ) and create some money for local authorities to buy land for investment ( inflationary if overdone ).
I still think it would be best done the way that Steve Keen originally described. Ie give it to every citizen but mandate that it has to be used to reduce the citizen’s outstanding debt before allowing what’s left over to be spent on other stuff.
I beg to differ with Steve on that one
That is helicopter money and it just sucks in imports and creates no jobs
Not sure if you’d seen Tim Worstall’s Forbes article on ‘The hole at the heart of Jeremy Corbyn’s economics’.
http://www.forbes.com/sites/timworstall/2015/08/06/the-hole-at-the-heart-of-jeremy-corbyns-economics/
I think it might be fair to conclude that he regards you as the ‘hole in the economics’ and refers to you as the ‘egregious Richard Murphy’. Following a quick look through the article, it seems he is determined to misrepresent many of the arguments that you have coherently argued on your blog.
I seem to remember previous contributions he has made on this blog being little more than crude trolling attacks, so this latest name calling may more of the same. Probably just a crude attempt to get noticed by joining in the debates you have done so much to create. Perhaps a back-handed compliment.
Keep it up!
Richard,
It is good to see positive ideas such a PQE gaining wider attention (where has everyone else been all these years?).
One element which the FT notes could be of invaluable use from the PR aspect of selling PQE, that is the idea of a direct deposit to individuals. Now, I agree that any PQE would need to be strictly controlled and not merely helicoptered out in a willy nilly fashion.
However, the introduction of a direct deposit to individuals at a small nominal amount just might provide the patina we need to alleviate that argument. The amount given to individuals, and thus out of the control and direction of government, needs only be a token amount. Something of a inconsequential salve to the public which would allow the bigger picture to succeed.
I look forward to your thoughts on this idea.
Inconsequential over 65 million is megabucks I am afraid…
Richard,
Agreed. Economically it is inconsequential. However, from a political point of view this very small (less than 1%) nominal amount given directly to the people may just swing a wider popular surge in PQE. A chicken in every pot can be a direct and tangible thing in which people can see/feel/eat. But of course, one chicken per household 🙂
I just think spending 1% in a non-economic fashion will reap massive gains so the other 99% can be spent/directed/controlled in a manner more attuned to the wishes of government and civil society.
With a low-wage, low-productivity and unbalanced economy, anything will tend to boost imports. Especially in a service-based economy which has exported its production.
I think we also need to remember that low wages that force people to purchase ever cheaper goods that come from ever greater distances (the moon next?) is environmentally horrendous. Buying cheap crap from China with built in rapid obsolescence is about the most inappropriate thing we should be doing! There’s the ‘wisdom’ of the market for you.
I’ve just spotted an FT headline “Jeremy Corbyn backs nationalising ‘big six’ energy suppliers”.
This is stupid beyond belief. The cost of establishing and running a statutory electricity & gas collective buyer would be tiny and this entity would provide the most effective means of bringing the energy suppliers and network businesses to heel so that they generate sutainable benefits for the economy and final consumers.
State ownership and control is not the answer. The economic landscape has been tranformed over the last 30 years, by policy, technology and globalisation. Strict governance of markets, effective economic regulation and collective representation of final consumers and service users (with more broad-based representation of workers’ rights and less protection of the ‘aristocracy of labour’ at evryone else’s expense) is the only way this centre-right hegemony can be over-turned.
It appears Mr. Corbyn, to the exclusion of all else, holds tight to only one thing – an unshakeable belief in the benevolence, omnscience and omnipotence of the state. It also appears that the only reason he is doing well is because his three opponents are so uniformly absymal.
Respectfully, that is very, very narrow minded comment
I am not commenting on Jeremy Corbyn’s campaign generally, that is not my role
But if you cannot realise the harm that marketisation has caused then you have missed the point
It appears to me tyou are arguing neoliberalism can only be defeated by neoliberalism
Corbyn does not agree
I agree with him on that
But he is not of the narrow minded view you allude to and that devalues all you say
Those who exercise control of corporate capitalism, private equitydom and hedge fund land and high wealth individuals (including the army of advisers, consultants, academics, PR operatives and other lackeys they retain) constantly bleat about the wonders of free markets, the perils of burdensome regulation and the dead hand of the state. But they loathe, hate and detest well-governed competitive markets and efficient and effective economic regulation. They are continuously focused on rigging, distorting and subverting markets, on capturing and emasculating economic regulators and competition bodies and on suborning politicians and policy-makers.
I’m afraid anyone who considers their behaviour as “marketisation” is missing the point. And the reflexive response, particularly in the utility and infrastructure sectors, is to demand renationalisation and state ownership and control. It is perfectly understandable that a significant number of voters whne polled will support this – when no credible alternative is being advanced. Providing compensation for renationalisation would be a woeful waste of scarce resources and there has to be great doubt it would generate the desired economic benefits. The instutions of market governance and economic regulation already exist. Their procedures have been subverted and need to be changed and accompanied by statutory representation of the collective interests of final consumers and service users. There is nothing more satisfying that making capitalists sweat to generate sustainable economic and social benefits.
I’m sorry, but in my book narrow-mindeness is offering voters the alternative of going back to what was established in 1948.
Then we need to disagree
Sometimes (and by a long way, not always) state ownership is needed
All you are offering is a small twist on Thatcher’s regulated capitalism
I am not confident of its success
As you have an Irish name, I wonder if you have any comment on Corbyn’s support for the IRA.
I do indeed have an Irish name
And an Irish passport
But on everything else you are wrong
Corbyn never supported the IRA. He supported dialogue to resolve conflict. As a Quaker so do I. Qualers have long been involved in such process – including at one time acting as go-between in discussion between the IRA and the UK government
Your claim is libellous, crass and candidly, stupid.
Please don’t call again
The one thing that puts the ‘fear of god’ in to the capitalist class and the centre-right politicians they have suborned is collective action by citizens as workers or service-users. Witness the continuing efforts by the Tories to gut what remains of the trades union movement – and the decision of the previous government to prevent any effective collective statutory representation of consumers’ interest by emasculting the exiting statutory consumer protection bodies and folding them in what the Citizens Advice Service (which was primarily a voluntary body_.
Also note the effectiveness of a body like DG COMP of the European Commission when a competent player like Neelie Kroes or Margethe Vestager.
So what I am proposing is much more than a small twist on Thatcher’s regulated capitalism.
And how will you get capital to agree?
Polemics apart, Paul Hunt has a point. ‘Nationalisation’ in the current political economy has to be appled very selectively. In rail transport it would be popular, relatively cheap – not renewing franchises – and would be less easy for hostile media to exploit.
In the regulated energy sector, on the other hand, firms would be expensive to buy out, re-organisation could be complex and time-consuming. A state pool of supplies, from which the energy retailers had to buy, could be re-instated but the real problem in energy, like some other utilities, is that it is set up to guarantee shareholder returns.
Some ways that the regulated investor-oligopoly system could be superseded by more democratic arrangements are outlined in my new book: Corporate Power and Responsible Capitalism: Towards Social Accountability
Rather than regarding nationalisation as a first-choice solution, Corbynites and other lefties should be asking: how can we achieve forms of corporate accountability, that can achieve similar outcomes without incurring the economic and political costs of traditional nationalisation.
In other words, how can we sequester private capital into public control?
You think that is achievable?
How?
And is it reasonable?
Perhaps ‘public control’ needs to be defined more imaginatively than in the past. Thatcher et al pulled the trigger on nationalised industries but they had already been partly discredited by losing a lot of their public service ethos and being subject to the arbitrary – and often undemocratic -powers of political elites. This was not what the pioneering advocates of public ownership had in mind in the ’30s and ’40s.
More generally, today, corporation governance provides a hollow shell of democratic accountability which some civil society groups are already utilising in limited ways. By small-scale but strategic legislation on corporate governance, coalitions of progressive investors and campaigners could displace the current control exercised by executive oligarchs. (Explained in detail in the book: Corporate Power & Responsible Capitalism?)
Such changes are eminently *achievable*, even by a mildly reforming government. They would appear *reasonable* to a much wider constituency than that supportive of conventional nationalisation.
This is clearly what Jeremy For yn is driving at
So does some of my own work