One of the criticisms made about People's QE over the last week or so is that not is not the time for it. It's said that the UK is growing: the implicit assumption is that the Chancellor's forecasts will be fulfilled. In that case it is said there is no need for the injection of state funding into the economy that People's QE might represent.
I have to disagree. There are a great many reasons for doing so. As I have already noted: the Chancellor's forecasts may be wildly optimistic. Every one he has offered to date has been. I am not saying that this means all will be, but it would be wise to recognise the possibility.
And there are good reasons to think that all is not economically rosy. Russia has just gone into recession for the first time since 2009: the consequences are unpredictable, but cannot be ignored.
More importantly, the stress in China that lead to currency devaluation overnight may be much more serious than the modest 2% cut implies. Superficially good for western importers the instability behind this move implies more stress to come, with widespread ripples. Goldman Sachs are suggesting the impact could be deflationary, and I, at least, interpret that as recessionary.
And no one can think the EU is in a good place as yet.
In that case wild comment, such as that from Liam Hannigan in the Telegraph, suggesting that People's QE is the policy of:
an economically illiterate, populist politician who then says “we want some of that” and starts to get the public behind outright monetary expansion to fund schools, hospitals, public sector pay rises and the like — the stuff of Weimar economics.
looks like pure hyperbole to be contrasted with FT Alphaville's support for the policy.
The fact is that whatever happens Labour could not implement People's QE until 2020, at the earliest. And as Liam Halligan also notes in the same article in which he criticises People's QE
And no-one knows what will happen on financial markets when our zero-interest policy finally ends. That's why the decision to raise rates, on both sides of the Atlantic, is now less about the educated analysis of wage data and oil prices than about picking a moment and hoping for the best.
In the light of that having a policy option that will have been thoroughly considered and which can deliver jobs, investment and opportunity in every constituency in the UK when the possibility that markets might fail to do just that seems to me to be nothing less than prudent whatever those who would prefer to cross their fingers might suggest.
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It’s Hannibal who is illiterate creating deliberate misunderstanding by coughing up the usual false Weimar analogy. We know Weimar Germany was staggering under immense war reparations while it’s productive capacity had been destroyed and couldn’t satisfy domestic demand. The fact that Hannigan can serve this trashy analogy is indicative of his own ideology rather than rational thinking
Hannigan rather than ‘Hannibal’-spell check beat me to it!
Hannibal called and he says that he’s insulted (when he calms down I’ll explain the spell check thing).
Banana boy strikes again!
According to Liam Halligan, Mr Corbyn is an “economically illiterate populist politician”? Recent history recalls that Liam Halligan’s economic literacy – and his credibility on this very topic turned a bright shade of yellow and got bent out of shape in 2010. Back then predicted that the combination of “a big budget deficit and the Bank of England’s quantitative easing policy” would lead to rising inflation (it didn’t, of course) — and his exact words:
“This really is economics 101 … We’re running a budget deficit of 12-13 percent of GDP, if that’s not inflationary I am a banana”.
Yes, he most certainly is and that really was Banana 101 I presume — and this week’s effort is Banana 102.
Read more: http://bilbo.economicoutlook.net/blog/?p=29346
Bill on the ball there!
Thanks
Richard Murphy argues that peoples’ QE may be justified because “Chancellor’s forecasts may be wildly optimistic.” False logic, I’m afraid. If those forcasts are over-optimistic, that’s an argument for stimulus of some sort. It’s not an argument for a specific type of stimulus: interest rate cuts, QE, a budge deficit, or whatever.
So what are you trying to say?
I should not be suggesting a stimulus when one is needed?
If Sanjay wants a specific argument he need only consider the fact the UK has zero inflation (officially 0.1%). A significant economic event could easily push the economy into the self-fulfilling spiral of debt-deflation where prices, business revenues and employment decline as real debt rises.
Deflationary or near deflationary conditions clearly imply that a monetary expansion – and more particularly, a people’s QE, is perfectly appropriate.
That is why the inflation fearmongers such as Hannigan (Lecter?)& Chris Leslie seem so absurd in context. For their next trick they may as well go to Spain and warn them of a potential labour shortage.
As for the chancellor’s forecast’s, if they have all been wildly optimisitc in the past, the chances are that they will continue to be so in the future.
No: obviously stimulus should be advocated when that is needed. But that’s separate from the question as to what the BEST FORM of stimulus is. If you want to get from A to B, a form of transport is needed. That’s separate from the question as to what the best form of transport is.
Anyway, good to see so called left of centre Labour politicians adopting an idea that was advocated by Milton Friedman in a paper of his in 1948, namely that when stimulus is needed, the state should print money and spend it. See para starting “Under the proposal..” here:
http://0055d26.netsolhost.com/friedman/pdfs/aea/AEA-AER.06.01.1948.pdf
Friedman actually went much further than Corbyn here in that Friedman advocated that “print and spend” should be the only form of stimulus (i.e. there’d be no government borrowing).
Friedman (ironically) was also way to the left of Corbyn in that Friedman advocated that private money creation be banned. See first two paragraphs under the heading “1. The Proposal”. I agree with Friedman.
You’d think that policy would be a no-brainer for Britain’s political left, but they don’t seem to get it. That ban on privately printed money was also advocated by Positive Money, the New Economic Foundation and Prof Richard Werner in their submission to the Vickers commission two or three years ago. See
http://b.3cdn.net/nefoundation/3a4f0c195967cb202b_p2m6beqpy.pdf
I wonder what fantasy makes you think People’s QE and helicopter money are the same thing?
And why do People’s QE rather than ban private money creation? Because the latter does not allow for flexibility; the former does
It’s all rather obvious really
I support the idea of a peoples QE in order for public investment. Could it possibly have been used in the past instead of PFI?
Also Richard I’ve not noticed anything, so forgive me if I have missed it, but Stella Creasy was on C4 News promoting the idea of mutual/co-op where control of public services are concerned. I wonder if it would be possible for you to link this thinking to the issue of a peoples’ QE as a way of going forward?
I do think Stella has a point on this one
And yes, people’s QE would have made PFI redundant
If a NDBP was contemplating funding a capital project via PFI at the moment it would be caught by “Government Accounting” amd “Managing Public Money”. This guidance would need, and does need, revision in the light of PQE.
An NDPB Development Bond could be issued carrying a reasonable rate of interest, the bond to be subsequently purchased by the BoE. The BoE would have an asset, possibly secured against the emerging physical asset constructed by the NDPB bond issuer, and also an income stream from the interest. The whole arrangement would be far less costly than the conventional PFI arrangement and the management of the ongoing implications would remain within the public sector.
The BoE would create the money to fund the asset instead of the PFI financier through the conventional loan arrangement.
Currently all kinds of arcane assumptions are made to determine whose balance sheet the PFI asset sits on, countless hours are spent discussing the niceties of operational versus finance leases.
PQE seems far simpler.
Agreed
Thanks
It always amuses me that people think Green QE will automatically be inflationary.
The assumption of course is that Green QE will chase the wage. But there is no reason for it to do so. The projects are modular and when there are no workers available at the declared rate the projects can just be shelved awaiting the next downturn. They will then be there for people to come back to when the private work inevitably dries up.
Seems obvious what it is to me.
This is especially true when projects like insulation and sustainable energy will be widely spread
I am not sure if you aware of this but a nationwide insulation installing scheme was implemented in Australia as part of the post-GFC stimulus. For the most part it was very effective and it did a lot of good.
Unfortunately however, it was implemented in a big hurry(for stimulus reasons). The contracts were not very strictly or closely administered and some very dodgy tradesmen got in on the act.
As a consequence of that there were some workplace accidents (which included a couple of deaths) and some very poor workmanship leading to a couple of house fires as well as some costly repair and replacement work.
True to form, the Murdoch press blew the problem way out of proportion in an (almost) astonishing and sustained blitz of hysterical propaganda. At the time this had some considerable effect in terms of undermining the otherwise favourable perception of a popular Labor government with a successful stimulus program.
This, is by no means meant to suggest that you should not proceed with an insulation scheme or any similar such program of public investment. Forewarned is forearmed however and it is definitely worth the effort involved in researching the Australian experience to draw some lessons from it.
I like the idea of PQE but Wren-Lewis has criticised your approach and refers to http://coppolacomment.blogspot.co.uk/2015/04/green-qe-and-juncker-plan-response-to.html?m=1 for details.
Amongst other things,they think it subverts or changes the BoE responsibilities. Have you responded to their points?
Might you send me the link to Simon?
I will get back to you then
But there are a few things on….
Has my reply to Peston done that?