I was asked an hour or so ago by a pretty senior economist I thought of today's financial market action. I offered a range of reactions.
First I said this is the result of no real correction after 2008: no reduction in inequality; no investment in productivity; no market reform; no real regulation of finance.
Second this is the result of using financial QE as a patch and not using what I would call People's Quantitative Easing as a reform (even if it was green quantitative easing back in 2010 a far as I was concerned).
Third there has been no attempt by government to build infrastructure when borrowing costs have been near enough zero.
As a result there have been five lost years since 2010 when austerity became the agenda. And now we are paying the price.
What to do? First, provide a safe haven for investors: sell new infrastructure bonds so they are promised their money will create jobs. Do it nationally, do it regionally, do it sectorally, but just do it. People need to know that this time there money will be used wisely and only co-ordinated government action can do that.
Second use these bonds and PQE (which will be the part of this programme financed by new government printed money) to hold rates low, to flood money into the real economy and this time deliver the 21st Century Deal - Roosevelt again.
Third, reform taxation.
Fourth, really regulate markets and banks this time.
Fifth, build the democratic framework that takes us beyond neoliberalism.
Sixth, put people and not finance at the heart of everything.
It's not a complete explanation of answer. But it's the basis for both.
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About the most sensible thing anybody has said today. And the Torygraph comments what can one say, your Right Mr Murphy to believe that the BoE is independent is to uffer from delusions.
Richard,
In the event of a recovery I wonder if your supermarket oligopoly (and some of the other cartels)might pose a problem where rising demand is disproportionately captured in the form of excess (“supernormal”) profits. If so, that might distort the inflation effect and suppress the potential employment gains.
To put it another way, what’s your take on competition policy?
For another day I fear
I know you have your doubts but look closely again at Bill Mitchell’s Job Guarantee scheme.
What most people miss about it is that it acts as anchor for inflation due to its nominal living minimum wage rate.
As monetary and fiscal policy react (hopefully) to an overheating economy, the resulting unemployment means that wage levels fall to the nominal rate but full employment is maintained. The social benefits are self-explanatory and skill levels are maintained.
When the economy picks up thanks to the automatic stabilisers including the JG effects, the private sector can hire off that wage.
The JG does not compete with the private sector (crucial) except of course at that nominal wage rate.
Good grief, talk about after-timing. Then again people like Hargreaves Lansdowne have come out with clap-trap today calling the sell off a ‘correction’. If they knew the market was not correct, where were they two weeks ago?
But we should cheer surely, rich people have lost money, relative poverty has reduced, and so has inequality. We can all start reaping the benefits of that 0.1% or so GDP boost from having a lower Gini.
That comment is not funny in any way
Marco Fante
“In the event of a recovery I wonder if your supermarket oligopoly (and some of the other cartels) might pose a problem where rising demand is disproportionately captured in the form of excess (“supernormal”) profits. If so, that might distort the inflation effect and suppress the potential employment gains.
To put it another way, what’s your take on competition policy?”
Whilst I’m not a fan of the supermarkets, Tesco is still the largest online grocery retailer in the world, so all the UK has, in order to compete with Amazon! And Tesco’s Hudl – and allegedly J Sainsbury in the future – are all the UK really have in mass homegrown technology. So the supermarket oligopoly is probably worth preserving as Tesco has the largest number of SKUs of any retailer (in itself important for retail competition) and Aldi and Lidl seem able to see to it that the oligopoly will not be anti competitive or easy!
Richard
“Third there has been no attempt by government to build infrastructure when borrowing costs have been near enough zero.”
There has been some railway electrification, which was a plus for the coalition and us – but of course much of it has been “paused” because ther are not the skills available in the quantity required. I believe this is a genuine pause. After all you cannot go from electrifying nothing to electrifying three major routes in a couple of years. To my certain knowledge some of those relevant engineers have (unsurprisingly) contracts abroad!
And this is also important for PQE – it cannot be stop start as most of UK infrastructure has been in the past – and as I think your R4 interview acknowledged. But it is a danger to be closely considered!
Crossrail and the M25 widening and HS2…do they not count as infrastructure projects? Is there a large army of contractors, engineers and project managers waiting for these extra projects?
Have you noticed the difference in what I am suggesting?