I missed this during last week, but think it worth noting that Reuters ran an article on 7 October saying:
"People's QE" could be an option to help economies fight future crises, Olivier Blanchard, who has just stepped down as chief economist of the International Monetary Fund, said on Wednesday.
And they continued, reporting Blanchard, who was speaking at Cass Business School (a part of City University):
"There is clearly something else you can do if you get to zero (inflation) and still want to increase spending. You can buy goods."
"Which one should you choose? We haven't asked the question in the crisis but we should," he said.
Blanchard said that this does not mean central banks would buy goods directly. Rather, governments can increase their fiscal deficits by spending on infrastructure projects. Central banks can then buy this debt with newly created money.
Which is precisely ho0w I have defined People's Quantitative Easing working.
Which also means the idea has a useful new supporter.
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Ben Bernanke’s recent articles now that he is released from the need to be “politic” would also appear to be falling in line with Blanchard’s viewpoint. Commonsense appears to be starting to surface that the rich won’t continue to prevail unless there’s sufficient active circulation of money relative to hoarding and that money more equitably distributed.
Agreed
Here are three papers that support the increase in commonsense Blanchard and Bernanke are supporting and, of course, originally articulated by the illustrious Wynne Godley, the former UK Treasury Department’s economic forecaster. Read Godley’s paper and realise how the UK still under a Neoliberal regime remains vulnerable to recession through its economic policies despite the lessons that ought to have been learnt from the 2007/2008 Crash:-
http://www.levyinstitute.org/pubs/op_47.pdf
http://www.levyinstitute.org/publications/is-rising-inequality-a-hindrance-to-the-us-economic-recovery
http://www.levyinstitute.org/pubs/sevenproc.pdf
To misquote Cameron “not fixing the roof when the sun was shining”-I would say not fixing the system which caused the worst blow to western economies since World War Two, is the real threat to our prosperity. Not Corbyn’s advisors and their books!
Levy Institute justs leads us back to Stiglitz, who is largely in agreement with mainstream economists.
Perhaps I miss the counter-argument, and the empirical evidence for it’s stance.
Perhaps there must be more to economics than the best outcome for the common good?
I’ve asked this same question in MMT circles but so far I haven’t received any satisfactory answer.
The UK govt, in collaboration with its central bank, is an issuer of currency so it does have the power to issue any number of IOUs, which we call currency and gilts, it chooses. So it can issue ££ IOUs directly for PQE type programs, or it can can issue Gilt IOUs which carry some small interest and swap them in the markets for ££ IOUs. That’s all govt ‘borrowing’ really is. Just the swapping of different types of IOUs. It’s just not possible to borrow one’s own IOUs!
So how does government decide whether to spend via PQE (issuing ££) or by bonds (issuing gilts)? Interest payments can’t be the problem to govt, as they are to the rest of us, as they just create whatever they need as they need it!
If there is no pressing reason to prefer one over the other, why do we need PQE?
Yes there is a reason for a preference
People want gilts
And if the real rate is still roughly zero they will still prefer gilts
In which case the issue is politics and perception. MMT is as seriously inclined to get that wrong as most schools of economic thought
MMT offers a useful post Keynesian view of money. I have to say many of its policy prescriptions are far less useful. This is one such case
But isn’t the fact that it all has to be done via gilts (and the vast ‘parasitic’ earnings of ‘Guilt edged market makers’ the so called secondary market) due to Maastricht and Lisbon?
Which can be circumvented, as PQE would do
I think I tend to agree with you re: MMT Richard-there seems to be too much concern with ‘pristine’ theoretical models whereas we need practical change and soon!
Richard and Simon,
I don’t think anyone is arguing for “pristine theoretical models” especially if what we observe in the economy (which is what really matters) doesn’t fit those models. On the other hand we need to know what we are doing, and why we are doing it, otherwise we’ll end up like this present govt – ie making a complete balls of it!
So if govt has a choice of PQE or no PQE we need to be sure we make the right one! I would argue that PQE involves the government issuing cash IOUs which means those IOUs don’t bear any interest. If government issues bond IOUs they could bear some interest depending on the demand at auction for those IOUs. If longer term interest rates are already ultra low then it really makes little difference which choice is made. Just issue more bonds if that’s what the buyers prefer.
But if longer term interest rates are higher than we’d like, then to force them down we’d issue more cash IOUs to increase the demand for the bond IOUs which are already in existence. I can’t think of any reason to do that other than to try to affect the exchange rate.
But I do have to say this is just my idea and other MMT supporters have disagreed-particularly about exchange rate considerations. Yet, they haven’t come up with any better reason why govt would choose PQE over the more conventional alternative which is why I asked the question.
I think you’re getti8ng obsessed with the money
It’s the other side of the equation that also matters
That’s why there is a very real difference
And why PQE would be better when the time comes
All very interesting.
Is there anyone these days against MMT style fiscal stimulus?
And if so why? Perhaps Jim O’Neill has a stance?
@David
Yes. Plenty are against it.
Anyone who argues the govt’s deficit is a problem when inflation is 0% !
Anyone who says their economic plans are designed to reduce the govt’s deficit , even in a nice cuddly democratic socialist sort of way! There would be an exception, perhaps, for those very few who advocate sharply devaluing the pound and bringing the trade deficit into better balance too.
Anyone who is oblivious to relationship between savings and the govt’s deficit.
All those sado-masochists in the EU who are intent on grinding the Greek economy into the dirt!
As an MMTer of 6 years, exactly what is “MMT style fiscal stimulus”? MMT doesn’t even really have “stimulus”. That’s a Keynesian concept. What MMT has is the recognition that in most first world economies most of the time, there isn’t enough currency, and that the factors used to determine how much currency is needed are heavily biased against inflation and full employment. It’s as if all of the burden of inflation has been shifted onto 5 or 10% of the people, who, lacking the means to obtain income, suffer an effective inflation of rate 100%, while the wealthy are completely let off the hook.
What MMT does in response by using its Job Guarantee (not any, the specific MMT JG formulation) is provide the exact right income in the exact right places to drive employment to an effective 100% without creating inflation. Done correctly, this entirely replaces any need for whatever “MMT style fiscal stimulus” might be.
So anyone suggesting such a stimulus is obviously missing something. Because it’s already all built in.
Well I beg to differ
I think MMT a flavour of post Keynesian argument even if not all will agree it
And a jobs guarantee is most definitely a form of stimulus
Hi Richard, were you aware that Roger Farmer has been describing PQE as his idea (though not named PQE, which he credited to a speech writer for Jeremy Corbyn)
See here http://rogerfarmerblog.blogspot.co.uk/2015/10/give-me-one-armed-economist.html
He is not describing People’s QE
He is describing helicopter money which is very different
And I am not a speechwriter
That’s true, I’d noticed that what he suggests differs from Green QE (PQE) from what you’re prescribing, but he’s referring to the same article you are (through the Positive Money article he’s linked on his blog). Hardly a coincidence.
By the way, apologies if you mistook me, I wasn’t trying to imply he was referring to you as the speechwriter, I was just surprised to see he was taking the Blanchard comments (and Varoufakis) as support for ‘his’ idea from HTEW, so felt it polite to bring it to your attention, in case you had not seen it yourself.!
No problem Daniel
But I think I am some way from where he is!
And his claim looks very spurious to me as someone rather close to PQE
Just to add – when I saw Roger’s article today, I was on the verge of posting a comment that PQE as described by Blanchard – spending on infrastructure – was originally a proposal of yours, but decided against it as I don’t feel qualified to make such comments elsewhere, hence why I posted the link here instead! Hope no toes were trod on doing so.
I created a vesion of this
But others may have come up with it quite independently
Roger Farmer came up with Friedman
MMT prefers the direct issuance of currency, as it is cheaper (no interest). But there is a market demand for risk-free debt, and MMT is not completely against that. Personal retirement accounts nearing liquidation would be one example of this. This is called borrowing, but as one commenter has pointed out, you can’t borrow in the currency you create. (If you don’t understand this, lay it out in double-entry.)
But it’s important not to view that currency as borrowed, because it is never actually invested in anything. It merely extinguishes the liability of its own creation. Better to think of it as a tax that is refundable at the expiration of the bond.
I do not think the double entry supports that view
Please note that no one on Corbyn’s economic advisory group is recognized as (or admits to last time I saw) being of the MMT School. This is a pretty small membership, with the principals being Bill Mitchell, Randy Wray, Stephie Kelton, and Warren Mosler. There’s some implication here that Stiglitz may be, but that’s definitely not the case, especially since he still views stimulus in the Keynesian fashion (something I’ve noted in another comment here.
There are no MMTers in the group and some definitely unkeen in it